Vce Business Management

ESSENTIAL
VCE BUSINESS
MANAGEMENT
5 . ) 4 3 ! . $
s
4()2$%$)4)/.
GILLIAN SOMERS
JULIE CAIN
MEGAN JEFFERY
ISBN: 9781107665910
Gillian Somers, Julie Cain, Megan Jeffery 2011
Cambridge University Press
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National Library of Australia Cataloguing in Publication data
Somers, Gillian.
Essential VCE business management. Units 1 and 2 / Gillian Somers, Julie Cain, Megan
Jeffery.
3rd ed.
9781107665910 (pbk.)
Includes index.
For secondary school age.
Industrial managementProblems, exercises, etc.
Industrial managementExaminations, questions, etc.
Victorian Certificate of Education examinationStudy guides.
Cain, Julie. Jeffery, Megan.
658.0076
ISBN 978-1-107-66591-0 Paperback
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ISBN: 9781107665910
CONTENTS
x
About the authors

Acknowledgements
Key knowledge table
xii
UNIT 1 SMALL BUSINESS MANAGEMENT
Area of study 1: Introducing business
CHAPTER 1 BUSINESS ORGANISATIONS

What is an organisation?
Importance and necessity of organisations
Common characteristics of organisations
Differences between organisations
Types of organisations
Objectives of different types of organisations
Chapter summary
Chapter summary questions
Extension question
xi
2
2
3
3
5
5
8
8
9
CHAPTER 2 SMALL BUSINESS IN AUSTRALIA

What is a small business?
What is a microbusiness?
How small business helps our economy
Key features of businesses
How to distinguish between small, medium and large businesses
Chapter summary
Extension question
10
CHAPTER 3 BUSINESS ENVIRONMENTS

The dynamic environment of business
Stakeholders of a business
Chapter summary
Extension question
24
Area of study 2: Small business decision making,

planning and evaluation
12
12
13
15
19
21
21
22
26
26
38
38
39
40
CHAPTER 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS 40

Decision 1: Suited to operate a small business?
42
Decision 2: Type of business?
46
Decision 3: Developing a business concept
52
C O N TEN T S
iii
ISBN: 9781107665910
Decision 4: A new business from scratch or an existing business?

Decision 5: Form of ownership structure?
Decision 6: Location?
Decision 7: Layout of premises?
Chapter summary
Extension questions
54
CHAPTER 5 BUSINESS SUPPORT SERVICES

Informal support and assistance
Formal support and assistance
Government support and assistance
Professional, trade and industry associations
Chapter summary
Extension questions
70
CHAPTER 6 THE IMPORTANCE OF BUSINESS PLANNING

What is planning?
Steps in planning
Levels of business planning
The business plan
Chapter summary
Extension question
88
CHAPTER 7 MAJOR PLANNING DECISIONS THROUGHOUT THE LIFE

OF A SMALL BUSINESS
Compliance with key legal and government regulations
Human and physical needs of a business
Financial planning
Planning a marketing strategy
Chapter summary
Extension questions
CHAPTER 8 ONGOING EVALUATION OF SMALL BUSINESS
What is business failure?
Why businesses fail
Strategies used for ongoing business evaluation
Measuring effectiveness and efficiency through Key Performance Indicators
Chapter summary
Extension questions
iv
ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2
ISBN: 9781107665910
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62
64
67
68
69
72
76
78
82
85
85
86
90
90
91
92
101
101
102
104
106
118
119
121
124
124
125
126
129
129
130
131
138
138
139
Area of study 3: Day-to-day operations
140
CHAPTER 9 INTRODUCTORY ACCOUNTING FOR SMALL BUSINESS

Keeping source documents and other financial records
Taxation obligations and the implications for decisions on business structure
Simple financial reports for small business
Ethical and socially responsible management of accounting practices
Chapter summary
Extension question
140
CHAPTER 10 MANAGEMENT OF STAFF IN SMALL BUSINESS

The importance of good management of staff
Types of recruitment methods and selection processes
Employment arrangements
Maintaining employees in the business
Separation of employees from the organisation
Overview of relevant legislation
Ethical and socially responsible management of employment practices
Chapter summary
Extension question
160
CHAPTER 11 INFORMATION AND COMMUNICATION TECHNOLOGIES

IN SMALL BUSINESS
Strategies to select appropriate hardware and software to meet small business needs
Possible use of available technologies
Use of e-commerce
Implications of the use of available technologies and e-commerce
Ensuring the security of technology and information
Ethical and socially responsible management of ICT in small businesses
Chapter summary
Extension questions
CHAPTER 12 LEGAL REQUIREMENTS OF SMALL BUSINESSES OFFERING
GOODS AND SERVICES
Overview of the various levels of government creating legislation
Legislation affecting small business
Legislative requirements created by common law
Ethical and socially responsible management of the legal requirements
Chapter summary
Extension question
142
149
151
156
157
157
159
162
163
168
169
173
173
175
176
176
177
178
180
181
192
192
194
196
198
198
199
200
202
203
213
218
220
220
221
C O N TEN T S
ISBN: 9781107665910
UNIT 2 COMMUNICATION AND MANAGEMENT

Area of study 1: Communication in business
CHAPTER 13 COMMUNICATION IN BUSINESS
Communication and its relationship to business objectives and strategy
The communication process
Type and purpose of information to be communicated
Methods of communication
Chapter summary
Extension question
222
CHAPTER 14 EFFECTIVENESS OF COMMUNICATION

Barriers to effective communication
Overcoming and reducing communication barriers
Chapter summary
Extension question
246
Area of study 2: Managing the marketing function
vi
222
224
224
228
233
244
244
245
248
258
264
264
265
266
CHAPTER 15 MANAGING THE MARKETING FUNCTION

What is marketing?
Marketing practices
Why use the market-oriented approach?
The marketing concept
How does marketing relate to business objectives?
What does the marketing process involve?
Marketing strategies
What is a market and what are its attributes?
Consumer trends
Chapter summary
Extension question
266
CHAPTER 16 MARKET RESEARCH

Why is market research needed?
What can be discovered through market research?
Systematic approach to market research
Chapter summary
Extension question
284
ISBN: 9781107665910
268
269
270
271
273
274
274
274
281
282
282
283
286
286
287
294
294
295
CHAPTER 17 THE MARKETING PLAN AND EVALUATION OF PERFORMANCE

Elements of the marketing plan
Evaluation was the marketing process effective?
Issues in marketing
Expansion strategies in marketing
Chapter summary
Extension question
296
CHAPTER 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES

What is a product?
Developing the product
Why do some products succeed and others fail?
Product life cycle
What is the product mix?
The role of branding
What determines price?
Place
Promotion
Chapter summary
Extension question
314
Area of study 3: Managing the public relations function

CHAPTER 19 MANAGING THE PUBLIC RELATIONS FUNCTION
What is public relations?
Public relations and its relationship to business objectives and business strategy
The significance of image
The concept of the public and its characteristics
Public relations objectives
Public relations in planned business situations
Public relations and crisis management
Measuring the success of public relations strategies
Issues in public relations
Chapter summary
Extension questions
Dictionary
Index
298
302
305
308
312
312
313
316
318
319
319
322
322
328
330
332
339
340
341
342
342
344
344
346
349
349
350
356
359
360
363
363
364
366
379
C O N T EN T S
vii
ISBN: 9781107665910
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ix
ISBN: 9781107665910
ABOUT THE AUTHORS

GILLIAN SOMERS
Gillian Somers is VET Coordinator and Senior Business Management teacher at Trinity Grammar
School, Kew. Gillian has been actively involved in study design consultation and reviewing, auditing
of coursework and assessing examinations for the VCAA since the early 1990s. She is a regular
speaker at professional development for VCTA and COMVIEW and a presenter of student lectures
in this subject area. Gillian has been a regular contributor for the past 20 years to VCTAs journal
Compak and is a co-editor of the Business Management section of that journal.
JULIE CAIN
Julie Cain is an Assistant Principal and Senior Business Management teacher at Lalor Secondary
College. For many years she has been involved in auditing, reviewing and assessing for the VCAA.
Julie also presents student revision lectures and develops assessment materials in this subject area.
She is also a regular contributor to the VCTA journal Compak and to ComNET.
MEGAN JEFFERY
Megan Jeffery is Senior Business Management teacher at Northcote High School. She is an experienced
VCE Business Management assessor and has been involved in auditing, assessing and consultation for
the VCAA. Megan has also presented at COMVIEW and is a regular contributor to the VCTA journal
Compak. Megan is a co-editor of the Business Management section of that journal.
AUTHOR ACKNOWLEDGEMENTS
Thank you to my husband Joe for his support, advice, feedback and
proofreading. To my VCE students, I value the confidence you place in me and
your support and feedback.
Gillian Somers
Thank you to my family John, Melanie, Emma and Matthew Cain for their
continued support and assistance. Also thank you to Joe Somers for his advice
and proofreading.
Julie Cain
Thank you to Ken, Claire and James for their support and encouragement.
To my VCE students for their feedback and advice.
Megan Jeffery
ISBN: 9781107665910
ACKNOWLEDGEMENTS
The author and publisher wish to thank the following sources for permission to reproduce material:
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AC K N O W L E D G EM EN T S
xi
ISBN: 9781107665910
KEY KNOWLEDGE TABLE

Unit
Area of study
Chapter
number
Chapter name
Key knowledge
Small business
management
Introducing business
Business
organisations
s Features of organisations, including for-profit and

not-for-profit organisations
s /BJECTIVESOFDIFFERENTTYPESOFORGANISATIONS
2
Small business
in Australia
s Distinctions between small, medium and

large businesses
s #ONTRIBUTIONOFSMALLBUSINESSTOTHEECONOMY
Business
ENVIRONMENTS
s The internal and external (operating and macro)

ENVIRONMENTSOFABUSINESS
s "USINESSETHICSANDSOCIALLYRESPONSIBLEMANAGEMENT
ANDITSIMPACTONVARIOUSSTAKEHOLDERS
Small business
DECISIONMAKING
planning and
EVALUATION
-AJORDECISION
MAKINGPRIORTO
starting a small
business
s -OTIVATIONBEHINDSTARTINGASMALLBUSINESSINCLUDING
DESIREFORINDEPENDENCETOMAKEAPROlTANDFULlLA
MARKETNEED
s -AJORDECISIONSATTHECOMMENCEMENTOFASMALLBUSINESS
"USINESSCONCEPTDEVELOPMENTANDINITIALMARKET
research
)NNOVATIONANDENTREPRENEURSHIPASASOURCEOF
BUSINESSOPPORTUNITY
Forms of business ownership and business structure
Purchasing an established business, commencing a
new business, including franchise operations
Location options: shopping centre, retail shopping
strips, online presence and home-based businesses
and the factors that affect that choice
Small business
DECISIONMAKING
planning and
EVALUATION
1
Small business
DECISIONMAKING
planning and
EVALUATION
xii
Business
support
SERVICES
s "USINESSANDSUPPORTSERVICES
The importance
of business
planning
s 3UGGESTEDACTIVITYFORAREAOFSTUDY
Legal
Financial
Technological
#OMMUNITY BASED
&ORMALANDINFORMALNETWORKS
ISBN: 9781107665910
Unit
Area of study
Chapter
number
Chapter name
Key knowledge
-AJORPLANNING
decisions
throughout the
life of a small
business
s !NOVERVIEWOFKEYLEGALANDGOVERNMENTREGULATIONS
affecting the operation of a small business
Small business
DECISIONMAKING
planning and
EVALUATION
s -AJORBUSINESSPLANNINGTHROUGHOUTTHELIFEOFASMALL
business
(UMANANDPHYSICALRESOURCENEEDS
Financial planning and sources of finance
-ARKETINGSTRATEGY
Small business
DECISIONMAKING
planning and
EVALUATION
1
$AY TO DAY
operations
/NGOING
EVALUATIONOF
small business
s 3TRATEGIESUSEDTOUNDERTAKEONGOINGEVALUATIONOFA
SMALLBUSINESSINCLUDINGKEYPERFORMANCEINDICATORS
)NTRODUCTORY
accounting for
small business
s 2EASONSFORKEEPINGSOURCEDOCUMENTS
s 0RACTICESTHATCONTRIBUTETOETHICALANDSOCIALLY
responsible management with respect to decision
MAKINGPLANNINGANDEVALUATION
s %LEMENTSOFACASHBOOK
s Taxation obligations and the implications for decisions on
business structure
s 0URPOSEOFTHE'OODSAND3ERVICES4AX'34
s Concepts used within simple financial reports, such
as profit and loss statement, cash flow report or
balance sheet
s 0RICESETTINGINCLUDINGCALCULATIONOFBREAK EVENPOINT
s %THICALANDSOCIALLYRESPONSIBLEMANAGEMENTOF
accounting practices
10
$AY TO DAY
operations
Management
of staff in small
business
s 4YPESOFRECRUITMENTANDSELECTIONMETHODS
s 2EASONSFORANDDISTINCTIONSBETWEENEMPLOYMENT
arrangements, including full-time, part-time, casual
status
s !NOVERVIEWOFRELEVANTLEGISLATIONSUCHASOCCUPATIONAL
HEALTHANDSAFETY/(3 ANDEQUALEMPLOYMENT
OPPORTUNITIES%%/
s %THICALANDSOCIALLYRESPONSIBLEMANAGEMENTOF
EMPLOYMENTPRACTICES
3
$AY TO DAY
operations
11
Information and
communication
technologies in
small business
s Strategies to select appropriate hardware and software to

meet small business needs
s 0OSSIBLEUSEOFAVAILABLETECHNOLOGIESSUCHAS
databases, spreadsheets, presentation software, internet,
podcasts, SMS and blogs or emerging technologies
continued next page
KE Y K N O W L E D G E TA BL E
xiii
ISBN: 9781107665910
Unit
Area of study
Chapter
number
Chapter name
Key knowledge
s Uses of e-commerce
s )MPLICATIONSOFTHEUSEOFAVAILABLETECHNOLOGYAND
e-commerce, such as benefits and costs to the small
business
s 2EASONSFORANDMETHODSOFENSURINGTHESECURITYOF
TECHNOLOGYANDINFORMATION
s %THICALANDSOCIALLYRESPONSIBLEMANAGEMENTOF)#4IN
small business
12
$AY TO DAY
operations
Legal
REQUIREMENTS
of small
businesses
offering goods
ANDSERVICES
s !NOVERVIEWOFTHEVARIOUSLEVELSOFGOVERNMENTCREATING
the legislation
s 4YPESOFLEGISLATIONCREATEDBYFEDERALGOVERNMENTSUCH
as the Trade Practices Act 1974 (federal), that impact on
small business
s 4YPESOFLEGISLATIONCREATEDBYTHESTATEGOVERNMENT
such as the Consumer Affairs Legislation Amendment Act
2010 (state), that impact on small business
s 4YPESOFLEGISLATIONCREATEDBYLOCALGOVERNMENTSUCH
as local laws affecting food handling, that impact on
small business
s ,EGISLATIONCREATEDBYCOMMONLAWSUCHASCONTRACTAND
negligence
s %THICALANDSOCIALLYRESPONSIBLEMANAGEMENTOFTHELEGAL
REQUIREMENTSOFSMALLBUSINESSES
13
Communication
and
management
Communication
in business
Communication
in business
s #OMMUNICATIONANDITSRELATIONSHIPTOBUSINESSOBJECTIVES
ANDSTRATEGY
s 4YPEANDPURPOSEOFINFORMATIONTHATNEEDSTOBE
communicated
s #OMMUNICATIONMETHODSINCLUDINGVERBALWRITTENANDORAL
ANDNON VERBALBODYLANGUAGEVISUALTECHNOLOGY BASED
s 4YPESOFAUDIENCESSUCHASEMPLOYEESSUPPLIERSAND
customers
s Appropriate methods of communication for different
management situations
14
Communication
in business
%FFECTIVENESSOF
communication
s %FFECTIVENESSOFMETHODSOFCOMMUNICATIONINCLUDING
consideration of barriers/actions that limit and/or
enhance communication
s #OMMUNICATIONBEHAVIOURSTHATARECONSIDEREDUNETHICAL
or illegal
xiv
ISBN: 9781107665910
Unit
Area of study
Chapter
number
Chapter name
Key knowledge
15
Managing the
MARKETING
function
s 4HEMARKETINGFUNCTIONANDITSRELATIONSHIPTOBUSINESS
OBJECTIVESANDSTRATEGY
16
-ARKET
research
s -ARKETRESEARCHPROCESSESINCLUDINGINFORMATIONNEEDS
DATA COLLECTIONTOOLSANDTECHNIQUESANALYSISAND
interpretation
17
4HEMARKETING
plan and
EVALUATIONOF
performance
s +EYELEMENTSOFAMARKETINGPLAN
Managing the
MARKETINGFUNCTION
2
2
Managing the
MARKETINGFUNCTION
2
Managing the
MARKETINGFUNCTION
s -ARKETATTRIBUTESINCLUDINGMARKETDIMENSIONS
SEGMENTSCONSUMERTRENDSANDBEHAVIOUR
%STABLISHINGOBJECTIVES
-ARKETDESCRIPTION
-ARKETINGMIXPRODUCTPRICEPLACEANDPROMOTION
%XPANSIONSTRATEGIESSUCHASEXPORTINGANDDIVERSIFYING
2ELEVANTPERFORMANCEINDICATORSTOEVALUATEEFFECTIVE
MARKETINGSTRATEGIES
18
Managing the
MARKETINGFUNCTION
4HEMARKETING
mix and related
MARKETING
strategies
s 4HEMARKETINGMIXANDRELATEDSTRATEGIES
Product
Price
Place
Promotion
s 0RODUCTLIFECYCLE
s )SSUESINMARKETINGINCLUDINGTHEROLEOFTECHNOLOGYINTHE
global business context and in the context of ethical and
SOCIALLYRESPONSIBLEMANAGEMENTANDLEGALREQUIREMENTS
3
Managing the public
relations function
19
Managing the
public relations
function
s The management of public relations and its relationship

TOBUSINESSOBJECTIVESANDBUSINESSSTRATEGY
s The significance of image
s 4HECONCEPTOF@PUBLICSANDTHEIRRESPECTIVE
characteristics
s 0UBLICRELATIONSOBJECTIVESANDSTRATEGIESUSEDINARANGE
of planned business situations for identified publics
s 0UBLICRELATIONSOBJECTIVESANDSTRATEGIESUSEDINARANGE
of unplanned situations
s 2ELEVANTPERFORMANCEINDICATORSTOEVALUATETHE
performance of public relations strategies
s )SSUESINPUBLICRELATIONSINCLUDINGTHEROLEOFTECHNOLOGYIN
the global business context and in the context of ethical and
SOCIALLYRESPONSIBLEMANAGEMENTANDLEGALREQUIREMENTS
K E Y KN O W L E D G E TA B LE
xv
ISBN: 9781107665910
BUSINESS
ORGANISATIONS
WHATS AHEAD
What is it?
Importance and
necessity
Objectives
Organisation
Types
Common
characteristics
ISBN: 9781107665910
KEY KNOWLEDGE
Students will learn the following introducing them to business organisations:

the features of organisations, including for-profit and not-for-profit
organisations
the objectives of different types of organisations.
AREA OF STUDY
INTRODUCING BUSINESS
For most of our lives we are part of some form of organisation. In the simplest form, we are part
of our family, whether it is our immediate family (parents, brothers and sisters) or our extended
family (grandparents, aunts, uncles and cousins). We may also be involved in social groups such as
sports clubs (e.g. swimming, netball, basketball, cricket or football) or a church or charity group,
such as the Australian Red Cross. By going to school or having a part-time job, we are involved in
business organisations.
1
ISBN: 9781107665910
What is an
organisation?
organisation
two or more people
who work together
in a structured way
to achieve a specific
objective or set of
objectives
employer
a person who hires
another to work under
their authority and
control, in return for
payment of a regular
wage or salary
An organisation is a formal or structured

arrangement where two or more people work
together to accomplish some specific purpose
or set of objectives.
Importance and
necessity of
organisations
Organisations enable people to achieve things
that they could not achieve as individuals. By
being cohesive as a group, a common objective
or purpose can be achieved. This highlights the
importance of the team approach, where it is
said that Together Everyone Achieves More
(TEAM). Imagine a football or basketball team
at the start of the season deciding that the
Premiership Cup is theirs. If only one or two
individual players work consistently during the
season towards this objective, the result at the
end of the season will be disappointment. If
the entire team works consistently towards this
objective, success is far more likely.
Organisations help to provide a continuity
of knowledge between past and future
generations. Having people of varying ages and

life experiences within an organisation allows
for the passing down of valuable knowledge
while also providing the future members and
leaders of the group with a diverse range of
opinions and experiences. The important
elements of wisdom or hindsight can then
be incorporated into the decision making or
planning undertaken by the group.
Organisations serve to manage complex
social and technological change. In our everchanging world it is important for people
to share, and not to individually carry the
responsibility of responding to the pressures of
both social and technological change.
Organisations are also an important source of
employment and career direction. Membership
of an organisation could initially come from an
individual having an interest in some form of
social organisation. During a persons teenage
years they may be a member of a sporting team,
such as netball or football. This initial sporting
interest may turn into a career opportunity,
as they have now decided to study sports
management at a university or TAFE, and wish
to then work at managing a sporting complex
for the YMCA or a local council. Being part of
an organisation, such as your school or sports
club, may create employment opportunities as
it will provide a connection with prospective
employers who may be past students of your
school or members of your club. This is referred
to as using your network of contacts.
ACTIVITY 1.1
1 Compile a list of 10 organisations that you
have been involved with over the past week.
2 Describe your involvement with each
organisation.
3 Describe how each organisation is important
to you.
Figure 1.1 The champions

2
ISBN: 9781107665910
Common
characteristics
of organisations
All organisations have a distinct purpose,
which is generally expressed as a goal or set
of objectives that the organisation wishes to
accomplish. They comprise two or more people,
and adopt a distinct form of structure, which
may be either formal or informal. A formal
structure will involve clear and carefully defined
rules, regulations and procedures, whereas a
simple network of loose work relationships is
regarded as an informal structure.
Differences between
organisations
Organisations can be differentiated by the
following five factors.
1 Size, which may vary as to number of
employees or members, revenue and assets:
s Number of employees or voluntary workers.
Organisations can vary in size from a
minimum of two employees to thousands of
workers. The number of people employed
at an organisation will affect the way it is
structured and operated.
s The size of revenue or gross income
of an organisation can vary from being a
very small business generating income
of thousands of dollars to a very large
multinational corporation with revenue in
the scale of billions of dollars.
s Assets are what the organisation actually
owns. The value (or size) of assets,
like revenue, can vary enormously.
For instance, for a small lawn mowing
business, the car used to get from one job
to the next is a vital asset to the business

operation. In the same way, a shopping
centre complex that the shopping centre
owner leases out to tenants to generate
income is a vital asset.
2 Nature of operations refers to whether
the organisation has been established as a
business enterprise or for social interaction.
Similarly, does the organisation produce or
sell goods or provide a service to customers
and/or clients?
3 Form of legal ownership. If the organisation
is a business, does it operate as a sole

trader/proprietor, as a partnership, a
company, a cooperative or as a trust?
A detailed description of these various forms
of ownership is provided in chapter 4.
4 Extent of their market share. In a
competitive marketplace, organisations are

compared based on the percentage of the
particular market they command; that is, the
extent of their market share. Organisations
within the same industry develop strategies
to entice customers away from their
competitors, thereby capturing a larger
share of the market. Coca-Cola and Pepsi
are seen in the soft drink industry as fierce
rivals, always developing strategies to try to
gain market share over the other.
5 Contribution to the economy. This is
measured in terms of how much monetary

value it provides to the gross domestic
product (GDP) of Australia. Australia has a
very large and diverse range of businesses
operating in its economy. To assist in the
understanding of these businesses, in both
the nature of their operations and the
assistance they may require, the government
has classified them into specific industries.
These are then grouped into 17 industry
sectors, which are listed in table 1.1.
CH AP T E R 1 BUSINESS ORGANISATIONS
revenue
what a business earns
in the way of sales or
fees
assets
items of monetary
value owned by the
business
job
a group of tasks
performed by an
employee
market share
the percentage of
total sales in a market
held by one brand or
business
competitor
a business rival in
the same market
for products or
services offered by an
organisation
gross domestic
product (GDP)
total value of output
produced in a country
in one year
industry sector
different types of
organisations and
enterprises producing
goods and services in
the same industry or
business area
ISBN: 9781107665910
Table 1.1 The 17 main industry sectors

s !CCOMMODATIONCAFSANDRESTAURANTS
s (EALTHANDCOMMUNITYSERVICES
s !GRICULTUREFORESTRYANDlSHING
s -ANUFACTURING
s #OMMUNICATIONSERVICES
s -INING
s #ONSTRUCTION
s 0ERSONALANDOTHERSERVICES
s #ULTURALANDRECREATIONSERVICES
s 0ROPERTYANDBUSINESSSERVICES
s %DUCATION
s 2ETAILTRADE
s %LECTRICITYGASANDWATERSUPPLY
s 4RANSPORTANDSTORAGE
s &INANCEANDINSURANCE
s 7HOLESALETRADE
s 'OVERNMENTADMINISTRATIONANDDEFENCE
ACTIVITY 1.2
Identify the relevant industry sector for the organisations listed below. The first two have been done
for you. (Hint: www.asx.com.au and www.google.com.au are useful sites to assist you in completing
this activity.)
Name of organisation
Industry sector
a NAB
Finance and insurance
b David Jones
Retail trade
c News Corp.
d Melbourne Water
e Lend Lease
f
Linfox
g Grocon
h Wesfarmers
i
Visy
Qantas
k DuluxGroup
l
The University of Melbourne
m City of Melbourne
n CSL
o Telstra
p RACV
q Reserve Bank
r
Flight Centre
s Murray Goulburn
t
Rio Tinto
ISBN: 9781107665910
Types of
organisations
The focus of for-profit organisations is profit
attainment, market share and growth. This
classification of business organisations makes
up the majority of enterprises in Australia.
Wesfarmers, Newscorp and Lend Lease are in
this category.
The focus of not-for-profit (NFP)
organisations is providing a specific service to
the community. For example, the Australian
Red Cross provides a free blood donation and
transfusion service. The most recent official
figures provided by the Australian Bureau
of Statistics to the Australian Productivity
Commissions research report (11 February
2010) identified that in 2007 there were 600 000
NFP organisations in Australia, of which 59 000
made economically significant contributions to
Australias GDP and 8 per cent of employment.
Figure 1.2 The Salvation Army is a not-for-profit

organisation
Some NFP organisations are government

businesses.
Other large welfare organisations are churchsponsored. The Salvation Army is an example
that acts through their nationwide networks
to meet the needs of their particular communities.
Others, such as the Australian Red Cross, are
independent, non-denominational community
organisations. These organisations gain the
majority of funds through donations from the

Australian business community and the general
public.
Objectives of
different types of
organisations
mission statement
a global statement
that reflects an
organisations reason
for being or purpose
and the way it will be
managed
vision statement
a statement that
outlines the aspirations
of the organisation
All organisations, whether they are for-profit or

not-for-profit, need to set objectives they wish
to achieve in line with their mission statement
or vision statement. These objectives can
be broadly categorised as financial and social
objectives.
Financial objectives
A commercial organisation is usually judged on
its financial success:
s Profit or surplus this amount needs to be
sufficient to provide owners and shareholders
with a return on their investment (dividend),
if it is a profit-making organisation. For an
NFP organisation, surplus must be sufficient
to allow it to perform its social objectives.
s Product sales and market share a business
may want to increase its sales in the hope of
making the business more profitable. Market
share is the percentage of total product
sales made by a business in a given market
over a set period of time. An increase in
market share usually leads to an increase in
profitability in the long term. For example,
Virgin Blue Airlines, in its initial bid to gain
market share in the Australian domestic
market, was willing to offer cut-price fares.
The length of time that these lower-price fares
could be sustained depended on what profit
margin Virgin was seeking from its Australian
operations. It is now conducting a similar
pricing strategy with the introduction of its
international route carrier, V Australia. For an
NFP organisation, the important objectives
are to ensure that their organisation attracts
CH AP T E R 1 BUSINESS ORGANISATIONS
ISBN: 9781107665910
sufficient donations, sponsorship or support,

and not lose their share to another NFP
organisation.
s Growth this relates to a combination of both
market share and profit. Businesses decide
whether their domestic market will provide
sufficient growth potential or whether they
need to go global in their operations.
Another option for growing a business is to
diversify into other areas of operation. This
involves moving away from its core business
into other activities and can be a risky
strategy, particularly if the new business area
is one where the organisation has no prior
knowledge or experience. Similarly, NFP
organisations may be called upon to offer
assistance in unfamiliar areas, and therefore
they must decide whether they really are
the best organisation to offer the needed
assistance, or if it would be better to redirect
the donations being offered to another NFP
organisation that has the infrastructure and
experience to best serve the needs of an
individual or community.
infrastructure
physical resources of
an area, e.g. power,
transport, utility
services, that benefit
the entire community
retailer
business that sells
products, usually
in small quantities,
to households or
individual consumers
Social objectives
Social objectives are relevant for both
for-profit and NFP organisations. They relate
to establishing objectives that are of benefit to
employees and the wider community. Examples
of these objectives are:
s To ensure ongoing employment, training and
development and career paths for employees.
s To provide services to the community
or be actively involved in supporting
community projects.
s To assist in improving employment
prospects for disadvantaged groups in the
community, e.g. youth, migrants, or those
with criminal records.
s To produce environmentally friendly products and not produce or release any pollutants into the air or waterways.
Many
organisations
(for-profit
and
not-for-profit) are able to successfully combine

both financial and social objectives. The actions
of these organisations often go unnoticed by the
general public, but are not unappreciated by
those in the community who are being helped.
The Body Shop Australia, as an ethical retailer,
is an example of a business that has successfully
combined these objectives. Since 1987, The Body
Shop has supported fair trade in the toiletries and
cosmetics industry. It has established a Community
Trade program, where trading relations to source
high-quality, natural ingredients are fostered
directly with marginalised communities around
the world. The Body Shop aims to maximise
sustainable benefits to its supplier communities
while also meeting customer expectations. As
the pioneer of fair trade in the toiletries and
cosmetics industry, its vision is to present a
model to industry that others can follow. It also
contributes resources towards positive social and
environmental change through its donations and
sponsorship of community support programs.
Another organisation, Toll Holdings Limited,
one of the Asian regions leading providers
of integrated logistics services, is involved
in a supported employment program called
Second Step, where it offers, on an annual
basis, employment to former criminals and drug
addicts in the hope of assisting them to turn
their lives around.
Figure 1.3 The Body Shop strives to combine

both financial and social goals.
ISBN: 9781107665910
ACTIVITY 1.3
Read the extract and answer the questions that follow.
Second Step
The Second Step employment program
continues
to
offer
a
supported
employment opportunity with Toll for
people
whose
employment
prospects
are limited as a result of a history of
addiction or criminal offences.
Tolls Second Step is a program started by
Mr Paul Little AO who remains a passionate
supporter. The program now offers 30 positions a year throughout Australia in a variety
of supported and mentored employment positions. The pleasing statistic is that the majority
of our Second Steppers are offered full-time
positions at the end of their initial 12 months
of supported placement. This is testimony to
the success of the program.
Second Steppers both First Step candidates and those who are recommended to us
through our other partner programs (Whitelion, Port Phillip Prison Youth Unit, Melbourne
City Mission, Brisbane City Council and The
MacKillop Foundation) have benefited from
the services made available to them through
First Step and St Vincents Hospital.
We are also in discussion with a number of
agencies both in Australia and in other countries to establish the program throughout the
Toll Group globally and hope to report back
Figure 1.4 Step into a new life with the Second

Step employment program
with further growth opportunities in the year
ahead.
To date Toll has helped over 240 people get
their lives back on track and maintain satisfying and rewarding employment.
Our hope is that Tolls leading role in these
initiatives will encourage other corporates to
be involved in supporting people dealing with
what would otherwise be insurmountable
problems.
Source: www.toll.com.au/community.html
Questions
Visit the website of Toll Holdings Limited (www.toll.com.au) to assist in completing questions 1 to 4.
1 Identify whether Toll Holdings is a for-profit or not-for-profit organisation.

2 The First Step program is referred to in the extract. Outline what this program is aiming to achieve.
3 Outline what the Second Step program is aiming to achieve.
4 Identify the two directions in which Toll Holdings would like the Second Step program to progress.
5 Identify two other for-profit organisations that assist not-for-profit organisations in achieving their
objectives, e.g. McDonalds Australia and Ronald McDonald House.
6 Describe the forms of assistance one of these organisations is providing.
C H A P TER 1 BUSINESS ORGANISATIONS
ISBN: 9781107665910
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ISBN: 9781107665910
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C H A P TER 1 BUSINESS ORGANISATIONS
ISBN: 9781107665910
SMALL BUSINESS
IN AUSTRALIA
WHATS AHEAD
What is it?
Distinction between
small, medium and large
Small business
Key features of a
small business
Contribution
to the economy
ISBN: 9781107665910
KEY KNOWLEDGE
Students will learn the following about small business in Australia:

the distinctions between small, medium and large businesses
the contribution of small business to the economy.
AREA OF STUDY
Over 95 per cent of all Australian private sector businesses are classified as small. This is a
challenging and exciting business sector and its contribution to the Australian economy should
not be underrated. Small businesses have been shown to have the ability to dynamically respond
to changing economic conditions. Governments at both state and federal level recognise the
importance of the small business sector by appointing ministerial portfolios, creating policies and
improving the levels of assistance provided to small business.
11
ISBN: 9781107665910
What is a
microbusiness?
Microbusiness is a classification given to small
businesses employing fewer than five employees.
This category of small business now accounts for
80 per cent of all businesses in Australia.
According to the Australian Bureau of
Statistics, more than 67 per cent of all small
businesses in Australia are home-based
businesses that is around 856 000 businesses.
Working from home can help the business
owner and any employees achieve a balance
between work and family commitments by
allowing flexible working hours. It also has
the advantage of cutting overheads, e.g. rental
of premises. Two well-known Australian
businesses that started their existence in a home
or garage are Lonely Planet Publishing and
Rip Curl.
Figure 2.1 A small business operator
capital
funds invested in a
business, which form
one of the main inputs
for the production
process
small business
an independently
owned and operated
business, under close
control of its owner
who has contributed
the majority of the
operating capital and
is the main decision
maker; the business
may employ up to
20 people (nonmanufacturing) and 100
people (manufacturing)
microbusiness
small business that
has fewer than five
employees
12
What is a small
business?
The Bedall Report 1990 and the Australian
Bureau of Statistics define a business as small if:
ACTIVITY 2.1
1 List five businesses that would fall into the
category of microbusiness.
2 Identify three advantages and three
disadvantages associated with home-based
businesses.
3 Describe the advantages that technology has
given to the home-based business operator.
s it is independently owned and operated

s it is closely controlled by owners/managers
who contribute most, if not all the operating
capital of the business
s the owners/managers are the main or
principal decision makers.
For numbers of people employed, the following
statistics are commonly accepted.
A small business is one that employs up to:
s 20 people in non-manufacturing industries
s 100 people in manufacturing industries.
Figure 2.2 A home-based microbusiness
ISBN: 9781107665910
How small business

helps our economy
Small businesses represent 95 per cent of the total
number of businesses in Australia. This sector
is an important generator of jobs. Taxation is
paid by both businesses and employees, which
then helps to fund the goods and services the
government provides to the community, such as
public health and education.
Small businesses can perform the role
of nurturing, promoting and developing
entrepreneurs. Small businesses can also
provide functional support to large organisations
that use outsourcing. For example, an
organisation may outsource the non-core
activity of providing coffee to their staff during
the working day rather than employing a tea
person. A small business that has combined
entrepreneurship with such an activity is
Xpresso Delight, which provides gourmet coffee
machines to workplaces with upwards of five to
10 employees. This rapidly growing franchised
business in 2010 had 140 franchises, and has set
targets of 200 franchises by the end of 2011 and
250 franchises by the end of 2012.
Many small businesses offer services or

routine tasks to other companies and individuals,
reflecting our societys need for greater
service-oriented industries, e.g. property and
business services, personal, cultural, tourism,
recreational, health, community and retail.
According to the March 2008 Sensis Consumer
Report, approximately 52 per cent of Australians
now outsource some of their domestic and
personal tasks. The most popular of these is
meals, with 19 per cent eating at restaurants
and 18 per cent purchasing take-away meals,
followed by personal grooming and cleaning,
which account for 14 per cent. Dial-an-Angel
is an example of a business that has grown
from a small family-run home help company to
the only national agency that specialises in the
provision of home and family care.
In addition, small businesses have stepped
into the role of providing many of the former
traditional government functions. Previously,
government departments would be involved
in the direct recruitment of graduates from
universities. Small personnel consultancies are
now often used to conduct the initial stages
of recruitment and selection of graduates.
This can involve the initial online application
entrepreneur
a person who is willing
to combine an element
of risk taking with their
own knowledge and
skills to make a profit
outsourcing
process of using
another business to
undertake some task or
work process
services
non-material objects
produced by people for
the benefit of others,
e.g. legal advice
service-oriented
industry
those businesses that
provide a service to
a client, e.g. medical,
accounting, legal
advice
Figure 2.3 An example of a small business that has grown ino a national one.
C H A P T ER 2 SMALL BUSINESS IN AUSTRALIA
13
ISBN: 9781107665910
downsizing
occurs when an
organisation reduces
its operations; may
result in office or plant
closure, and reduction
in functional positions
(jobs)
process, followed by screening and testing of

applications to create a shortlist to be submitted
to the relevant government department. On
a local level, garbage collection may now be
performed by a small business rather than by
council employees.
Vital growth industries, such as medical care
and biomedical research, are often entered into
by small business operators. While many of
the growth industries have a large associated
risk, small business entrepreneurs are willing to
accept the risk for the opportunity of greater
financial benefit in the long term. As the small
business owner often does not have a board of
directors and shareholders to answer to, they
assume the risk themselves. Other small business
operators have a passion for doing something

to help society both locally and globally. The
economic contribution they make is therefore
less direct in dollar terms, but important when
viewing it in terms of social responsibility.
In the past decade, many medium- and
large-scale organisations have been aggressively
downsizing their operations. This has provided
an opportunity for salaried employees who have
been retrenched to form their own businesses
as consultants and contractors. These same
large businesses often rely on small businesses
for their supplies of raw materials, component
parts, technology and skilled workers or any
other required services or non-core activities.
ACTIVITY 2.2
Read the article and answer the questions that follow.
Etiko it means ethical

Nick Savaidis, a former high school teacher, is
the founder and Managing Director of Etiko,
an Australian-based brand committed to
sourcing overseas products that are Fairtrade
Certified, sweatshop free or from worker or
farmer-owned cooperatives. This means that
the sports and clothing products are made by
people who earn a fair wage and have good
working conditions. Etiko has won many
state and national business awards including
the 2008 Banksia Environmental Foundation
Award, the 2009 Sustainability Victoria
Greenleaf Award and a 2008 Telstra Business
Award for Social Responsibility.
Etikos commitment to social justice goes
beyond fighting child labour and sweatshops,
as the purchase of its products also helps fund
community development, micro-credit and
health care programs in countries around the
world. As producers of sports balls, it was one
of three enterprises in the world to receive the
14
International Labour Organisation accolade:

Without Child Labour. This small business
is based at its warehouse in Ferntree Gully,
from which it distributes its range of brightly
coloured sneakers, sports balls and selected
items of clothing to be sold at shops such as
Oxfam and Friends of the Earth.
Figure 2.4 Etiko means ethical.
ISBN: 9781107665910
Questions
Visit the Etiko website (www.etiko.com.au) to help you answer the questions below.
1 Why do you think Nick Savaidis started this business?

2 This business has adopted a socially responsible approach to its products and business operations.
a
b
Provide two reasons why you believe this to be a sound approach.

Provide two reasons why you believe this approach may not succeed.
3 From which countries does Etiko source its products?

4 Describe the concept of a micro-credit loan.
5 Discuss whether you believe that this small business is helping our economy.
Key features of businesses

To gain an understanding of the differences between businesses, whether small, medium or large, it is
useful to look at their key features. Once these are understood, it becomes easier to distinguish between
them. Key features of a business are:
s size based on number of employees
s legal structure
s business activity
s public or private sector.
Size based on number

of employees
Public or
private sector
Small business
Legal structure
Business activity
Figure 2.5 Key features of a small business
15
ISBN: 9781107665910
Very
small/micro
Fewer than
five employees
Small
Fewer than 20 employees
non-manufacturing industry
Fewer than 100 employees
manufacturing industry
Medium
Between 20 and 199 employees
Large
More than 200 employees
Figure 2.6 Classification of business by size
The number of employees within a business forms the basis of the Australian Bureau of Statistics
(ABS) classification of a business as being very small, small, medium or large.
ACTIVITY 2.3
Read the case study and answer the question that follows.
Case study
FigureBusiness
2.7 Classification
A of business by size.
David runs a very successful bakery in a small suburban shopping centre. The shop has become so
successful due to the range and quality of the bread. To make sure that there is always a plentiful
supply on the shelves, David and his three qualified bakers, assisted by three apprentices, start
work at 4 a.m. each day. By lunchtime they are ready to finish their days work. During weekdays,
the shop is usually staffed by three shop assistants who only work Monday to Friday. On the
weekends, the shop becomes hectic, with customers crowding into the shop. To help manage the
crowd, a number system is used, which means that the six part-time shop assistants, who only
work over the weekend, are able to provide quality customer service.
16
ISBN: 9781107665910
Business B
Barry runs a red gum furniture manufacturing business in country Victoria. He makes
large items of furniture, such as tables, chairs,
sideboards and bookshelves, with the off-cuts
of wood being made into chopping boards and
bowls. His business has grown to the stage
where he now employs 19 other craftspeople
in the factory to help him keep up with orders.
The sales showroom is located in the main
street of the town and is very popular with
both locals and tourists. Barry does not feel
comfortable dealing directly with customers,
preferring to leave the sales negotiations to his
five sales staff.
Business C
Wharton Lea offers three levels of
accommodation independent living, hostel
and nursing home facilities to people
who need extra care and assistance as they
progress through their old age. Residents are
required to pay a bond to enter the facility and
then a weekly service fee. At Wharton Lea they
have 25 experienced nursing staff assisted by

50 aged-care assistants who help residents
with all their needs. The residents laundry is
done on a daily basis by the five laundry staff.
All meals at Wharton Lea are prepared by the
five catering staff according to the individual
residents dietary requirements and are served
to them in the dining room.
Business D
The Body Shop Australia is a fully Australianowned company that runs the Australian
operation of the world-renowned Body
Shop established by Dame Anita Roddick in
Brighton, England, in 1976. The first Australian
store was opened in Melbourne in 1983 and
since then more than 80 stores have opened
across Australia.
Question
Classify each of the businesses as small, medium or large. Justify your choice of classification.
Legal structure
There are two main types of legal structure
for businesses operating in the private
sector: incorporated and unincorporated.
Organisations that are incorporated are officially
registered as a company, are a separate legal
entity and are subject to the requirements of
the Corporations Act 2001 (Commonwealth).
Because of the separate legal life created,
it acts to limit an individuals liability for any
debts incurred by the incorporated body to
the extent of their ownership (shareholding) in
that body. Incorporated bodies can be set up
as a private company, public company, trust

or cooperative.
Many organisations, such as sole traders/
proprietors or partnerships, choose to be run
as unincorporated businesses. This means that
there is no difference between the business and
its owners, with the owners having complete
legal responsibility and liability for all the
actions of the business.
See chapter 4 for detailed descriptions of
these forms of legal ownership.
debt
a sum of money owed
by one person (debtor)
to another person
(creditor)
proprietor
owner of a registered
business name
17
ISBN: 9781107665910
Business activity
Primary sector
businesses that operate
in industries that are
concerned
with agriculture,
fishing and extraction
of raw materials
Secondary sector
business activity that
relates to manufacture
and construction
of goods
Tertiary sector
business activity that
provides services
for consumers and
other business
Quaternary sector
industry sector
that represents
communications,
finance, insurance,
property, business
services and education
Quinary sector
industry sector
that represents
accommodation,
restaurants and cafs,
health and community
services, cultural
and recreational
services, personal and
household services
18
Businesses produce a vast range of different

goods and services; however, it is possible to
classify these into three broad types of business
activity: primary sector, secondary sector
and tertiary sector. These three categories also
link to the three stages involved in transforming
natural resources into finished goods and
services. The third broad category, tertiary,
is now commonly divided into two further
subcategories: quaternary sector (informationbased) and quinary sector (household servicesbased). These new age industry subsectors are
significant contributors to the tertiary industry
sector. Table 2.1 outlines the business sectors.
Table 2.1 Business activity sectors
Private sector
Unincorporated
business
s 3OLETRADER
s 0ARTNERSHIP
Incorporated
business
s
s
s
s
0RIVATECOMPANIES
0UBLICCOMPANIES
4RUSTS
#OOPERATIVES
Figure 2.7 Types of private sector businesses
Level of sector
Types of business/service
Primary
Mining, agriculture, fishing and forestry. Those industries concerned with land or sea
Secondary
Manufacturing, processing, construction, fabrication of final product
Tertiary
Wholesaling, retailing and transport
a Quaternary
Information processing, finance and insurance, property and business services, education
b Quinary
Hospitality, health and social assistance, personal and other services
ACTIVITY 2.4
Identify the business activity sector (primary, secondary, tertiary, quaternary or quinary) for the
businesses listed below. The first one has been done for you.
Name of business
a YMCA
b Wesfarmers
c BHP Billiton
d Telstra
e Village Cinemas
f McDonalds Restaurants
g Qantas
h John West
i ANZ Bank
j CSL Limited
k Billabong
l Herald Sun
Business activity sector

Quinary
ISBN: 9781107665910
Public and private sectors

The Australian economy is divided into two main
areas: public and private sectors. The public
sector includes departments and agencies of all
three levels of government (federal, state and
local), as well as government business enterprises.
Types of services these organisations provide are
health, education, defence and law enforcement.
Previously, the government also owned and
controlled many of the industries that provided
infrastructure, such as telecommunications,
utilities and public transport. The recent trend
in Australia has been towards selling these
government-operated businesses to the private
sector. This process is called privatisation. The
Commonwealth Bank of Australia was once
owned and operated by the federal government,
but has been privatised, with its ownership
now controlled by individuals and institutional
shareholders. The private sector comprises
businesses owned and controlled by individuals
or groups of individuals. The majority of business
activity is undertaken by this sector.
How to distinguish
between small,
medium and large
businesses
Having gained an understanding of the key
features of businesses in the previous section,
it is now possible to make distinctions between
the various characteristics of businesses. The
number of employees working at a business
while a very important form of determining
the classification of a business is only
one of the distinguishing features used as a
basis of classification. There are many other
distinguishing characteristics: forms of legal
ownership; predominance of industry sector;
decision-making structures; access to finance
and capital; business structure; products and/
or services offered and location of operations.
privatisation
the process of selling
government-owned
businesses to the
private sector
Table 2.2 Distinguishing characteristics of small, medium and large businesses

Characteristics
Small
Medium
Large
Size number of
employees
Microbusiness fewer
than five employees
20199 employees
More than 200 employees
Sole trader/proprietor
Partnership
Company
Partnership
Company
Cooperative
Company
Cooperative
Trust
Up to 20 employees for
non-manufacturing
Up to 100 employees for
manufacturing
Common forms of legal
structure
Trust
Ownership
Private independently
owned and operated
Private and public

(partners/shareholders)
Private and public

(partners/shareholders)
Business structure
Simple
Formal or informal
Formal policies,
procedures, developed
organisational chart based
on function, products,
geography or division
continued next page
C H A P TER 2 SMALL BUSINESS IN AUSTRALIA
19
ISBN: 9781107665910
Characteristics
Small
Medium
Large
Decision making
Owner/manager
Management team
Management team
Finance/initial capital
Owner/family
Owner/family
Shareholders
Private investors
Financial institutions
Access to business
capital
Limited
More access
More easily obtained
Product/service range
Small
Possibility of greater
diversity in range of
products/services
Greater opportunity for

large product range
Possibility of diverse
range of products/
services
20
Location
One outlet
Multiple outlets possible
Possibility of global
operations
Sector
Private
Private and public
Private and public
Industry sector
classification
Primary
Primary
Primary
Secondary
Secondary
Secondary
Tertiary
Tertiary
Tertiary
Quaternary
Quaternary
Quaternary
Quinary
Quinary
Quinary
ISBN: 9781107665910
U An understanding of organisations can be

gained by examining them with reference to the
following four characteristics:
U Businesses are defined as being small if they are

independently owned and operated, and if they
are closely controlled by their primary decision
makers (owners/managers).
size based on number of employees

legal structure
business activity
public or private sector.
U It is possible to distinguish a small business
from either a medium or a large business
on the basis of employee numbers, form of
legal structure/ownership, decision-making
processes, provision of finance and capital,
business structure, product and service range
and location of operations.
U Employee numbers for small business are between

one and 20 employees for non-manufacturing
businesses and up to 100 employees for
businesses involved in manufacturing.
U Small business assists our economy by providing
jobs and career opportunities. It provides a
range of services and routine tasks to large
organisations and even performs some traditional
government functions.
1 In which industry sector would a farmer belong?
5 Match the terms to the correct definitions below.
a Quaternary
Private sector
b Tertiary
Downsizing
c Secondary
Primary industry
d Primary.
Privatisation
2 Which of the businesses below would form part of
Microbusiness
Entrepreneur
a A large nursing home
Secondary industry
b A poultry farm
Outsourcing
c A newspaper publisher
Public sector
d A take-away hamburger shop.
Company
unincorporated businesses?
a Private companies, partnerships and sole
traders
b Public companies, cooperatives and trusts
c Partnerships and sole traders
d Partnerships, sole traders and trusts.
4 Which of the following classifications applies to a
business enterprise with eight employees?

a Large
b Small
c Micro
d Medium.
CHAPTER SUMMARY
QUESTIONS
the quaternary industry?
3 Which of the following groups consist of
CHAPTER SUMMARY
U Approximately 97 per cent of businesses in

Australia are classified as small and form an
important part of our economic activity.
a Includes the departments of all three levels of
government, as well as government business

enterprises.
b Consists of businesses that involve canning
fish and fruit.

c A person who is willing to combine an
element of risk taking with their own

knowledge and skills to make a profit.
d Using another business or person to
undertake some task or activity rather than

doing it within the business.
e The process of selling government-owned
businesses to the private sector.
21
ISBN: 9781107665910
Includes businesses owned and controlled

by individuals or groups of individuals.
g Consists of businesses that extract natural
resources.
h Reducing your business operations.
i
A business that consists of fewer than

five employees.
A business that operates as a separate

legal entity.
EXTENSION
QUESTION
Both the quaternary (information-based) and

quinary (household services-based) business
activity sectors are becoming very important
contributors to Australias gross domestic
product (GDP). Discuss why you believe these
tertiary subsectors are flourishing. The following
sample plan may provide you with some ideas
on how to handle this task.
Sample plan
Introduction
Define the key terms: quaternary sector, quinary
sector, gross domestic product.
Body
Identify reasons why these businesses are
flourishing, e.g. decline in other areas, change
in social or demographic factors.
22
ISBN: 9781107665910
ISBN: 9781107665910
BUSINESS
ENVIRONMENTS
WHATS AHEAD
1
External
2
Macro
Operating environment
Internal
1 Macro environment
2 Operating environment
External
3 Internal environment
ISBN: 9781107665910
KEY KNOWLEDGE
Students will learn the following about business environments:

the internal and external (operating and macro) environments
of a business
business ethics and socially responsible management and its impact
on various stakeholders.
AREA OF STUDY
All businesses small, medium or large operate in a complex and rapidly changing business
environment.
25
ISBN: 9781107665910
The dynamic
environment of
businesses
Internal environment
For any business to be successful, no matter

what its size, it must be able to respond quickly
to changes or pressures that may come from
either its external or internal environment.
External environment
macro environment
broad operating
conditions in which an
organisation operates
and over which it has
no control
operating
environment
the environment
immediately external
to an organisation
with which it has
close interaction when
conducting its business
activities
organisational
stakeholder
a person, such as an
employee or customer,
who is involved with
an organisation
and therefore has
responsibilities towards
it and an interest in its
activities
stakeholder
individual or group that
has a direct or vested
interest in the activities
of an organisation
26
The external environment refers to those

conditions surrounding an organisation over
which it has little or no control. Within this
environment, it is recognised that there are
two levels from which pressures or forces for
change may arise:
s The macro environment has a range
of factors or pressures, such as economic,
government/political, legal, technological,
global, social and environmental, that can
influence the operation and performance of
a business. Pressures exerted from this macro
level generally require the organisation to
comply or respond.
s The operating environment has a range
of pressures, such as customers, competitors,
suppliers, trade unions, lobby groups,
financial institutions and regulatory bodies.
This level of environment contains many of
the stakeholders of the business.
The internal environment refers to a range

of pressures, such as shareholders/owners,
management,
employees,
organisational
structure and corporate culture. It is important
for businesses to take account of and respond
to the pressures and forces from within
its organisation.
Whether a business operation is a
microbusiness, a small business, medium
business or large business, it cannot operate in
isolation, and therefore must be responsive to
pressures from its business environment. These
pressures can either create opportunities or be
seen as a threat. One of the keys to business
success is to respond appropriately to these
pressures.
Stakeholders of
a business
In the internal environment of a business there
are organisational stakeholders that can place
pressure directly on the organisation. Ideally,
stakeholders at each level would want the
business to achieve its aims or objectives. In
reality, this is not always the case, with various
stakeholders interests often coming into conflict.
To be successful, a business needs to work out a
way of satisfying these different interests.
Business
Shareholders
Directors
Management
Suppliers Creditors/
banks
Employees
Community
Trade unions
Government
Customers
Competitors
Figure 3.1 Stakeholders of a business
ISBN: 9781107665910
Two important issues that are of increasing

concern to stakeholders are:
s Is the business conducting its business
operations in an ethical or fair manner?
s Is the business acting in a socially responsible
manner?
Stakeholders want businesses to recognise the
importance of these issues and incorporate them
into their business objectives. Businesses must be
ethical in the types of products they manufacture
and services they provide. The Competition and
Consumer Act 2010 (Commonwealth) establishes
guidelines for businesses relating to disclosure
of information on product performance,
composition, contents, design, construction,
packaging and the form and manner in which
this information is included with the goods
when sold. The Australian Competition and
Consumer Commission (ACCC) is responsible

for administering the Act and for promoting the
provision of good business practices for a fair and
efficient marketplace. These ethics must extend
to include the conduct of the entire operations
of a business.
Social responsibility involves an organisation
working to improve its positive impact on society
and to reduce any negative impact it may have.
For instance, businesses are being encouraged
to increase their commitment to reducing
environmental problems associated with the
disposal of plastic bags. McDonalds, during its
30 years trading in Australia, has always used
paper bags. Other businesses, such as Country
Road, Lush cosmetics and Bunnings Hardware,
have now banned the use of plastic bags.
ACTIVITY 3.1
1 Name two businesses that are active in their social responsibility to the community, either at a particular
time of year, such as Christmas, or for a special cause, such as cancer research. For instance, Telstra
has established a foundation to provide assistance to a broad range of groups and activities.
packaging
physical protection
given to a product
that can also form an
important part of its
image and appeal to
the consumer
Australian
Competition
and Consumer
Commission (ACCC)
government authority
responsible for
administering the
Competition and
Consumer Act 2010
and for promoting
and educating in the
provision of good
business practices
for a fair and efficient
marketplace
ethics
a set of moral
principles that an
organisation needs to
establish and follow
2 Describe the type of activity in which these businesses are involved.

3 Using The Body Shop website (www.thebodyshop.com.au), describe its campaign for this year.
Table 3.1 outlines some of the major

stakeholders of a business and their most likely
interests and issues. You will notice that these
are generally drawn from the internal and

operating/task environments of the business.
Table 3.1 Stakeholders and their interests and issues

Stakeholder
Interests and issues (in particular relating to ethics and social responsibility)
Shareholders
s
s
s
s
s
$IRECTORS
s 4ODEVELOPANDDIRECTSTRATEGYANDMAJORBUSINESSDECISIONS
s 4OENSURESTRICTADHERENCETOCORPORATEGOVERNANCESOCIALRESPONSIBILITYANDETHICAL
ANDHONESTBEHAVIOUR
s 4OGAINPERSONALPOWERANDSTATUSBYBEINGADIRECTOROFABUSINESS
0ROlTABILITYOFTHEBUSINESS
4ORECEIVEDIVIDENDS
)NCREASEDSHAREPRICES
%THICALBUSINESSOPERATIONS
3OCIALLYRESPONSIBLEBEHAVIOUR
continued next page

C H A P TER 3 BUSINESS ENVIRONMENTS
27
ISBN: 9781107665910
remuneration
the amount a person
is compensated (paid)
for performing work
tasks (job); it can take
the form of cash and/
or fringe benefits; it
can be referred to as a
salary or wages
wage
the monetary reward for
labour, paid on a weekly
basis, calculated by
multiplying the hourly
rate by the number of
hours worked for the
period
salary
an agreed amount
of money paid to
employees for their
labour during a year;
expressed as an
amount per annum
quality
the degree of excellence
in a good or service and
its ability to satisfy the
customer
creditor
an individual or
organisation that has
extended credit to an
organisation
28
Stakeholder
Interests and issues (in particular relating to ethics and social responsibility)
-ANAGEMENT
s
s
s
s
4OACHIEVEGOALSANDOBJECTIVES
4OSECURETHEIRPOSITIONWITHINTHEBUSINESSANDWORKONTHEIRCAREERDEVELOPMENT
4ORECEIVEAFAIRremuneration PACKAGEPAY
4OCONDUCTTHEIRBUSINESSACTIVITIESINANETHICALMANNER
%MPLOYEES
s
s
s
s
s
4ORECEIVEAFAIRwage ORsalary
4OWORKINANON DISCRIMINATORYETHICALANDSAFEWORKPLACE
4OHAVETHEOPPORTUNITYOFCAREERADVANCEMENT
4OGAINJOBSATISFACTION
4OFEELSECUREINTHELONG TERMSURVIVALOFTHEIRJOB
4RADEUNIONS
s 4ONEGOTIATEFAIRWAGESWORKINGCONDITIONSWORKINGHOURSANDOTHERRELATED

WORKISSUES
s 4OBEREPRESENTEDINTHEWORKPLACE
s 4OBEINVOLVEDINTHEDECISIONMAKINGWITHMANAGEMENTOVERISSUESRELATING
TOEMPLOYEES
#USTOMERS
s 4OOBTAINHIGHqualityGOODSANDSERVICESFROMANETHICALANDSOCIALLYRESPONSIBLE
ORGANISATIONATANATTRACTIVEPRICE
s 4ORECEIVEHIGHLEVELSOFCUSTOMERSERVICEPRE ANDPOST SALE
s 4OESTABLISHALONG TERMRELATIONSHIPWITHTHEBUSINESS
3UPPLIERS
s 4OENSURETHEBUSINESSWITHWHOMTHEYAREDEALINGISPROlTABLEANDCAPABLEOF
PAYINGITSDEBTS
s 4OBEPAIDPROMPTLYBYTHEIRCUSTOMERS
s 4OBEINVOLVEDWITHANORGANISATIONTHATISETHICALINITSOPERATIONS
s 4OBEABLETOESTABLISHANDGUARANTEEALONG TERMPREFERRED SUPPLIERRELATIONSHIP
CreditorsBANKS
s 4OBEPAIDLOANREPAYMENTSPUNCTUALLYBOTHPRINCIPALANDINTEREST
s 4OBEREPAIDLOANSINFULL
s 4OENSUREALLBANKINGINTERESTSOFTHEBUSINESSARESECUREDBYTHATBANK
#OMMUNITY
s 4OBENElTFROMTHEEMPLOYMENTOPPORTUNITIESCREATEDBYTHEBUSINESS
s &ORTHEBUSINESSTOPARTICIPATEINTHEIRCOMMUNITY
s 4OENSURETHATTHEBUSINESSISARESPONSIBLECORPORATECITIZEN
'OVERNMENT
s
s
s
s
#OMPETITORS
s 4OENSURETHEYGAINTHECOMPETITIVEEDGEOVERTHEBUSINESS
s 4ODIFFERENTIATETHEIRPRODUCTORSERVICESFROMTHEIRCOMPETITORS
s 4OCOMPAREANDEVALUATETHEIRPERFORMANCEAGAINSTOTHERBUSINESSES
4ORECEIVETAXATIONREVENUEFROMPROlTABLEBUSINESSES
4OPROVIDEINCENTIVESFORBUSINESSESTORELOCATETOBENElTACOMMUNITY
4OCONTROLBUSINESSOPERATIONSTHROUGHLAWSSUCHASENVIRONMENTPROTECTION
4OPROVIDEESTABLISHMENTANDOPERATIONALASSISTANCETOBUSINESSES
ISBN: 9781107665910
ACTIVITY 3.2
1 Identify the individuals or groups that would be regarded as the stakeholders of your school.
2 Describe what their interest would be in the school.
3 Identify and describe the stakeholders that you believe would have a particular interest in the
operations of the following small businesses. (Hint: refer to table 3.1.)
a
b
c
d
Local fruit shop

Hairdresser
Dress boutique
Shoe shop.
ACTIVITY 3.3
Fashion labels show off their ethical colours in

national campaign
by Clare Kermond
A family-owned knitting business in inner
Melbourne has become the latest label to sign
up to a national campaign promoting ethically
produced fashion.
Otto and Spike, a 40-year-old business in
Brunswick, joins big names such as Lisa Ho
and Ginger & Smart in being accredited by
Ethical Clothing Australia.
The accreditation process included
tracking all the subcontractors involved in
producing garments for a label, checking that
everyone is working under award conditions
and wages.
Accredited labels can then use the ECA
trademark as part of their marketing campaign.
ECAs national co-ordinator, Emer Diviney,

said accredited brands were better placed
to capture a slice of the growing market for
sustainable and ethical fashion.
Clothing is an industry widely supplied by
home workers, often earning just $6 an hour.
The further down the supply chain you are,
the less people are paid, Tom Clarke, ECAs
communications co-ordinator, said.
Source: The Age,
7 May 2010
Questions
1 Outline four stakeholders of Otto and Spike and describe the vested interest they have in the
business venture.
2 Describe one way that Otto and Spike is being ethical in its business operations.
3 Identify two ways in which signing up to the national campaign to promote ethically produced
fashion will benefit this business.
29
ISBN: 9781107665910
External macro
environment
ACTIVITY 3.4
1 From the following list of businesses:
Macro environment refers to the range of

factors that can influence the operation and
performance of a business over which the
business itself has no control.
Economic forces
business or
economic cycle
regular swings in
economic activity; from
boom conditions to
recession, and
the reverse
globalisation
removal of economic
boundaries, which
creates free
international trade and
movement of capital
between nations
The pattern of growth and decline in the

Australian economy is usually cyclical: a period
of accelerating growth, then a boom, then a
sharp downturn (recession), and then recovery
and growth. This pattern is referred to as the
business or economic cycle.
Australias economy is influenced by the
economic cycles of other trading nations such
as China, the United States, the United Kingdom
and Japan. The level of impact on a business
by these changes in economic pattern is linked
to the type of business. In a time of downturn
or recession, when people have less money
to spend due to unemployment, new car
manufacturers and housing construction may
be adversely affected. However, businesses
dealing with liquidated and discounted stock
may enjoy growth because people are looking
for a bargain.
Social/cultural
Legal
Global
Economic
Macro
Technological
Environmental
Government/political
Figure 3.2 Macro environments
30
Identify which ones are most likely to be

affected by a downturn in the economy.
Justify your answers.
b Identify which ones are most likely to
be affected by an upturn or period of
accelerated growth in the economy.
i Designer clothing boutique
ii Supermarket
iii Car dealership
iv Chemist
v Real estate agent
vi Builder
vii Winery
viii Restaurant.
2 Which phase of the economic cycle reflects

Australias current position?
a Downturn
b Upturn
c Boom
d Recession.
Government and political forces

Federal and state governments can have an
impact on the operations of businesses. A change
in government resulting from an election can
lead to many business opportunities as the new
government endeavours to implement its election
policies. The former federal LiberalNational
government policies favoured privatisation,
which then created additional opportunities for
organisations to fully or partially acquire former
government business enterprises (GBEs). For
example, the Commonwealth Bank and Telstra
were both initially government-owned, and
have now been fully privatised with the majority
shareholding being in the hands of individuals.
Australia has a history of being politically
stable with no sign of change in the immediate
future. Should a business decide to operate
globally (globalisation), it needs to anticipate
major political changes in the countries in which
ISBN: 9781107665910
it operates, as this may affect the value of that

countrys money or its attitude towards certain
industries trading in their country. Businesses
are required to pay corporate taxes. If the tax
rate were to increase, a negative impact would
be felt by businesses. Similarly, if the tax rate
were to drop, this would also have major
implications. The imposition of the Goods and
Services Tax (GST) in July 2000 has created
additional workload for businesses, and has
made them responsible for collecting tax on
behalf of the government.
Legal forces
Like individual citizens, businesses must
comply with state and federal legislation
and common law in the operation of their
businesses. In Australia, laws are in place
to guide, protect and control both business
operators and consumers. Businesses also
need to comply with by-laws and regulations
established by the local municipal councils in
the area in which their business is operating.
For instance, cafs, restaurants and shops need
to abide by the local regulations relating to
eating outdoors and positioning of tables and
chairs on the footpath.
There is a wide variety of laws and
regulations that cover such areas as business
licensing, business names, fair trading,
occupational health and safety, workers
compensation,
environmental
protection,
workplace relations, unfair dismissal, equal
employment opportunity, anti-discrimination,
weights and measures, packaging, labelling
and consumer law. Non-compliance with these
laws and regulations can result in the business
being prosecuted.
Penalties can range from fines to
imprisonment of company directors or owners
for criminal offences. Successful civil actions
will result in damages, usually monetary, being
imposed. (See chapter 7 for more information
on these legal requirements.)
legislation
Act of parliament
(statute)
common law
law that has been made
by the courts
Figure 3.3 Local councils regulate the placement of

outdoor furniture and displays for cafs.
Technological forces
In an era commonly referred to as the ICT
age, it would be very short-sighted of an
organisation not to be responsive to the
advantages offered by technology and to
incorporate its use into its production and
information-processing procedures. Technology
has become a key feature in assisting businesses
to be innovative and competitive. It can assist
a business to communicate with its customers,
market its products and services, lower costs,
improve quality, and deliver goods and
services more quickly. Research conducted
by the Market Intelligence Strategy Centre
found that more than 1.2 million Australian
small businesses are turning to internet banking
for a range of useful functions such as paying
employees or conducting overseas foreign
exchange transactions.
consumer
a person or group who
purchases or uses a
product
unfair dismissal
dismissal of staff that
does not follow agreed
legal procedures;
employees may seek
to be compensated or
reinstated
technology
practical application
of science to achieve
a commercial or
industrial objective; it
often involves the use
of computers and can
relate to information,
communication, design
and manufacturing
31
ISBN: 9781107665910
ACTIVITY 3.5
Pie chain finds online ordering the perfect recipe

by Inside Retailing Online, 21 January 2011
Pie Face has boosted
sales for catering
by adopting a third
party online ordering
system.
The Sydney-based
franchised retailer of
gourmet pies now has
nearly 50 stores and has been named by BRW
as one of the fastest growing companies in
Australia.
A key part of Pie Faces growth was expanding its offer of home take-out and corporate
catering solutions fulfilling bulk orders for
pies for business meetings or domestic parties.
At first the company used a printed promotional menu but that required customers order
by phone or in person at the chains outlets.
Then they moved to an online ordering system,
using third party provider ecater.com.au.
Certainly, ordering online is a better
option, says Pie Face cofounder Wayne
Homschek, a former investment banker.
No mistakes, no administration and no
chasing up payments. Customers receive their
tax invoice immediately and can reorder quickly
from their account, he says.
Importantly, we get invaluable feedback on
the product quality and store service provided.
Homschek says the company has found
that most customers prefer using the eCater
online system for reasons of convenience and
the ability to manage numerous department
and division orders.
The eCater system allows Pie Face to
retain its unique branding while being listed
on the powerful Marketplace, along with other
providers a situation no different to the
competition faced in food courts and on the
high street.
Customers will always compare options
anyway and we believed this convenience
32
would help promote loyalty, explains eCater

chief Peter Knock.
Pie Face operates a combination of
company-owned and franchise stores, some on
street front, some in malls, airports, kiosks and
store within store concepts across four states
and some CBD stores trade 24/7.
On the eCater solution, each store can
individualise and control its opening and
closing times, menu items and pricing, item
order timing, payments and banking, delivery
or pickup notice, delivery fees and delivery
radius.
In a recent website redesign, Pie Face was
able to seamlessly integrate its brand and the
eCater system.
Stores now have very little admin and do
not need to worry about who answers the phone
anymore, says Knock. With the system fully
managed externally, Pie Face does not need to
employ or redeploy staff, nor does it have to allocate additional capital for software development
or upgrades.
The solution is painless for us to operate
and provides a great source of system and
procedure for all our company and franchise
stores, says Homschek, who is now targeting
5 per cent of the chains sales to be via online
in 2011.
As a result of implementing the online
system, Pie Face has seen its average transaction value for catering orders rise to $159
(compared to $9 instore) and sales are up
three-fold on a year ago and continue to grow.
Its now a key marketing platform and
crucial component of their successful franchise offering, says Knock.
Source: www.insideretailing.com.au/
ISBN: 9781107665910
Questions
Visit the Pie Face website (www.pieface.com.au) to assist in answering the questions.
1 How did the idea for Pie Face come about?

2 What products does the business sell?
3 Describe the benefits that Pie Face receives from conducting an online ordering system.
4 Why would Pie Face have decided to use a third party internet provider?
5 What performance indicator could Pie Face use to measure the success of this use of technology
to aid its business?
Global forces
The emergence of the global economy
means that businesses cannot ignore foreign
competition. Some businesses have found it
desirable to merge with or take over another
business to gain an advantage over their
competitors. Other businesses have made the
deliberate decision to remain Australian-based
in their operations and marketplace. Dick Smith
Foods has proudly adopted this stance and is
fiercely loyal to supporting products that are:
s produced by Australian-owned businesses
s grown and/or made in Australia
s made by Australian companies that operate
in a highly ethical manner.
ACTIVITY 3.6
Go to the website of Dick Smith Foods
(www.dicksmithfoods.com.au) and answer the
following questions.
1 What are the motto and mission statement of

this business?
2 How many products are currently in the Dick
Smith Food range?
3 What percentage of the products typically
purchased at a supermarket are either
imported from overseas or owned by overseas
companies?
4 Identify which famous Australian pie brand
returned to Australian ownership and which
company was responsible for purchasing it
back from its American owners.
5 Identify five food brands that were previously

Australian-owned and have been sold to
foreign companies.
6 How much money has Dick Smith Foods
donated to assist the community and
charities? Why has Dick Smith Foods had to
lower this figure in recent years?
Social and cultural forces
global economy
the economy of the
world; it has no
domestic economic
boundaries
merge
two or more businesses
join together to form
one united business
Businesses must be aware of and respond to the

way our society is changing. For instance:
s changing career expectations of women
s increase in female work participation rates
s changing dimension of families: dual income;
smaller; sole parents
s changing attitude to work and the desire for
balance between work and family role
s higher education levels and career
expectations of both males and females
s different expectations of the younger
generation
s the ageing workforce
s increasing level of diversity in the workplace,
e.g. ethnicity, gender, religion
s greater social responsibility expected of
organisations.
Small business in particular has been quick
to respond to opportunities created by these
changing social expectations, which have acted
as pressures. For example, there has been a
rapid increase in the need for childcare facilities
and other household support services such as
33
ISBN: 9781107665910
home cleaning, maintenance and gardening,

healthy prepared meals and home catering, pool
cleaning and pet care. These household support
services are one of the fastest growing industry
sectors in our economy, and are predominantly
owned and operated as small businesses.
Customers
Competitors
Trade
unions
Operating
environment
Suppliers
Regulatory
bodies
Financial
institutions
Lobby/pressure
groups
Figure 3.5 External operating environment
ACTIVITY 3.7
Figure 3.4 Example of recycled packaging materials
Environment
Businesses are under increasing pressure to take
care of our environment. With consumers being
more educated and aware of the environmental
impact of the products they purchase, they are
now seeking environmentally friendly products
and packaging.
For businesses, this has meant changes in the
ingredients involved or the way they manufacture
products. For example, car manufacturers must
include emission control mechanisms. In the
area of packaging, businesses may introduce
biodegradable or recyclable packaging materials.
External operating
environment
Businesses face pressures and uncertainties
from their operating environment. The factors
within this environment directly interact with
the business and its operations.
34
1 Identify two product types for which health

would be a factor in your choice of product.
Describe what health considerations were
important for each type, e.g. when buying
milk, whether to purchase REV or Skinny Milk
over regular milk due to lower fat content and
added nutrients.
2 Identify two product types for which
environmental impact would be a factor in your
choice of product, e.g. when buying laundry
detergent do you look for products that are
clean, green and safe for the environment?
3 Identify three products where your choice is
determined solely by price.
4 Discuss the comment Personal service is
more important than price. As part of your
discussion, identify under what circumstances
price would be the deciding factor to purchase
a product at one outlet rather than another
outlet with personal attention and superior
customer service.
Customers
Regardless of the size of a business, customers are
vital to its profitability and ongoing success. It is
therefore important that organisations adopt the
customer comes first philosophy. This attitude
is already widely adopted in retailing. Customers
are now more discerning and educated in
their consumer choices. With regard to food,
ISBN: 9781107665910
consumers are looking for products that are low

in fat and salt, and that contain no additives or
preservatives. Customers often make a product
selection based on whether or not it has the
Heart Foundations Tick of approval. Whether or
not a product is Australian-made can be another
common factor in consumer choice.
Competitors
Organisations should constantly monitor their
competitors products or services. It is important
to notice whether a competitor has introduced a
new product, extended a current product line or
changed its pricing strategies. All such changes
will impact on competing businesses, which must
be prepared to respond. Competitors, on a daily

basis, watch what their business rivals are doing.
For instance, in your local shopping centre the
large supermarket will be keeping a watchful eye
on the products offered and prices being charged
by the fruit shop, butcher and baker. Another
strategy used by businesses to gain a competitive
edge is by offering inducements, incentives
and loyalty schemes. For example, Woolworths
introduced an Everyday Rewards card. Coles at
this stage is still offering customers petrol discount
vouchers. Will this now change? In many smaller
shopping areas where Coles and Woolworths do
not operate, local traders are offering a similar
petrol discounting scheme.
Figure 3.6 Supermarkets offer customers incentives to save money when buying petrol.
ACTIVITY 3.8
1 Identify three examples of inducements or incentives currently being offered by businesses, e.g. Gloria
Jeans offers the Frequent Sippers card. This card is stamped when a customer purchases a cup of
coffee. Buy 10 cups of coffee and then receive a free regular-sized drink.
2 Explain why businesses see the need to offer these inducements or incentives.
3 Evaluate whether these inducements or incentives are really worth much in monetary terms.
CH AP TE R 3 BUSINESS ENVIRONMENTS
35
ISBN: 9781107665910
Suppliers
supplier
supplies the inputs
(resources) required for
the production process
collective bargaining
agreement
an agreement
where collectively
the employees have
negotiated with an
employer the conditions
of employment relating
to their pay and
working conditions
lobby group
a group that aims to
influence organisations
or governments in
their decision-making
process
deregulation
involves removing
government
regulation from an
industry in pursuit
of greater efficiency
and creating an
improved competitive
environment
internal environment
activities, functions
and pressures that
occur within an
organisation over
which it has control
A supplier is any provider of inputs into your

businesss operations. Inputs can take the form
of raw materials, services, energy, equipment,
labour and capital. Businesses must ensure a
steady and reliable flow of needed inputs at
the lowest possible cost. It is therefore essential
to establish a guaranteed stable, long-term
relationship with selected suppliers.
Australia has three car manufacturing
companies: Ford, Holden and Toyota. These
companies are heavily reliant upon component
parts for the assembling of their cars. If there is
a problem with supply, which generally occurs
due to a strike at one of the component part
manufacturers, they ultimately will have to close
down their assembling plants until the industrial
dispute is settled.
Trade unions
Trade unions represent workers rights, acting on
behalf of workers to negotiate with management
on issues such as wages, working conditions,
working hours and other aspects of employment.
The union may become a party to a collective
bargaining agreement or work within the
broader industrial relations framework.
Employers also have representative bodies,
such as the Australian Chamber of Commerce
and Industry, to act in negotiation with both trade
unions and the various levels of government.
Deregulation of the banking and finance
industry has allowed for a more competitive
financial environment. To ensure they do not
incur excessive costs, businesses need to keep
up to date with interest rates, loan arrangements,
credit facilities and electronic banking.
Regulatory bodies
All three levels of government federal, state
and local place pressure on businesses in the
conduct of their operations. Individual businesses
have to respond to and interact with the
Australian Taxation Office (ATO), the Australian
Securities and Investment Commission (ASIC),
the Australian Competition and Consumer
Commission (ACCC), occupational health and
safety authorities, and local councils.
All businesses must respond to pressures and
forces from within their organisation (internal
environment). Pressure can come from the
following areas.
Lobby/pressure groups
Special interest or lobby groups can attempt to
influence the actions of organisations. While many
of these groups focus on environmental issues,
others may lobby for safer working conditions for
employees. For instance, the Cancer Council has
been instrumental in ensuring that workplaces
implement non-smoking and SunSmart policies
to protect the health of employees.
Community groups can also have an impact
on a business. If a community does not like the
way a business is operating, it can take action
36
(or rather, non-action) that causes brand value

loss overnight. For example, Nike sales were
adversely affected when it was accused of using
child labour in its manufacturing operations.
Owners/
shareholders
Management
Internal
environment
Corporate
culture
Employees
Organisational
structure
Figure 3.7 Internal environment
ISBN: 9781107665910
Owners/shareholders
In small to medium-sized organisations, the
owners/partners or shareholders have direct
influence in the running of the business venture.
not realistic; however, they must ensure that

they at least comply with all relevant workplace
relations guidelines with regard to pay and
conditions for staff.
Management
Organisational structure
In a small business, management is generally

undertaken by the owner. When a business
expands in size, it will need to form a
management team who will work together to
establish the strategic direction and objectives
of the business. Pressure can result if the
management team plans a different direction for
the business than the original owner.
Small businesses usually have very little formal

organisational structure. This lack of structure
can cause pressure, particularly when the
business is growing in size and needs more
formality in its organisation.
Employees
Employees seek to work in a non-discriminatory
and ethical workplace that provides workplace
flexibility, equal employment opportunities,
career development and a healthy and safe
work environment. This places pressure
on organisations to provide these policies,
procedures and work practices. For a small
business operator to satisfy all these needs is
Corporate culture
Corporate culture evolves over time
and reflects the shared values, beliefs and
expectations of management and employees. It
can reflect the personality of the original owner
of the business. For instance, the risk-taking
culture of the Virgin Group is derived directly
from the founder and owner, Richard Branson.
His high-risk-taking personality has taken
him from being a small business record-shop
operator to a highly successful global business
entrepreneur.
management
the process of planning,
organising, leading and
controlling the work of
subordinates to achieve
organisational goals;
getting work done
through other people
corporate culture
the shared values
and beliefs of an
organisation, which can
influence the actions
and decision-making
style of managers and
employees
37
ISBN: 9781107665910
CHAPTER SUMMARY
s !LLBUSINESSESREGARDLESSOFSIZEOPERATEINA

COMPLEXANDRAPIDLYCHANGINGENVIRONMENT
3UCCESSCOMESWHENABUSINESSISABLETO
RESPONDQUICKLYTOTHESEPRESSURESOFCHANGE
s 0RESSURESCOMEFROMBOTHTHEEXTERNALAND
INTERNALENVIRONMENTSOFTHEBUSINESS
s 4HEEXTERNALENVIRONMENTCOMPRISESTWOLEVELS
THEMACROANDTHEOPERATINGENVIRONMENTS
s 4HEMACROENVIRONMENTEXERTSPRESSURESTHAT
GENERALLYREQUIRETHEORGANISATIONTOCOMPLYOR
RESPOND4HESEINCLUDEECONOMICGOVERNMENT
ANDPOLITICALLEGALTECHNOLOGICALGLOBALSOCIAL
ANDENVIRONMENTALPRESSURES
s 3TAKEHOLDERSARETHOSEINDIVIDUALSORGROUPS
WITHAVESTEDINTERESTINTHEBUSINESSANDHAVE
INmUENCEOVERTHEOPERATIONOFTHEBUSINESS
/FTENSTAKEHOLDERSCOMEFROMTHEINTERNAL
OROPERATINGENVIRONMENTOFTHEBUSINESS
3TAKEHOLDERSCANBESHAREHOLDERSOWNERS
DIRECTORSMANAGEMENTEMPLOYEESTRADE
UNIONSCUSTOMERSSUPPLIERSCREDITORSBANKS
COMMUNITYGOVERNMENTANDCOMPETITORS
s "USINESSESMUSTBEAWAREOFTHEIMPACTTHEIR
BUSINESSACTIVITYHASONVARIOUSSTAKEHOLDERS
)NPARTICULARTHEYMUSTCONDUCTTHEIRBUSINESS
INANETHICALANDSOCIALLYRESPONSIBLEMANNER
s 4HEOPERATINGENVIRONMENTEXERTSPRESSURESTHAT
THEORGANISATIONWILLRESPONDTOBUTMAYALSO
HAVEINmUENCEOVER4HESEINCLUDEPRESSURES
FROMCUSTOMERSCOMPETITORSSUPPLIERSTRADE
UNIONSLOBBYGROUPSlNANCIALINSTITUTIONSAND
REGULATORYBODIES
s 4HEINTERNALENVIRONMENTOFANORGANISATION
ALSOEXERTSPRESSUREONTHEORGANISATION4HESE
PRESSURESCOMEFROMITSSHAREHOLDERSOWNERS
MANAGEMENTEMPLOYEESORGANISATIONAL
STRUCTUREANDITSCORPORATECULTURE
1 )DENTIFYTHETHREEINmUENCESORPRESSURESFROM
CHAPTER SUMMARY
QUESTIONS
THEMACROENVIRONMENTOFABUSINESS
a Economic, legal and political factors
b Customers, competitors and employees
c Unions, suppliers and financial institutions
d Shareholders, technology and ecological
environment.
2 /RGANISATIONSDONOTOPERATEINISOLATIONASTHEY
INTERACTWITHTHEIREXTERNALENVIRONMENT)DENTIFY
ANDDESCRIBEFOURFACTORSORPRESSURESTHATCAN
AFFECTANORGANISATION
3 )DENTIFYWHATISMEANTBYTHETERM@STAKEHOLDERS
4 $ISCUSSTHELIKELYEFFECTSONFOURSTAKEHOLDERS
OFAMERGERBETWEENTWOMAJORRETAILSTORES
5 /NEIMPORTANTETHICALISSUEFACEDBY
BUSINESSESRELATESTOWHETHERTHEBUSINESS
SHOULDDOWNSIZEITSLABOURFORCEINANEFFORT
TOINCREASEITSPROlT0ROVIDETWOARGUMENTS
FORANDAGAINSTTHISPROPOSITION
6 4ECHNOLOGYISAVERYPOWERFULFORCEINBUSINESSES
a Outline two opportunities offered by
technology and provide examples.

b Outline two ways technology has threatened
the survival of a business. Provide examples.
OFABUSINESS%XPLAINHOWABUSINESSTAKESTHE
INTERESTSOFITSSTAKEHOLDERSINTOACCOUNTWHEN
MAKINGDECISIONS
38
ISBN: 9781107665910
EXTENSION
QUESTION
4HE!USTRALIAN#OMPETITIONAND#ONSUMER
#OMMISSION!### PLAYSANIMPORTANTROLEIN
REGULATINGBUSINESSACTIVITIES0ROVIDEABRIEF
OUTLINEOFTHEROLEITPLAYSANDWHOITSEEKSTO
PROTECT(INTVISITTHE!###WEBSITEAT
WWWACCCGOVAU
39
ISBN: 9781107665910
MAJOR DECISION
TO STARTING A SMALL
WHATS AHEAD
Form of ownership
or legal structure?
Suitability of person
to operate a
small business?
Location and layout?
Preliminary decisions to
make before establishing
a small business
Type of business?
A new business from

scratch, an existing
business or franchise?
Business viability?
ISBN: 9781107665910
SMALL BUSINESS DECISION MAKING,

PLANNING AND EVALUATION
KEY KNOWLEDGE
Students will learn the following about small business decision making,
planning and evaluation:
business concept development and initial market research
innovation and entrepreneurship as a source of business opportunity
AREA OF STUDY
MAKING PRIOR
BUSINESS
forms of business ownership and business structure

purchasing an established business, commencing a new business,
including franchise operations
location options: shopping centre, retail shopping strip, online presence
and home-based businesses and the factors that affect that choice.
Effective decision making is an integral

component of a successful business operation.
Small business management largely involves
making decisions about all aspects of that business.
To succeed, good decision making is vital from
day one of business inception and continues
right throughout the life of the business.
This chapter focuses on the key decisions
made prior to starting a small business. Decisions
must be made about:
s the potential business operators personal
suitability to operate a small business and
s
s
s
s
s
work for themselves (personality type, skill

levels, experience, knowledge and personal
traits). This involves asking: Is this business
right for me?
the business concept (type of business)
the form of ownership (legal structure)
whether to purchase an existing business, a
franchise operation, or start a completely new
business from scratch
where to locate the business
how to layout the business.
decision making
a multistep approach
whereby a selection is
made between a range
of different alternatives
41
ISBN: 9781107665910
Decision 1:
Suited to operate
a small business?
The first steps involve evaluation of:
1 the reasons why the potential business
operator is going into business, then
assessment of whether these are valid
2 the skills, abilities and personality of the
business operator to gauge suitability for

business ownership
3 objectives of the business.
Motivation behind starting

a small business
People decide to enter self-employment for
varied reasons, including to:
s be independent, and their own boss
s become wealthy
s be recognised as a success for self-worth
s have flexible working hours and conditions
s overcome unemployment
s follow family tradition
s fill an identified gap in the market not
currently being met (a market need).
Figure 4.1 Effective communication skills are vital to

business success.
42
All of these reasons are valid; however, a

potential operator must assess whether or not
they are entering into small business ownership
for the right reasons. They must evaluate:
s their personal objectives
s what things are important to them (family,
lifestyle, interests, wealth, status)
s if the business venture can and will realistically
satisfy these objectives
s if they will be able to access things that are
important to them.
Personal skills and qualities

for small business success
A small business owner will need to possess
numerous skills. Some skills will be specific
to the type of business; others will be generic
business skills. Some of these skills are:
s communication skills essential when
dealing with people the business comes
into contact with, including staff, customers,
suppliers,
professional
advisers
and
government agencies. Communication skills
are an asset to any small business owner.
(See chapters 13 and 14 for more information
on communication skills.)
s technical
skills
and
appropriate
qualifications necessary to successfully
complete the tasks within the business.
For example, a lawyer requires legal skills,
knowledge and qualifications, a swimming
school operator requires knowledge about
how people learn to swim and a hairdresser
requires skills and trade qualifications in
cutting and colouring
s planning and organisational skills
required to manage workflow, manage
time effectively, to keep up to date with
paperwork and organise workspace
s accounting and financial skills
necessary to monitor the financial position
of the business
s marketing and promotional skills
required to promote the business and its
products to potential customers
ISBN: 9781107665910
s administrative skills required in

establishing
effective
and
efficient
procedures within the business so processes
run smoothly
s analytical skills ability to analyse or
study the nature of a given situation or set of
circumstances
s computer skills knowledge of relevant
software packages
s negotiation skills doing deals with
clients/customers, suppliers, or anyone with
whom the business comes into contact
s leadership skills the owner of the
business will be required to lead effectively
both staff and the business as a whole.
Figure 4.2 A small business owner must possess

marketing skills.
ACTIVITY 4.1
Skills audit
Refer to the list of personal skills and qualities above. Consider which of these you think you already
have, which you need to acquire, and how you could acquire those you are lacking.
Place this information in a table (such as the one below) in your workbook.
The first skill is completed for you.
Skill
Why is this skill

necessary in
small business?
Self-evaluation
positives
Communication
To deal effectively
with all aspects
of the business,
including selling,
staff, government
agencies, suppliers
s I am good at
communicating
with my peers
on a one-to-one
basis
Self-evaluation
negatives
Strategy for
developing
expertise in
this area
s I need help when s TAFE course

communicating s Read book on
with large
body language
groups
s Ask a friend for
s I do not read the
assistance
body language
s I write very clearly
of other people
s I speak two
well
languages
Technical skills
body language
a form of non-verbal
communication that
includes messages
and communication
conveyed by facial
expressions and other
gestures
Analytical skills
Financial
management skills
Leadership skills
CHAPT E R 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS
43
ISBN: 9781107665910
There are also certain recognised personal

qualities that are advantageous when operating
a small business. These include:
s preparedness to take risks
s ability to think outside the square; this
means being able to think of new ideas and
different ways of approaching things; to see
opportunities that others cannot
s confidence
s self-belief and enthusiasm
s ability to work independently without
requiring guidance
s ability to accept responsibility

s ability to set goals
s flexibility and ability to change direction
when required
s determination to see things through
s capacity to work hard
s ambition to achieve long-term goals
s ability to adapt to change readily and learn
from mistakes
s being a practical doer rather than someone
who theorises.
ACTIVITY 4.2
The four traits for entrepreneurial success

This week, entrepreneur Siimon Reynolds
spoke about the four traits for entrepreneurial
success. Reynolds gained prominence in the
advertising world when he became a creative
director at a major advertising firm at 21.
He then went on to found a series of media
related companies and other businesses
including an anti-ageing clinic. He now runs
the Photon Group. Talking at a networking
function for small business owners run by the
City of Sydney and Clearly Business, here is
a summary of what he identifies as the four
essential traits.
1 Persistence
Successful people dont take failure personally
and they fail many times. But they just learn
from the experience and get on with trying an
alternative path to success. Reynolds says:
When you take it personally, you tend to give
up. Successful people dont have failures, only
results. Of course its hard not to get down by
the challenges business can throw your way, but
remember that theres always another route to
get to where you want to go.
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2 Belief
Successful people have a single-minded belief
that they are going to succeed. If you dont have
this belief, youll only make a half-hearted effort
anyway. Reynolds points out: We are what we
constantly visualise about ourselves. In other
words, your beliefs determine your reality. If
you think business is going to be tough, then
business is going to be tough.
3 Vision
Successful people have vision. They have a clear
idea of where they want to go. They might not
know every single step of how to get there just
yet, but they have the big picture firmly in mind.
4 Action
Successful people have a preparedness to take
action. However, the bizarre thing is that most
people dont. Most people sit on the sofa and
wonder why they arent successful. Reynolds
adds that [it] is not just about taking action. He
says: To be great, your actions must be great. I
guess that was the message that stuck out most
for me (and Ive heard this exact talk before at
another networking event!). I realized its not
ISBN: 9781107665910
Source: Valerie Khoo,

The Sydney Morning Herald
March 27, 2008
just about crossing off items on my to do list.

My (slightly work-obsessed) friend once heard
her husband telling her: I think you confuse
activity with achievement. He was right. And
so is Siimon. Its not about how many things
you get done. Its about how impactful they are.
You have to be prepared to take great actions.
Change the path you are on. Try a new way of
doing things. You never know it may take your
business to new heights.
Questions
1 List and briefly explain the four essential traits for a small business owner.
2 Explain what Reynolds means by the statement, successful people dont have failures, only results.
3 Why is it important, in Reynoldss view, not to take failure personally?
4 Your beliefs determine your reality. What is meant by this statement?
5 What is a vision? Why is it important for a small business operator? How is a vision related to planning?
6 Discuss and explain the importance of impactful action.
ACTIVITY 4.3
Read the descriptions of the qualities and skills of these small
business owners and answer the questions that follow.
Ahmed is a qualified chef who has worked

in a Lebanese restaurant for five years. He
is highly regarded in the industry and is
thinking of opening his own restaurant. He
has a temper and often loses his cool with
customers and fellow staff members alike.
His wife is an accountant. Ahmeds friends
say that he is a very determined person
who wants to be a millionaire before he is
30, in five years time.
Maria is a professional dancer who is nearing retirement age. She has extensive experience appearing in numerous stage and
television shows. She is very quiet and lacks
confidence, but is noted in the industry as
an excellent dancer. She is extremely shy
about speaking to groups of people, but
loves children.
Phyllis has just left school at the end of

Year 11. She has good computer skills, is
confident and spends her days surfing the
internet. She wants to set up her own computer repair business. She failed English in
her last year at school.
Thu is sports mad. For eight years she has
worked in a chain of stores that sells sporting shoes, but has recently become very
disillusioned after being passed over for
promotion in favour of the store owners
daughter. Thu feels that her selling skills
and technical expertise in fitting sports
shoes is better than anyones in this industry. Her partner is currently unemployed.
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ISBN: 9781107665910
Questions
1 What skills does Ahmed possess that could help his new restaurant succeed? What personal
qualities could hinder his chances of success?
2 Do you believe that Maria should start her own dance school? What skills does she have that would
help her? What is her major drawback?
3 What skills do you believe Phyllis should try to acquire before she starts her own computer repair
business? Where do you suggest she acquire these skills?
4 What action do you believe Thu should take? Justify your answer.
5 Which of these people do you believe has:
a the least chance of success in running their own business at this time? Why?
b the best chance of business success at this time? Why?
Decision 2: Type of
business?
The next decision to be made is about the type
of business to enter into. A successful business
entrepreneur
a person who is willing
to combine an element
of risk taking with their
own knowledge and
skills to make a profit
entrepreneur is able to see an opportunity

that others cannot. An idea for a small business
might eventuate in one of several ways.
1 Listen to family and friends a business
be done better, or are not done at all. Often

the simplest ideas and observations can
prompt the most successful small businesses.
For example, noticing an instance when
someone is unable to obtain a specific
product or service at the exact time it is
required is often the first step.
3 Research new ideas and concepts on the
idea often can come up in the course of
internet, as well as using other sources such
a conversation. It is a good idea to keep
as publications.
your eyes and ears open to other peoples
4 Looking overseas can give the small
comments and ideas. A visit to an internet
business operator access to many new ideas
chat room might be another source of ideas.
and innovations that have not yet arrived in
Listen for comments such as What we need
Australia. The first person to import a new
around here is , I wish I could get
idea from overseas profits very handsomely.
and It would be a good idea if someone
For instance, being the first Australian who
2 Personal inspiration many successful
46
make observations about things that could
introduced McDonalds or the first to stock
small business operators come up with an
a popular brand such as Nike would be
original idea. A potential small business
extremely profitable! More recently, the idea
operator is well advised to look around and
behind Boost Juice came from overseas.
ISBN: 9781107665910
5 New inventions and innovations are
often a good starting point. These can be

sourced on the internet or through personal
research.
6 Other sources of ideas include trade
magazines, market research and competitors.

A potential operator must look for what is
known as a gap in the market. A gap is
something not currently being catered for
sufficiently or effectively. Successful small
businesses always do something better,
differently, in a new way or a combination of
these. Customers/clients will not frequent a
new business unless it is offering something
new, better or different! This is known as
innovation. A business must aim to develop
new and improved products and services using
methods and processes that are more efficient
and effective.
Innovation and
entrepreneurship
Innovation is often the impetus for a new business
venture. An innovation can be a whole new
product, a variation on an existing product that
improves it, such as colour, design or features, or
a different way of taking a product to the market,
e.g. home delivery. Innovation can come from
scientific research, changes in the ways things
are done and improvements in technology.
Innovation is a source of whole new industries
as well as individual new businesses. In fact,
innovation leading to increased productivity is
the basic source of increasing wealth creation. A
potential small business operator must look for
innovative opportunities.
Protecting intellectual
property
Once an innovation has been developed, it must
be protected from others copying or stealing
it. This means protecting your intellectual
property. This involves registering an idea as
a patent, a trademark, a design, trade secret,
confidential information, circuit layout, or (in
the case of plants) as a plant breeders right. The
idea must be registered also, and registration
must be made in every country where you intend
to trade.
Types of intellectual property include:
s patent granted for exclusive exploitation
of any device, substance, method or process
that is new, inventive or useful
s trademark a right granted for exclusive
exploitation of numbers, letters, words,
phrases, sounds, smells, shape, logo, picture,
an aspect of packaging or combination
of these
s design features of shape, configuration,
a pattern or ornamentation that make a
product unique
s copyright original expression of ideas
(not the ideas themselves), e.g. in art,
songs, literature, films, computer programs,
articles and photos
s trade secrets/confidentiality intended to
stop employees from releasing your ideas to
others, e.g. a secret recipe.
For more information on intellectual
property, visit the IP Australia website
(www.ipaustralia.gov.au).
CH A P T E R 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS
gap in the market

an opportunity for a
business to enter into
an area of the market
not currently being
serviced
innovation
introduction of new
things or methods;
improving the current
work practices,
procedures and products
intellectual property
the property of mind
or intellect; can be an
invention, trademark or
an original design
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ISBN: 9781107665910
ACTIVITY 4.4
Nudie Juice
Fabulous fruit juice company Nudie has a
reputation as one of the most innovative
businesses around. Webman Nudie Martin
Killips, who manages the Nudie website and
has worked with Nudie since its inception,
says we wanted to do things differently
from the start.
A gentle tweak
The first innovation for the company was, of
course, its branding. The name tweaks its nose
at the establishment in a gentle way, he says.
From the start, the company wasnt afraid of
taking risks, particularly with the brand. It was
a strategy that paid off. We were warned that
purple-coloured vans wouldnt work with food,
but our vans have been incredibly important
to the business. In the early days, Japanese
tourists would scream and shriek and take
photos. Or people would drop their drawers
and flash at us. A prostitute even stopped a
van to ask where the brothel was because
she wanted to work there, Killips says.
Despite the amusement factor of these stories,
they all helped develop the reputation of
the company.
Be cheeky
The company also made sure to include
original labelling on its products, rather
than follow convention. For example,
bottles have a disclaimer that reads
if youre not satisfied with this product, send
it back and well drink it. While such cheek
wont suit every business, its an approach from
which many businesses can learn. Killips said,
People also developed a real relationship with
the Nudie character, which is a distinctive,
48
Figure 4.3 Fresh fruit is important for fruit juice

company, Nudie
purple line drawing of a creature who appears
on every Nudie bottle. We created a simplicity
and innocence for the character right from
the start, which generated lots of publicity
for us.
Make it personal
A key part of Nudies success is the personal
service its customers have come to expect. In
the early days, I would take care to remember
our customers favourite Nudie flavours and
pop an extra Nudie in for the person responsible
for making the order. These little things built
great relationships with retailers. It meant they
wanted us to succeed and they also gave us
preferential treatment says Killips [As] no
other juice company offered such personalised,
exceptional service, the Nudie method of doing
business with its customers was innovative.
We really tried to do things in a unique way.
For example, I wouldnt just drop off a box of
Nudies, Id take the time to stack the shelves.
This also meant we had prime positions in many
retailers fridges, he says.
ISBN: 9781107665910
First to market
Killips says Nudie founder Tim Pethick also
recognised early on that he needed to create a
national distribution platform for the product
quickly, to ensure Nudie was first to market in
every major Australian market before major
players could enter the market and try to cut
Nudie out. When we started there was just
nothing like it in the juice market, Killips
says. Because Nudie approaches every aspect

of its business with fresh eyes, its been able
to stay ahead of its game, demonstrating that
an innovation can catapult a business to the
position of market leader.
Source: Small business information from
Kochies Business Builders
http://smallbusiness.yahoo.com.au.
Questions
1 Name the business that is the subject of this article. Describe what it sells.
2 List and describe the innovations of this business discussed in the article under each of the
following headings.
a
b
c
d
Branding
Use of distinctive purple vans
Labelling
Personal service.
3 Describe how each of these innovations was or could have been advantageous to the business in
the marketplace.
4 What evidence is there that a culture of innovation exists at this particular business?
5 Give two examples of intellectual property that this business would be advised to take out.
6 Go to www.fastflowers.com.au and answer the following questions.
a When was this business started and by whom?
b Describe how the owner/founder of this business was inspired to start it.
c List and describe examples of how this business was, and still is, innovative.
When contemplating an idea for a new

business, the issue of social responsibility must
also be considered. Businesses should operate
within the boundaries of what is acceptable
to the wider community. A new idea may not
be socially acceptable. For example, the new
product may be potentially harmful to children
or disrupt family life.
Recent opportunities
for Australian small
business
There are always opportunities for the potential
small business operator. The trick is to locate
them. Changes in lifestyles, fashions and trends
are all indicators of what may change consumers
purchasing habits. A business operator should
keep an ear to the ground!
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ISBN: 9781107665910
ACTIVITY 4.5
Spinning a new kind of yarn

by Neena Bhandari
Few business editors would contemplate
becoming an entrepreneur, but six years ago
Mike Hall stepped out of a 20-year career
as a journalist to launch a design-led textile
business catering to the high end of the market.
When I started out, I couldnt tell the difference between silk and cotton, but now I can
hold my own in a conversation about weft and
warp, empire lines and stitches per inch, says
Hall, whose company Jasmine Hall wholesales
home textiles and fashion.
While working in Singapore as the bureau
chief for international news agency Bloomberg, responsible for a team of 60 reporters and
editors, Hall realised he had become more of a
manager than a journalist. He decided to move
back to Sydney, and set up a business importing from India, a country that had become a
second home during his years of reporting
from the sub-continent.
He made a list of about 300 different products and landed in Mumbai. A good friend there
who had some experience in retailing kept
saying to me do textiles because they are easy
to ship and store, high value, low volume, and
India has such an amazing diversity of textiles
to offer.
Halls friend put him in touch with the
Shades of India factory in Delhi, who happened
to be looking for an Australian distributor.
50
My first order was for four red silk cushion

covers which arrived by courier and I was in
business! he says.
From one customer in 2004, Jasmine
Halls decorative cushions, bed linen, clothing
and fashion accessories, are now sold at top
boutiques such as Orson & Blake in Sydney
and Hermon & Hermon in Melbourne.
The company, named after Halls daughter, now has more than 300 retail stockists
and another 200 interior designers as active
customers across the country. It also has two
permanent employees, sales agents in every
state and a warehouse and showroom in Mona
Vale. Hall is budgeting on sales of more than
$1 million for next year.
But the transition from journalist to textile
salesman wasnt easy. While Hall loved the
challenge of meeting prospective customers
and showing them new things, he soon realised
it was easier to make appointments as a journalist rather than a salesman.
However he was able to apply many of the
skills he had learnt as a journalist.
Ultimately, business is about being able to
deal with people, build a relationship of trust
just as a journalist might do with a source.
It was a huge learning curve for Hall as he
mastered skills from sales to inventory management. He decided to focus on the top end of the
ISBN: 9781107665910
market and now works with designers in India

to develop new ranges using traditional skills
and techniques. The contemporary products
are designed to appeal globally.
I wanted to work with contemporary products that had a story to tell and I was inspired
by the idea of skilled artisans and designers
combining to push the boundaries of handcrafted textiles.
Having spent years reporting from India and
Africa, Hall could see the social and economic
benefits of labour intensive manufacturing.
Our bedcovers, for example, are handquilted in village centres outside Delhi by
women who might otherwise have been landless labourers. Now they earn a steady income
and can send their kids to school and build a
home. There are real social benefits from trade.
Recently, Hall launched his own bed linen
and accessories brand, Secret River, inspired
by water.
Hall says good quality products and

customer service help give his business an
edge in what is a very competitive market.
Customer service is something he says he
learned from Bloomberg founder Mike Bloomberg, now the mayor of New York. I spent
three days with him in India and although he
was a billionaire with a private jet, he would
always take the time to thank customers
for their business. He had this philosophy of
extreme customer service nothing is too
much trouble.
Source: The Age
11 November 2010
Questions
1 Name the business that is the subject of this article. Describe what it sells.
2 Outline the previous work experience of this small business operator. Did any of this experience
assist him with the business start-up and operation?
3 Describe the market that this business aims to sell to.
4 Explain how Mike Hall came up with the idea for this business.
5 Describe the competitive advantage that this company has over other textile companies.
6 Has this business been a success? Give evidence for your answer.
7 Describe an issue relating to the corporate social responsibility that Jasmine Hall could use in order
to create a competitive advantage in the marketplace.
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ISBN: 9781107665910
Decision 3:
Developing a
business concept
market research
systematic approach
used to assist in
making decisions about
consumers and the
marketplace
viable
capable of developing
and growing
feasibility study
initial research that is
required to determine
whether the business is
potentially viable
52
Once an idea for a business has been arrived at,

the products fully developed and the intellectual
property legally protected, the process of
commercialisation can commence. This will
include market research.
Is this business viable?

Initial market research is performed to
determine whether or not the business is
potentially viable. In other words, will the
business survive and be profitable? This
is known as a feasibility study. Even the
best business ideas are useless when there
are insufficient customers or clients willing
and able to pay for the goods and services
being offered.
The initial market research should look at
your products from the perspective of potential
customers. It should look for answers to the
following questions:
s Is it attractive to customers?
s Does it provide value?
s Does it do what it is meant to do?
s Who are the competition and what are the
potential areas of competitive advantage?
Answers to the above questions can be
obtained by talking to potential customers,
using surveys, interviews, focus groups,
customer lists and questionnaires. Further

information on the market or industry can
be gained through previous research, market
reports and industry analysis.
From the information collected, you should
be able to gauge the following information:
s Is there a real market? Is there potential
for growth?
s How much are customers willing to pay?
s Who is the competition and how do you
compete against them?
s What are the barriers to market entry?
s What resources are required for market entry?
What should be in a
feasibility study?
A feasibility study, once completed, should
contain the following information:
s a description of the business idea, products
sold, services offered and the personnel
operating the business
s an overview of why the business will succeed
s profiles of the key people involved, including
background, skills, personal qualities and
qualifications
s a description of the market who and where
the customers are and expected sales
s identification of the competition, both direct
and indirect, with a list of their strengths and
weaknesses
s location and site layout
s a brief analysis of the proposed operation.
ISBN: 9781107665910
ACTIVITY 4.6
At last, a use for dingo urine

Kangaroo and wallabies are much-loved
Australian icons, but in some parts of the
country they are also pests that threaten rare
plant species, or damage crops and saplings. So
when farmers and conservationists have them
shot or poisoned, not surprisingly theres usually
a public outcry. Could urine from dingoes, a
natural predator of kangaroos and wallabies,
be a humane alternative? According to a recent
article in New Scientist, the answer is maybe,
says Michael Parsons, a behavioural ecologist at
Curtin University in Perth, whos been running
the studies.
In the first 16-day trial, semi-wild Western
grey kangaroo and red kangaroo were far less
likely to feed from troughs within 12 metres
of dingo urine than troughs further away.
Since then, a total of 212 days of trials have
found the same effect in a variety of locations
and species, including wild Bennetts wallaby,
considered a major pest of Tasmanian forest
plantations. Parsons thinks the animals are
showing a classic flight response, rather than a
general aversion to smelly urine. Thats in part
because of the nature of their reaction, but also
because human urine and old dingo urine fails
to deter the animals. Three-month-old urine is
far more foul to us, but we got no response from
the kangaroos, Parsons told me. Urine from
coyote American natives, and not a predator
of kangaroo or wallaby also deterred the
animals, but far less effectively. So far, so good.

But there are still many hurdles to overcome.
As old urine doesnt work, Parsons has to treat
the urine like a precious medical resource,
express shipping it across the country packed
with liquid nitrogen. That adds to the expense
of an already pricey commodity. Also, only
urine from purebred captive animals will do,
and they must be allowed to urinate naturally to
ensure the signal is intact. Its a fiddly business
and dingo urine fetches at least $350 per litre.
To tackle those issues, chemists at a company
called the Chemistry Centre, also in Perth, are
reverse engineering dingo urine to identify the
key compounds. The hope is that once these
have been isolated from the rest of the urine,
the repellent compounds might stay fresher for
longer. It might even be possible to concentrate
them, creating a super dingo urine repellent.
One thing is certain: Australia needs some new
ways to control its native animals.
Shooting kangaroos invariably causes a
public outcry both here and overseas, as does
using the poison 1080, or sodium fluoroacetate, to kill wallabies. It is, in any case, ineffective in some parts of the country, but when
it does work it leads to an unpleasant death.
Source: New Scientist Blogs on
the Environment.
June 16, 2008.
Questions
1 What have scientists discovered is the effect that dingo urine has on other native animals such
as kangaroo?
2 Explain how this discovery has potential to become an innovative business idea.
3 What type of intellectual property needs to be applied here?
4 What still needs to occur before this idea/innovation becomes a business opportunity?
5 Would this be a socially responsible product? Give reasons for your answer.
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ISBN: 9781107665910
Decision 4:
A new business
from scratch or an
existing business?
franchise
a business that is
based upon the
purchase of a franchise
licence from the
franchisor; allows the
franchisee to use the
business name, logo
and products
goodwill
the difference in value
between the price that
a business is sold for
and its net asset value;
reflects the value of the
firms reputation and
trading contacts
54
The next decision to be made is whether to:

s start a completely new business from scratch
s purchase an existing business
s buy a franchise.
Each option has distinct advantages and
disadvantages. The potential small business
operator must decide which best suits them,
their talents, skills, abilities, goals and personal
requirements.
s greater difficulty in obtaining finance with an

unproven venture
s a suitable location will need to be sourced
and the business resourced from scratch
s potential for unexpected competition
s more scope for error as the new business
owner will need to make many more decisions.
Extra considerations when establishing
a business from scratch can include:
s locating and obtaining suitable premises
s registration of the new business name and
the need to ascertain relevant licensing and
codes of practice requirements
s establishing relations with reliable suppliers
s employing staff.
Starting from scratch

This is usually the best option if there is a
completely new idea or concept currently not
available in the market that the business operator
wishes to develop.
The advantages to the business owner of starting
from scratch can be:
s complete control over the concept and form
of the business
s it will be their business with their personal
stamp on it
s the price of the business will not include the
added cost of goodwill
s more freedom to implement their own ideas
and be their own boss
s to avoid buying into the mistakes of others
s complete autonomy in the running of the
business and in its establishment decisions.
The disadvantages to the business owner
of starting from scratch can be:
s there is a far greater degree of uncertainty
with no previous sales history or figures to
refer to
s more work initially
s it will take longer to establish a client/
customer base and, therefore, cash flow
s greater time and energy is required to
establish a good name and reputation
Figure 4.4 Setting up a new business
Buying an existing
business
If the new business operator decides that they
would rather purchase an existing business as
a going concern, the following costs will be
incurred:
s premises, plant and equipment
s inventories of unsold stock purchased at
valuation price (SAV)
s customer accounts
s contractual and legal rights such as patents
s employees
s goodwill (this is the cost of purchasing the
reputation and good name of the business
built up by the previous owner).
ISBN: 9781107665910
Advantages of buying an existing business

can include:
s it is a much simpler process, as things like
registration of the business name and staffing
have already been done
s it is usually easier to obtain finance due to
easy access to business financial records
s the total cost is agreed upon initially and
unlikely to blow out
s the business will become operational and
generate cash flow more quickly
s business operating procedures and practices
will already be in place
s existing suppliers, staff and client base.
Disadvantages of buying an existing
business can include:
s danger that the purchaser may be buying a
lemon (someone elses failure)
s goodwill can easily be overvalued business
is difficult to gauge
s goodwill can, in fact, be bad will if a business
has a poor reputation.
Figure 4.5 Buying a business already established by someone else has
advantages and disadvantages.
Checklist for buying an established business

Have an expert do an assessment of the
Have an independent assessment of the
business in order to ascertain if the busi-
financial viability of the business done
ness goodwill is fairly priced.
by a consultant and/or the bank.
Physically check that the business has all
Make sure that the businesss previous
of the fixtures and fittings, equipment and
financial performance has been verified.
stock in working order that you are paying
Check on the sellers right to open a
for. Have these items valued.

Check all financial records, including taxation, receipts and wages.
competing business. Take care many

businesses that change hands in this
way fail.
Check the premises.

Check all of the leases and legal contracts
BUYER BEWARE!
you will be subject to.
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ISBN: 9781107665910
Buying a franchise
The third option is to buy into a franchise
operation.
What is franchising?
Franchising involves a franchisee paying another
business (franchisor) for the right to use that
businesss trade name, products and operating
systems. The franchisor will then exercise
a degree of control over the running of the
business, but in return will provide assistance,
advice, suppliers and reputation. The franchisee
is, in effect, paying for the right to replicate
another business in its entirety.
A franchisor retains a significant level of
control over its franchisees operations in
order to safeguard their trademark, so that the

quality of their product remains consistent from
location to location. For example, any time you
order a Big Mac from any McDonalds store you
know exactly the form and quality of what you
are buying, even though it is likely that each
McDonalds store will have a different franchisee
owner. A franchisee signs a legal document
known as a franchise agreement that outlines
the rights and responsibilities of both franchisor
and franchisee. The franchisee will be given
an exclusive right to operate the franchise in a
specified trading area and agree to pay set fees
that may include:
s an initial, up-front fee
s a percentage of sales income each month
s a regular advertising and marketing fee.
Figure 4.6 Some well-known franchises
Facts about franchising

1
2
3
4
5
6
56
Since 2008, there has been a 2% decline in

the number of franchises in Australia.
Despite this, 70 000 franchises continue to
operate in Australia.
Franchises contribute $128 billion to the
Australian economy.
The retail trade industry continues
to dominate franchising with 26% of
franchisors and 24% of franchise units
involved in retailing.
91% of franchises operating in Australia are
home grown
A quarter of franchisors have made
operational changes in response to
environmental
concerns,
including
adoption of green products and services
and environmentally-friendly packaging.

28% of Australian franchisors are operating
internationally, with New Zealand the most
popular destination.
8 Mobile (30%) and home-based (30%)
franchises are also popular.
9 There has been a major shift towards
casual employment in franchises.
10 In 2010, 32% of franchisees were male sole
owners; 14% were female sole owners.
7
Source: Franchising Australia 2010
ISBN: 9781107665910
Advantages and disadvantages

of a franchise
Advantages of buying into a franchise business
can include:
s significantly reduced risk of business failure
s to avoid making the franchisors initial
mistakes and benefit from the training
provided
s the system has been tested and usually
succeeds
s expert assistance and advice are provided
s less responsibility for decision making, with
many key decisions made by the franchisor
s established suppliers and the advantages of
bulk buying (i.e. economies of scale)
s established procedures
s staff training is provided
s buyer awareness of the brand name is already
established
s easier access to finance
s guarantee of an exclusive territory limits
competition
s the franchise business should be immediately
competitive.
Disadvantages of buying into a franchise
business can include:
s far less independence. In effect, a franchise
owner performs the role of a manager rather
than an owner.
s the franchise owner will not be able to
implement their own ideas. They implement
the ideas of the franchisor.
s excessive costs and fees. As well as an initial
purchase fee, the franchise owner will also be
expected to pay a monthly service fee and a
percentage of takings.
s the franchise is judged by the performance of
other franchisees. Poor service provided by
someone else will affect all.
ACTIVITY 4.7
1 Go to the website directory of the Franchise
Council of Australia (www.franchisebusiness.
com.au). Find a franchise for sale in each of
the following price brackets.
a Up to $20 000
b $20 000 to $50 000
c $50 000 to $100 000
d $100 000 to $250 000
e $500 000 and above.
2 List five pertinent facts about each business
enterprise you have chosen.
3 List three websites that offer advice and
assistance to someone considering the
purchase of a franchise.
4 Compile a list of 20 franchises that operate in
Australia.
5 Go to www.franchise.org.au.
a Name this organisation.
b What services does this organisation
offer?
c What are its aims, goals and objectives?
d Name the most recent winners of:
i franchisor of the year
ii franchisee of the year
iii emerging franchise system of the year
iv media campaign of the year
v franchise woman of the year.
57
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Decision 5: Form of
ownership structure?
proprietorship
the ownership of
an unincorporated
business
sole trader
individual owner of a
registered business
name
unlimited liability
applicable to
sole traders and
partnerships; these
business owners are
fully liable
(to the extent of their
personal assets) if the
business fails
partnership
a legal form of
business organisation
where two or more
people (partners)
work together
passive investors
often referred to as
silent partners, they
provide financial input
into the business but do
not actively participate
in the business
operations
partnership
agreement
formally outlines
the duties and
responsibilities of the
parties to a partnership
58
The next decision is the form of proprietorship

to adopt. There are four main structures and
several other less common options. Each one
has distinct advantages and disadvantages.
Sole trader
This is the simplest form of business ownership
involving a single owner operating a business
either in their own name or under a registered
business name. The owner makes all of the
decisions and runs the business autonomously.
This is the cheapest form of business structure
to establish. The sole trader has rights to
all profits and capital. Usually sole trader
operations are one-person operations, often
run from home. The big drawback of this form
of business ownership is that the sole trader is
personally and totally responsible for all the
actions and debts of the business and is liable
to meet those obligations from their personal
assets, placing these at risk. This is known as
unlimited liability. A sole trader must also
declare all of the business income as their own
for tax purposes.
Partnerships
A partnership is a business that combines the
expertise and resources of two or more people.
It may consist of between two and 20 people
(often from the same family). Each partner
is jointly liable for all debts incurred by the
business, meaning they have unlimited liability.
There are two types of partnerships:
s general partnership when all partners are
deemed to be equally responsible for the
management of the business. Each has
unlimited liability for debts and obligations.
s limited partnership, where liability of one or

more of the partners is limited. These limited
partners are usually passive investors
and not involved in the day-to-day running
of the business. Their liability is limited in
proportion to the amount contributed.
The Partnership Act 1963 regulates partnership
dealings. Most partnerships are based on a
formal legal agreement known as a partnership
agreement. If a partnership agreement is not
entered into, all partners are equally liable for
debts incurred.
Common details included in a partnership
agreement are:
s partner details
s commencement date and duration of the
partnership
s description of the business and the nature
of the partnership, including individual
roles and what each partner brings to the
partnership
s division of profits and remuneration
s contribution of capital from each partner
s responsibilities of each partner within the
business and who has authority to do things
such as access bank accounts
s how disagreements will be resolved
s provision for admitting new partners
s termination clauses, including procedures
for distributing assets when the business is
wound up.
A partnership does not have an ongoing life: if
one partner leaves, a new partnership must be
formed. In other words, there is no perpetuity.
It is generally accepted that a person should
only enter into a business partnership with
people whom they completely trust, since a
business partner may be liable for their partners
debts. See table 4.1 on page 60 for features,
advantages and disadvantages of different
business ownership structures.
ISBN: 9781107665910
ACTIVITY 4.8
Read the scenario and answer the questions that follow.
Claire, Hugo, James and Jemma are four
siblings who have decided to go into a business
partnership. They have decided to open an
event management business. The contribution
of each will be as follows:
s Jemma will contribute 50 per cent of the
capital required to start the business. She
will not work in the business and intends to
continue her career as a neurosurgeon.
s James will contribute 10 per cent of the
capital. He is intending to resign from his
He will contribute 25 per cent of the capital

and intends to work full-time in the new
business.
s Claire will contribute 15 per cent of the capital.
She currently works part-time in marketing
and has many business contacts that will be
useful to the new business. She is intending to
work part-time in the new business.
Claire, Hugo, Jemma and James have decided
that it would be wise to draw up a partnership
agreement before they commence the business.
current employment and work full-time in the

business.
s Hugo has recently been made redundant
in his employment as a security guard.
Questions
1 Summarise what each partner will bring to the new business in terms of:
a capital
b labour and time
c expertise and skills.
2 Suggest what would be included in the agreement in each of the following categories.
a Amount of capital each partner brings
b How profits will be distributed
c The roles and responsibilities of each partner in the business
d How disputes will be handled
e Salaries and remuneration.
Company
Another option is to form a company, otherwise
known as incorporation.
s Companies have their own independent
legal entity, separate from their owners.
They are formed according to legislation
and registered with the Australian Security
and Investments Commission (ASIC).
Setting up a company can be both expensive
and complex.
s The owners of a company are referred to
as shareholders.
s A company pays tax on its earnings as a

separate entity.
s Company directors are appointed by
shareholders to manage and control the
company.
s A company structure offers the protection
of limited liability, whereby liability of the
shareholders is limited to the value of their
shareholding.
s There are two forms of company: private and
public.
redundant
an employee is
redundant when there
is no longer sufficient
work for the worker to
perform
company
separate legal entity
(incorporated body)
that is subject to the
requirements of the
Corporations Act 2001
(Commonwealth);
owned by shareholders
whose liability is limited
to the extent of their
shareholding in the
company; it can sue and
be sued in its own right
and is run by directors,
registered officers
and its owners; it has
perpetual succession
shareholder
part-owner of
a company
limited liability
shareholders are only
personally liable to the
level of their original
investment in an
organisation
59
ISBN: 9781107665910
private company
a company where the
shareholding is limited
(small), with shares
being sold privately;
often run as a family
business; has the
words Proprietary
Limited at the end of
the company name
prospectus
an invitation to the
public and potential
investors to purchase
shares in a
particular company
Private company
Public (listed) company
s A private company is restricted to a

maximum of 50 shareholders.
s Shares can only be traded with the permission of the other shareholders, which must
be given before the transaction takes place.
s Private companies have the letters Pty Ltd
after their names, meaning Proprietary
Limited.
s Private companies are often family
companies.
Larger companies are usually public companies.

s These have an unlimited number of
shareholders.
s A company initially issues a prospectus
inviting the public to purchase its shares.
s Shares are freely traded on the stock
exchange.
s Public companies can be recognised by
the word Limited (Ltd) after their name,
showing that they offer limited liability to
their shareholders.
s Public companies are legally obliged to
publicly report on their activities.
Table 4.1 Features, advantages and disadvantages of different business ownership structures
registered business
name (RBN)
trading name under
which a person (sole
trader) or partnership
conducts its business
or trade, e.g. Roxy Caf;
name requires renewal
every three years
Australian Business
Number (ABN)
nine-digit identifier of
a company
Business structure
Features
Advantages
Sole trader
s One owner who

operates the business
under their own name
or a registered
business name
(RBN)
s Simple and inexpensive s Unlimited liability

to establish
s Harder to get finance
s Owner has total control s Reliant on own
over business
knowledge and skills
s Australian Business
Number (ABN)
Partnership
s Simple to wind up
s Minimal government
regulation
s Business owned by two s Inexpensive and simple s Unlimited liability

to 20 partners
to set up
s Liability for debts
incurred by others
s Partnership agreement s Risk is shared
to establish conditions s Minimal government
s Business could be
s Partners jointly liable
for business debts
regulation
s Workload may be
shared
s Offers broader access
to capital, knowledge,
skills and experience
60
Disadvantages
threatened by one
partner leaving
s Potential for disputes
and personality clashes
ISBN: 9781107665910
Business structure
Features
Advantages
Private company (Pty Ltd) s Shareholders (owners) s Limited liability

are legally separate
s Extra capital can be
from the business
obtained by issuing
more shares
s Between one and 50
shareholders who
s Separate legal
appoint directors to run
existence
the company
s Existence is not
s ABN
threatened with death
or removal of one of
s Operates under
the directors
registered company
name and Australian
Company Number
(ACN)
Disadvantages
s High degree of
complexity in
establishment
s Higher establishment
costs
s Higher degree of
government control
and reporting
requirements
s Additional compliance
costs
s Registered with ASIC,

who issue Certificate of
Incorporation
Public company
(Limited or Ltd)
s Unlimited number of
shareholders
s Shares can be bought
and sold on stock
exchange
s ABN
s High complexity and

establishment costs
s Extra access to capital
s More government
through selling extra
scrutiny, control
shares
and compliance
s Separate legal
requirements
existence
s Limited liability
s Existence is not
threatened with death
s Registered with ASIC,
or removal of one of
who issue Certificate of
the directors
Incorporation
s ACN
Other ownership
structures
Other business ownership structures are
recognised in Australia:
s Trusts are created to hold property or
conduct business on behalf of beneficiaries
and are managed by a trustee. These are
often established for tax and other financial
purposes. They are complex both to establish
and wind up.
s Need for more

accountability and
paperwork
s A cooperative is an organisation put together

by people with common interests. Its profits
are distributed equally to the members, who
have equal ownership.
s An association is a not-for-profit organisation
such as a club or society. These may also be
incorporated. The advantages are that they are
cheap to register, and simple to establish and
operate.
Australian Company
Number (ACN)
nine-digit number to be
used on a companys
common seal and
all public documents
involving the company
accountability
the extent to
which a worker is
held answerable
to supervisors or
managers for their
work actions or
performance
trust
fund or property held
or administered (by a
trustee) for the benefit
of others
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ISBN: 9781107665910
Which structure is
the best?
Different businesses are suited to different
structures. A business owner must decide which
structure best suits them. Factors that need to be
considered are:
s size of the business
s people involved
s type of business
s taxation and other financial issues
s finance
s start-up costs
s degree of risk
s personal preference.
Decision 6: Location?
One of the most critical initial decisions the
potential small business operator must make
is locating the business. Location can make or
break a business. Different business types have
different location requirements.
Business location provides a link between
the business and its customers/clients, as well
as suppliers who provide the essential raw
materials, products and labour. A good location
will establish a balance between these factors.
Factors to consider
when selecting a
location
Selecting a location for a business will generally
depend on two types of factors: quantitative and
qualitative. Quantitative factors are those that
can be numerically calculated, such as the cost
of purchasing or renting premises. Qualitative
factors are those that deal with the psychological
and emotional aspects of location, such as
proximity to public transport or consideration
for the welfare of workers.
62
s Personal factors the business operators

personal situation is important. For instance, a
desire to live and work in a certain locality or
to stay close to family nearby often determines
location. Other factors may include the
distance they are prepared to commute.
s Area profile the area under consideration
must be analysed for its ability to provide
access to a sufficient number of paying
customers (proximity to customer base).
You must evaluate the site with your target
market in mind. Points to consider include:
demographics of the area assessment
of the population in regard to its age patterns,
incomes, interests, ethnicity, education
levels, and so on. This will give an indication
if there are sufficient potential customers in
the area.
economic and social trends
assessment of changes occurring such as
demographic shifts in the area, e.g. younger
people moving into the area, changes in the
birth rate. How will the business fit with
these trends?
complementary businesses is there a
business that complements the new business
in the area? For example, a pharmacy would
be well positioned next to a doctors surgery,
or a newsagency next to a large office
complex.
levels of support offered in the area by
traders associations
level of services and amenities in the
area, such as banking and child care
level of competition in the area
reputation of the area is it an area
well known for a type of business? Will it
attract people?
zoning regulations what developments, if any, are allowed in the area?
s Site accessibility and visibility are the
required number of customers able to locate
and access the business?
ISBN: 9781107665910
s Suitability of the buildings the actual

buildings must meet the physical requirements
of the business. Consider required storage
space, building design and floor space.
s Costs the budget of a start-up business
is usually limited. Therefore, the operator
may need to compromise on-site location
to accommodate this. Generally, the cost
of premises will increase in relation to the
size and quality of the premises, level of
accessibility to services, visibility and amount
of passing trade.
s Accessibility to transport consideration
must be given to how suppliers and customers
will be travelling to the business. If they drive,
parking facilities will be required. Public
transport users will be attracted by proximity
to a train station or bus stop.
s Pending planning proposals can be
checked at the local council. Any future
development could have significant effect
(positive or negative).
s Proximity to other large businesses with
pulling power certain businesses will
attract customers into an area. For example,
people will travel to a certain shopping centre
in order to visit a supermarket or a variety
store such as Target or Big W. Having one
or more customer magnets nearby is a huge
asset to a business.
s Accessibility to labour and attracting
enough of the best type of employees is
another major consideration.
Different businesses
have different
location needs
s
s
s
s
s
shopping centres/malls (large and small)

industrial parks of varying types
isolated sites
online presence
home-based.
Factors to consider in location of

a business
s Retailers usually require a position that
maximises visibility and therefore sales.
They usually look for areas with high traffic.
Different types of retailers have different
needs. Some businesses rely on impulse
buying; others rely on customers planning
their visits. Usually, the higher the pedestrian
and vehicular traffic flow, the higher the
costs associated with a location.
s Wholesalers require large amounts of floor
space for storage. Easy vehicular access will
also be required for deliveries and dispatch
of large quantities. Wholesalers require less
visibility but more space, with easy access to
transport routes.
s Service businesses require mainly office
space. Many can be run from home. If clients
call in, easy access and client parking will
be required.
s Manufacturers require large amounts of
floor space. Customers usually do not come
directly to them and they do not rely on
impulse buying, therefore visibility and
traffic flow is not usually a consideration.
Easy access to transport routes is important.
s Online businesses, while not restricted in
their location, must ensure they have access
to fast and reliable electronic communication,
i.e. internet access.
wholesaler
businesses that
purchase in bulk from
producers and sell
smaller quantities to
retailers
The best location for a business is dependent on

the type of business. Possible choices are:
s retail shopping strips, both suburban and
CBD (sometimes referred to as High Street
locations)
63
ISBN: 9781107665910
ACTIVITY 4.9
Match each of the following small businesses with the location description that best suits it. Consider
the needs of each particular business to justify your selection.
Business
a Supermarket
Location options
Converted house on a quiet street
b Florist
ii
Large space with major road frontage
c Fast food outlet
iii
Small farm
d Coffee shop
iv
Among several office towers
e Hardware store
Large space, plenty of parking
vi
Large shopping centre
g Childcare facility
vii
Next to a hotel
h Newsagency
viii
Next to a swimming pool
Toy shop
Gymnasium
Hot bread shop
ix
x
Suburban shopping centre
k Pharmacy
xi
Next to a doctors surgery
xii
Outside a supermarket
m Domestic cleaning business
xiii
Home office
n Retail jewellery store
xiv
Victoria Market
Used car yard
o Wholesale fishmonger
xv
Outside a large secondary college
p Bottle shop
xvi
Foyer of a maternity hospital
q Animal boarding kennel
xvii
Access to fast and reliable internet connection
xviii
CBD
E-commerce business
Factors to consider when

choosing a building
Factors to consider in
layout design
s
s
s
s
s Fixtures and fittings taking into account the

image of the business and the environment
required to make the right impression
s Placement of fixtures and fittings should
attempt to maximise traffic flow and optimise
their use
s Placement of stock/merchandise should
ensure that clients/customers see what the
business wants them to see
s Efficient traffic flow
s Knowledge of your customers buying habits
plan your layout accordingly
s Opportunity
to
display
merchandise
attractively
s Ability to display complementary items
together (e.g. supermarkets always place pet
care items near the pet food).
Is the amount of space sufficient?

Is there potential for growth or expansion?
Are the entrances inviting?
Does it meet legal requirements (e.g.
disabled access)?
s Is the interior appropriate? If not how much
will it cost to redecorate?
s Is the lighting appropriate?
Decision 7: Layout
of premises?
The layout of the business, or its physical
set-up, is another important planning decision.
The best layout is dependent on business type.
The first step is to prepare a floor plan.
64
Shop next to a train station
ISBN: 9781107665910
Hints for layout of retail operations

s Allowing plenty of space for circulation
is key to an effective retail operation. It is
important that customers feel free to move
through your store both freely and fluidly.
s Customers will either come into the store
with a definite purchase in mind (destination
traffic), or they will intend to browse
(shopping traffic).
s Shopping traffic will tend to move to the
right after entering the store and circulate
anticlockwise. Therefore place specials,
items with low profit margins and impulse
items here.
s Destination traffic tends to move to the left of
the store, and will tend to circulate clockwise,
so place merchandise appropriately; that is,
goods with a high profit margin.
s Maximise customer exposure to your
displays of stock (merchandise).
s Place sale items at the front of the store on

what is known as an obstacle rack.
s Next to the cash register is a good place for
potential impulse purchase items.
s Locate impulse and convenience items in the
highest traffic areas.
s Place basics at the back of the store so people
have to walk past other merchandise to get to
them. For example, supermarkets generally
put milk in the back right-hand corner for this
reason!
s Place items likely to appeal to children at
lower shelf levels.
s Play music appropriate to customer
demographics; this will make them feel at
ease, be more inclined to linger and therefore
spend.
merchandise
the stock of goods in
a store or business
ACTIVITY 4.10
Explain the critical factors that must be
considered when deciding on layout for the
following businesses.
a Childcare centre
b Private hospital
c Computer store
d Fast food outlet
e Designer jewellery store
f
Large reception centre
g Motor mechanic
h Coffee shop
i
Swim school
Tattoo parlour
k Ice-cream parlour
l
Bookshop.
Figure 4.7 Layout is an important decision when starting

a small business
65
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ACTIVITY 4.11
Seats
Specials
bin
Register
Seats
Womens shoes
Mens shoes
Staff toilets
and lunch
areas
Handbags
and
accessories
Childrens shoes
s Customers complain about the smell when

trying on shoes.
s The registers are regularly crowded and
there have been numerous complaints about
poor customer service.
s Several accidents have occurred with people
colliding into each other.
s Shop stealing has increased.
Storeroom
Imeldas Shoe Emporium is a shoe shop

located in a strip shopping centre in the suburb
of Snorbins. Lately the business has noted the
following trends and events:
s The specials are not selling.
s The sales of mens shoes are down.
s Several handbags and accessories on
display have been damaged.
Figure 4.8 Layout of Imeldas Shoe Emporium
Questions
1 Identify two potential occupational health and safety risks that are created by the use of this layout.
2 Identify and explain three problems with the positioning of the register.
3 Give possible reasons for each of the above trends and events.
4 Using the Hints for layout of retail operations above as a guide, suggest and justify more
appropriate positions for:
a
b
c
d
the register
the specials bin
the storeroom
childrens shoes.
5 Design a more appropriate layout for Imeldas Shoe Emporium.
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Am I suited to run a small business?

What are my motivations for
commencing in business? What are my
personal goals and will the business help
in achieving these?
A self-appraisal of:
personal skills, including
communication skills, technical
skills, planning and organisational
skills, accounting and financial skills,
marketing and promotional skills,
administrative skills, computer skills,
negotiation skills, leadership skills
personal qualities, including risk taking,
ability to recognise opportunities,
ability to work independently, ability to
set and achieve goals, decision making.
U Type of business
An entrepreneur sees opportunities that
others do not.
Possible sources of ideas are family and
friends, personal inspiration, research,
looking overseas, innovation.
Innovation and entrepreneurship are
important.
Innovation must be protected by
intellectual property.
Disadvantages: greater uncertainty and

risk; more work building business up from
scratch; longer to become profitable;
greater scope for error.
CHAPTER SUMMARY
U All small business operators need to

become effective decision makers. Decisions
and self-analysis must be made prior to
the commencement of a small business,
including:
Purchase an existing business

Advantages: simpler process, access
to financial records; established clients,
suppliers, staff, and so on; cash flow
commences sooner
Disadvantages: pay extra for goodwill;
may be buying the mistakes of previous
operator.
Buy a franchise
Advantages: less risk, greater recognition
and assistance
Disadvantages: less autonomy, cost of
fees associated with franchising.
U Ownership structure
Sole trader
Partnership
Company private or public
Each has its own advantages and
disadvantages.
U Location different businesses have different
location requirements depending on available
funds, visibility requirements, need for space,
and access to suppliers.
U Layout of the business need to consider
desired environment, maximising traffic flows
and avoiding bottlenecks, location of stock in
optimal positions.
U Develop a concept
Initial market research, including a
feasibility study conducted to ascertain if
the business can be financially viable.
U Purchase a new or existing business
Establish a new business
Advantages: owner is autonomous
and has control over the business and
its development; owner avoids buying
into the mistakes of others
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1 What is decision making? What does it involve?

2 List the seven types of decisions that must be
CHAPTER SUMMARY
QUESTIONS
made before commencing in small business.

3 Explain the types of skills that are desirable for a
business operator to possess. Using an example

for each skill, demonstrate how each could be
utilised effectively by a small business operator.
4 Define each of the following terms.
Then, using these terms accurately, construct

a paragraph that includes each of them.
a Unlimited liability
b Partnership agreement
c Proprietorship
d Franchising
e Goodwill.
5 In your workbook, draw up and complete the following table.
Means of entering
business
Features of this option
Advantages of
this option
Disadvantages of
this option
Starting a new business

from scratch
Purchasing an existing
business
Purchasing a franchise
6 For each of the following innovations,
a Increased number of families with both
suggest which type of intellectual property

protection will apply.
b Invention of the mobile phone
a The invention of a new piece of
c Mass migration from Asian countries to
equipment
parents in the paid workforce
Australia
b A logo for a new business
d Climate change
c Distinctive packaging
e Increased awareness and concern about
d A secret recipe
e A catchy saying.
7 List five business opportunities that have
come about in the past 25 years as a result of

each of the following factors.
levels of obesity in the community.

8 Explain what is meant by the term a gap in
the market. Use an example to illustrate your

answer.
9 Discuss the advantages and disadvantages of
buying into a franchise.
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ISBN: 9781107665910
10 Identify the form of business ownership of
each of the following businesses.

a Orica Ltd
b Linfox Pty Ltd
c Rocky Potter Magician
d Kanellopoulos and Manousopoulos
Educational Consultants.
11 Explain why it is vital for business partners to
have complete trust in one another.
1 Construct a map of your local shopping
centre. Show the names of each business

and its location. Then select four businesses
from the map and analyse each of their
locations. For example, what is good about
their location and what are its drawbacks?
What advice would you give each of these
businesses about selecting a better location?
requirements for each of the following
business types.
a Retailers
b Wholesalers
c Manufacturers
d Service industries.
3 Select two businesses of the same type
that you know reasonably well, e.g. two

pharmacies or two newsagencies.
a Write a brief description of each business.
b Describe the location of each.
c Write a brief evaluation of which business
has, in your opinion, the better of the two

locations.
d Draw a diagram showing the layout of the
two businesses.
and acronyms stand for? Discuss the

relevance of each to a small business
operator.
a ACN
b ASIC
c ABN
d Ltd
e Pty Ltd.
e Write an evaluation of which business has,
in your opinion, the better layout and why.

4 Australia currently has more franchise
operations per head of population than any

other nation in the world.
a Explain what a franchise operation is.
b Discuss why it is you believe there has
been such huge growth in the franchise

sector in recent years.
EXTENSION
QUESTIONS
2 Discuss and describe the location
12 What do each of the following abbreviations
c Is this apparent optimism in franchising
justified in your opinion? In your answer

consider:
advantages of entering into a franchise
rather than a stand-alone business
operation
disadvantages and pitfalls of franchising
whether franchise operations are always
more successful.
5 Design and justify an appropriate layout for
one of the following businesses.
U A jeweller
U A sports store
U A gymnasium
U A toy shop.
69
ISBN: 9781107665910
BUSINESS
SUPPORT SERVICES
WHATS AHEAD
Factors within the
organisation
Impact on
External environment
Factors outside the
organisation affecting it
Small business
enterprise
Formal assistance
Government support
Legal support
Financial assistance
Other professional
advisers and
consultants
Informal assistance
Networking
Other small business
owners
Financial assistance
Previous owner
External support
services
ISBN: 9781107665910
KEY KNOWLEDGE
legal services
financial services
technological services
community-based services
formal and informal networks.
Potential and existing small business operators in

Australia have at their disposal a wide range of
support services providing expert advice and
assistance. Effective utilisation of these support
services gives a small business greater chance of
success. In recent years the range and availability
of these services has expanded. Australian
governments, in particular, offer a wide range of
services and assistance at little or no cost.
A healthy economy is built on the success of
small business. Victoria, for instance, has more
than 482 000 small businesses. This translates into
95 per cent of the states business and 43 per
cent of Victorias state product. Australia-wide
there are more than 1.93 million small businesses
employing more than 5.1 million people, with a
total capitalised worth of more than 4.3 trillion

dollars (source: Australian Council of Small
Business Organisations). Obviously, it is in the
interest of government to optimise the chances of
small business success, as this will translate into
a healthy economy.
Studies have shown that successful small
businesses tend to utilise the available support
services more than those that fail. It is therefore
vital that small business operators, if they wish to
optimise their chances of long-term success, are
aware of, and know how and where to access
the numerous support services available to them.
There are several places where a small
business operator can access informal advice
and assistance.
AREA OF STUDY

support services
services (paid or
unpaid) used by
businesses to assist
them in their decision
making, e.g. legal or
financial advice or daily
operational activities
state product
a measurement of the
value of production by
businesses in a state in
a given period of time
71
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Informal support
and assistance
network
an interconnected
system of people
or businesses
complementary
business
a business
whose activities
complement those
of another business
transition period
a period of time when
the previous business
owner works with
the new owner to
introduce them to
business operations,
clients/customers,
suppliers and other
business contacts
competitor
a business rival in
the same market for
products or services
offered by
an organisation
72
Networking involves the exchange of ideas and

support among groups. A network can be an
informal friendship group or a more formalised
grouping such as a service club like Rotary.
Networks can form among business operators
with something in common, such as operating
in the same geographic area or being from the
same industry.
Networks facilitate the exchange of ideas
and advice and support between like-minded
individuals. Old Boy and Old Girl networks
from particular schools, for instance, are
extremely important in the business world.
Connections with a particular school can
open doors in business that may otherwise
remain closed. Business breakfast clubs, where
business operators gather at breakfast meetings,
are another important and growing network.
Networks also offer an opportunity to establish
contact with owners of complementary
businesses who may assist the business and
further enhance their chances of success. A
contact with a supplier of raw materials or
component parts, for example, may result in a
better deal, or an employment agency may offer
access to staff. A network can offer invaluable
advice, support and assistance for minimal cost.
The previous owners of a business are also
potentially valuable sources of information and
assistance. They can demonstrate established
systems operating in the business, as well as
supply important information about clients,
such as tastes and buying habits. Previous
owners can help identify appropriate suppliers
and advise on potential sources of support. It is
wise for a new business owner to negotiate a

period during which they operate the business
alongside the previous owners before takeover
occurs (known as a transition period). This
allows for introduction to regular clientele, and
other important contacts, such as suppliers.
More importantly, it provides an opportunity to
learn about the businesss operations.
Competitors are a valuable information
source; hence the term keeping an eye on the
ACTIVITY 5.1
Access the website of at least one of these
prominent schools. Find the past students
association link. Write a response to each of
the questions that follow.
U www.fintona.vic.edu.au
U www.ggs.vic.edu.au
U www.kew.vic.edu.au
U www.macrob.vic.edu.au
U www.mhsoba.asn.au
U www.trinity.vic.edu.au
Questions
1 List some of the activities organised by
this group for past students of this
particular school.
2 What advantages would membership of this

group offer both socially and professionally?
3 How could the contacts offered by
membership of this group help you
in business?
4 List all of the networks of which you are
currently a member. What advantages does
membership of these groups offer you?
(Include sporting, friendship, school, church,
interest groups, as well as any others.)
ISBN: 9781107665910
competition. Large organisations have been

known to employ spies to gain information
about what their competitors are doing. This
is known as industrial espionage. While
a small businesss budget would probably
not run to this, a lot can be learnt by simply
watching the competition and taking note of
important details such as pricing strategies,
special offers, types of customer service, and
even the layout of their premises. Keeping a
close eye on the opposition allows a small
business operator to identify those areas of
the market that are currently inadequately
catered for (market gaps). It also indicates the
standards of customer service the consumer is
accustomed to and likely to expect.
industrial espionage
gaining valuable
information on a
competitors activities
(i.e. spying)
Figure 5.1 Industrial espionage
ACTIVITY 5.2
Match each of the following businesses with an appropriate complementary business that would be
desirable to have within the immediate vicinity.
Business
a Chemist
Appropriate complementary business

i Limousine hire
b Architect
ii
General practitioner
c Florist
iii
Beautician
d Bridal shop
iv
Gymnasium
e Nightclub
Car dealership
vi
Hospital
g Insurance agent
vii
Coffee shop
h Hairdresser
viii
Builder
Health food shop
C H A P T ER 5 BUSINESS SUPPORT SERVICES
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ACTIVITY 5.3
Start-ups blossom in Tassie

by Alexandra Cain
Tasmania is shaping up to be the start-up
capital of Australia. As a microcosm of the
mainland, Tasmania is an ideal test market for start-up businesses. It also has attractions such as lower-cost housing
and a generally lower cost of living compared
to the mainland, important benefits for cashstrapped entrepreneurs. Plus, as any Taswegian will argue, the lifestyle is unbeatable.
Intriguingly, Teu was training to become a

general practitioner before he decided to take
a break from medicine to focus his attention
on his business.
I started developing the business in
medical school but it wasnt until January
this year that I decided to focus full-time on
Sentralize.com, he says.
Ideas and grants
Paris Buttfield-Addison is another successful

Tasmanian entrepreneur. He is a co-founder of
Secret Lab, which develops online games and
applications sold around the world.
The University of Tasmania PhD candidate
says: we were inspired to develop the business
with the arrival of the iTunes app store; one
of our games, a puzzle game called Culture,
was among the first in the world to be listed
on iTunes. It was successful enough for Secret
Lab to continue to develop online games.
The business continues to develop games
and applications for iPhones and iPads and
with clients overseas and all around Australia,
Buttfield-Addison says he has no plans to leave
Tasmania. We want to keep growing in Austra-
The Tasmanian state government has an enviable grants program to support early stage
businesses, for example the Enterprise Growth
Program, which funds the cost of business
advice, the Tasmanian Innovations Program,
which helps businesses commercialise inventions and an export markets assistance
scheme.
There are also business incubators such
as Technopark and In-tellinc to help nurture
fledgling enterprises.
Doctor to entrepreneur
One Tasmanian entrepreneur is Byron Teu,
the founder of Sentralize.com. The business
sets up websites around a particular theme.
These sites scour the web for content related
to the theme and aggregate online information
about the topic. For example the business created willitend.com, a site that collates information including articles, social media posts and
videos pertaining to all the major wars being
fought at the moment, organising information
on a country-by-country basis.
74
Going out to the world
lia and increase our presence on the mainland.

He says when working with overseas clients,
being from Tasmania gives the business an
advantage.
They see Australians as a novelty and
Tasmania and Tasmanians as even more of a
novelty.
ISBN: 9781107665910
Tassie veteran
A veteran Tasmanian entrepreneur is Greg
Koennecke, CEO of Vision Instruments, which
is developing a portable retina eye camera that
will be used to screen for eye disease in the
developing world.
Koenneckes story is a little different to
that of Teus and Buttfield-Addisons in that
he has been in the process of developing a
commercial-ready camera for the past 10
years and expects to have the first production
cameras ready within the next two months.
His initial focus is developing the product
for use in the Australian Indigenous community, but he also eventually wants to export to
other markets including India and the US.
Koennecke has been able to secure a
number of different grants over the life of the
business, including a $50 000 Commercialising Emerging Technologies grant, a $180 000
commercialisation-ready grant and $230 000
in support from the University of Melbournes
Centre for Eye Research Australia (CERA).
Hes also just received a $104 000 Commercialisation Australia grant to finish the product, but
says that despite the much appreciated funding
from AusIndustry and CERA, lack of funding
has held up the project.
Another issue is the requirement of many

grants programs to match the grant dollar-fordollar, a hard ask when, like Koennecke, most
of your personal funds have already been spent
developing the product. He estimates he has
contributed $600 000, including sacrificing his
salary, to product development so far.
Koenneckes advice to other entrepreneurs
is to expect everything to take three times
as long as you think it will. You also need to
multiply your most conservative cost estimate
by three. And dont expect your first prototype
to be perfect the idea is to just get something
out there.
Staying put
Like Teu and Buttfield-Addison, Koennecke says
hes committed to staying in Tasmania.
You can do anything here and youre only
an overnight delivery away from Sydney and
Melbourne. There really is no reason not to
do research and development in Tasmania.
Its a great lifestyle with just enough technical
expertise and services to support small technology development start-ups.
Source: The Age, 17 November 2010
Questions
1 Describe the trend regarding the location of new small businesses that is identified in the
above article.
2 List and briefly describe the advantages of starting up a small business in Tasmania.
3 Describe two new Tasmanian-based small businesses. Include a description of the products
and owners for each.
4 Using the internet:
a ìv>`ìVLi>>LiVL>ì
b `Vi>`>>}iv}>LiVL>v>i>Li
75
ISBN: 9781107665910
Formal support and

assistance
All small business operators can expect to pay
for professional advice from specialists. A good
accountant and solicitor are essential, as are the
services of an insurance broker, a banker, and
others such as marketing and computer experts.
Legal assistance
and advice
contract
a legally binding
agreement that
incorporates the
following elements:
offer, acceptance,
the intention to enter
into legal relations,
consideration, the
capacity to contract,
legality of purpose,
consent and certainty
of terms
franchising agreement
a franchise agreement
is a legal document
that outlines the rights
and responsibilities
of the franchisor and
the franchisee
76
Every small business will require the services of

a lawyer to negotiate on its behalf, give advice
and provide representation on legal issues. A
lawyer will be required to prepare legal documents such as contracts, and to give specialist
legal advice. A lawyer assists with:
s advice on purchase or establishment of a
business and acts on your behalf during this
process
s selection of the best business structure
s establishment of a debt recovery system and
debt collection
s negotiation and advice over a franchising
agreement
s negotiation of and drawing up of a
lease for premises and/or equipment or
their purchase
s negotiation, establishment and implementation of contracts like employment agreements, conveyancing when purchasing
property, and business transactions
s securing trademarks and patents
s interpretation of legislation and how it will
affect the business, e.g. local government
by-laws, WorkCover, employment, consumer
protection and company law
s establishment and compliance with industry
licensing requirements, and permits, registrations and approvals
s preparation of a partnership agreement
s dealing with creditors
s dealing with takeovers and acquisitions
s representing the business in court during

legal matters
s selling the business.
In light of the fact that ignorance is not
accepted as an excuse for breaking any law,
appropriate legal advice is essential for any
small business.
Where to find a lawyer

The cost of hiring a lawyer is significant;
therefore a business operator should select a
legal professional carefully. Possible sources
include:
s word of mouth
s Yellow Pages
s professional and business associations, which
provide lists of recommended lawyers that
their members deal with
s Law Institute of Victoria the peak
professional body for the legal profession. To
find a lawyer or get a referral, go to www.liv.
asn.au/directory/. For more information on
law and the services available to students, go
to www.liv.asn.au.
Financial assistance and

advice
A successful small business will require an
accountant to provide initial financial assistance
during the establishment phase, as well as
regular and ongoing services throughout the life
of the business. An accountants expertise will
be required:
s to give an accurate valuation of a business
intended for purchase, including goodwill
s to evaluate the feasibility of a business idea
s when undertaking negotiations regarding
leases and contracts
s to plan a businesss financial recording
system
s to prepare loan applications
s to prepare quarterly financial statements,
monthly cash flow summaries and budgets
for auditing
ISBN: 9781107665910
s
s
s
s
s
for taxation
for financial planning
to recommend appropriate computer software
for advice on superannuation
to identify and understand cause of changes
in business performance
s during liaison with government departments,
especially the Australian Taxation Office.
Before using an accountant, the business
operator should check that they have:
s appropriate qualifications
s good communication skills
s experience with clients in the relevant
industry sector
s experience with small business issues,
especially taxation
s professional registration (e.g. Certified
Practising Accountant)
s reasonable fees and charges and what
these cover.
Where to find financial advice

Sources for locating a good accountant include:
s word of mouth
s Yellow Pages
s professional and business associations
s business referral centres
s Certified Practising Accountants (www.
cpaaustralia.com.au) or the Institute of
Chartered Accountants in Australia (www.
charteredaccountants.com.au).
Bank managers are a valuable source of
advice and assistance. They are responsible for
processing loans and supervising business bank
accounts. They also:
s give advice on the feasibility of a business
expansion
s give investment advice
s act as a source of finance
s provide EFTPOS facilities.
All businesses require banking services and
facilities. The Australian Taxation Office (ATO) is
also an excellent source of information regarding
taxation matters (www.ato.gov.au).
Figure 5.2 Australian banks
ACTIVITY 5.4
1 Select two of the following banks and visit
their websites.
<>V>
>> >>LV>
7i>Vi>VV>
/i i`}>`ì>ì >
Li`}L>V>
For each:
a }iLiL>}iV
b ìviiVivvii`Li>VL>v\
i insurance
ii franchising
iii establishment of a business
iv local business bankers
v banking services.
In your opinion, which bank offers the best
service to a small business operator? Justify
your view.
2 Go to www.commbank.com.au/help/glossary
and find the definitions of each of the
following business banking terms.
a
b /*"c
i`V>`
d >vii
e
i`
f iL
g
i`
h }>}i
i i}iV>}i
j -/
k >>
l i
m iVìL
77
ISBN: 9781107665910
Other professional
advisers and consultants
letterheads
stationery printed or
engraved, usually with
the name and address
of an organisation
Additional support required will depend on the

business type.
s Insurance agents and brokers are experts
who will give advice on risk management
and appropriate insurance. They also sell
insurance. An agent works for one insurance
company and will try to sell only that
companys products. Brokers, on the other
hand, work for themselves and act as an agent
to the person or business seeking insurance.
They will negotiate insurance policies with
different insurers on behalf of a client.
s Marketing and advertising consultants
give specialised marketing and advertising
advice for a fee.
s Graphic designers and printers a
business may choose to employ these
experts to design and produce logos,
letterheads, pamphlets, business cards, and
advertisements.
s Information management and technology consultants are experts who
will help select technology, software and
hardware, set up systems, train staff, and
provide ongoing backup and assistance with
all technology-related areas of the business.
Figure 5.3 A small business owner will need to consult

with a team of specialist advisers and professionals.
78
Government support
and assistance
Federal, state and local government all provide
resources and assistance to small business
operators. Governments are usually judged by
the voter on their economic performance; it
is therefore in their interest to try to promote
a healthy small business sector in order to
optimise economic performance.
Local government
assistance
Local government is an important source
of information for small business because
it has responsibility for regulating many of
the actions of small businesses. Most local
governments oversee programs designed to
assist and support small businesses. This usually
includes facilitating networks of small business
operators. Before entering small business,
the business operator should ascertain the
assistance available. Local government should
be contacted for information in regard to:
s planning and zoning regulations
different local government areas have different
planning and zoning laws. A business must
locate in the appropriate zone. For example,
an area zoned Residential can only have
residential buildings within it; any exceptions
will be rare. Planning laws will also affect any
building, extensions or renovations.
s health, hygiene and food handling
regulations a business operator can
expect that health inspectors employed by
local government will regularly check that
they are meeting the required standards in
this regard.
s by-laws covering matters such as parking
restrictions, outdoor dining and footpath
trading these must be clarified before
entering into business.
ISBN: 9781107665910
State and federal

government assistance
Federal and state governments provide a lot of
assistance to small business owners, as it is to
their benefit for the business to succeed.
Online resources
Both federal and state governments have an
extensive array of services for small business
operators. Both provide online information for
small business. Table 5.1 summarises some of
these sites.
Figure 5.4 The Small Business Information Centre at 121 Exhibition St

Melbourne. The Victorian Government provides small businesses with
assistance, programs and services at Victorian business centres located in
both regional and metropolitan areas.
Table 5.1 Information available through government websites

Government organisation
or area of interest
Website address
Content
Business Victoria
www.business.vic.gov.au
Provides information on a wide

range of topics in relation to
small business, including start-up
and operation. Access to a small
business counselling service and
Business Referral Service, links to
Victorian Government Business.
Any new government initiatives
will appear on this site. Make this
the first site that you visit.
business.gov.au (Commonwealth
Government)
www.business.gov.au
Provides information on all

aspects of small business. Access
to all government information,
services and transactions, such
as ABN, and government forms
required by small business.
Information on business
assistance, business questions,
business start-up, employing
people, taxation, importing and
exporting, superannuation,
OH&S, Customs, and so on.
Comprehensive information
and numerous links to other
relevant sites.
continued next page
79
ISBN: 9781107665910
80
Government organisation
or area of interest
Website address
Content
Office of Small Business

Commissioner
www.sbc.vic.gov.au
Victorian Government website

dedicated to providing a competitive
and fair operating environment for
small business. Covers promotion of
small business, informed decision
making, dispute mediation, dealing
with complaints, encouragement
of government awareness of small
business needs.
Austrade
www.ausindustry.gov.au
Provides export and investment

services to Australian companies.
The Department of Innovation,

Industry, Science and Research
www.innovation.gov.au
Legal issues for small business
Patents
https://pericles.ipaustralia.gov.au/
ols/ecentre/content/olsHome.jsp
Applying for a patent online
Australian Bureau of Statistics
www.abs.gov.au
Good source of business data,

statistics and advice on use of
this information
Business Licence Information

Service
www.bli.net.au
Provides information on licences

and codes of practice affecting
particular types of business
Australian Taxation Office
www.ato.gov.au
Government website giving

taxation information for individuals
and businesses of all sizes
e-business
www.digitalbusiness.gov.au
Specific resources for e-business
Scamwatch
www.scamwatch.gov.au
Advice on and awareness of

frauds targeting small businesses
ISBN: 9781107665910
Business centres
ACTIVITY 5.5
There is a network of more than 100 local

business centres spread Australia-wide. Each
one acts as a small business advisory service
providing advice, training seminars and videos,
and practical guidebooks for small business.
The role of these centres is to:
s administer
government
programs
and
initiatives, organise and distribute local

business and economic growth programs
s provide business information on start-up
s provide referrals to specialists as required
from databases of professional advisers
s provide
workshops
and
seminars
on
business topics
s provide access to the Business Channel and
the business licence information service and
Locate and contact your nearest business centre

office. To do this, use either the Yellow Pages or
the Business Victoria website (www.business.
vic.gov.au). Then, working in groups of three to
five, produce a booklet or pamphlet advertising
Victorian business centres and the services they
offer small business operators.
Before you contact a centre, make sure
that you work out exactly what information you
require from the contact. Headings that may be
used in the booklet or pamphlet include:
U i}>i`
U
}>Liì>
U i}>>`Vi
U >V>>`Vi
U ii>>Vi>`>`Vi
U iVi>ì}>
start-up
commencement of
business operations
appropriate literature
s refer to appropriate advice and assistance
ACTIVITY 5.6
and formal courses of study

s run workshops and seminars.
The nearest business centre can be located
by contacting Business Victoria through their
website or by calling 13 2215.
Business incubators
A business incubator is an organisation that
Using the internet, locate two business

incubators that operate in Victoria. For each
business incubator, list:
U iV>
U iiVivvii`
U i>iviiLiii>}
viVL>
supports new businesses by making available

business premises, office/secretarial services,
advice, consultancy and training at minimal cost,
Networks and mentoring
until that business is established. The incubator
Local and state governments also facilitate

numerous local business groups and make
mentoring arrangements. These help small
business operators by allowing them to share
the experiences of others. There is a range of
programs provided by governments, which
promote and support business networks and
provide mentoring services.
manager also acts as a mentor. A business

incubator allows the new business operator
to interact with others in similar circumstances.
This
encourages
networking
and
the
exchange of ideas. Research has shown that

business incubators lessen the likelihood of
business collapse.
business incubator
an organisation that
supports new business
by making available
premises, secretarial
services, advice and
other support at
minimal cost until the
business is established
mentor
an experienced, skilled
and trustworthy person
whose role is to guide
another
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ISBN: 9781107665910
Professional,
trade and industry
associations
industry association
representative body
for a particular
industry group
professional
association
representative body
for a particular
professional group
A business operator should seriously consider

joining a specific industry association or
professional association. These associations
cover specific types of industry, trades or
professions. For example, the Master Builders
Association represents and assists builders.
Similarly, the Law Institute is made up
of lawyers.
Membership of the relevant industry
association allows the business operator to
keep up to date with training, support and
advisory services, as well as general industry
news and information. Membership also allows
the business to be part of a network.
General industry bodies

These groups are broad-based bodies of
members from different industries providing
general information and assistance. Examples
of these groups include: AI Group (Australian
Industry Group), which represents more than
10 000 Australian businesses; the state chambers
of commerce, e.g. VACC (Victorian Automobile
Chamber of Commerce) and VECCI (Victorian

Employers Chamber of Commerce and Industry). For a complete list of these general industry
bodies, go to the Australian Government Directory at www.agd.com.au.
Other networks
Other formal and informal networks exist to
help the small business owner.
Local traders associations

Businesses operating in a certain geographical
area often form networks to offer mutual support
and to provide a forum for discussion of local
business issues. They also lobby governments
on issues in their mutual interest.
Economic development units

These development units are run by local
governments and aim to improve basic business
opportunities in their local government area.
They run projects and initiatives aimed at local
businesses, such as seminars and workshops.
Most publish a newsletter, which can be
accessed via the local government website.
Local business awards and access to information
about government grants are another common
feature.
Publications
Individual industries will most likely publish a
journal that will provide business operators with
useful advice. This will be available through
trade associations. Other useful publications
could include magazines such as Business
Review Weekly and My Business and newspapers
(business section).
Individual research
Figure 5.5 General industry bodies
82
This might include visits to trade shows,

conferences and visits to other resource centres,
such as libraries.
ISBN: 9781107665910
ACTIVITY 5.7
Where would a small business operator go to find information on the following issues? In your responses
consider both formal and informal sources of assistance. (The first one has been done for you.)
Issue
Potential source of information
1 Legal advice
Lawyer, Law Institute of Victoria, government websites
2 Feasibility of a business venture

3 Taking out a business loan
4 Preparation of a tax return and GST
5 Up-to-date industry news
6 Advice on footpath trading
7 Help with a marketing campaign
8 Information regarding the demographics
of the local area
9 Licensing information
10 How to register a business name
11 Advice on industry standards
12 An industry code of ethics
Other useful websites

of non-government
providers
A plethora of information is available online.
s An online community for the solo business
operator (www.flyingsolo.com.au)
s Small Business centre
(http://finance.ninemsn.com.au/
small-business)
s My Business magazine
(www.mybusiness.com.au)
s Dynamic Business magazine
(www.dynamicbusiness.com.au)
s Yahoo (http://smallbusiness.yahoo.com.au)
s The Business Enterprise Centre
(www.becsmallbiz.com.au)
s Advice for small business
(www.iquantum.com.au)
s Advice on employment law and wages
(www.vic.gov.au/employment-workplace)
s Australian Businesswomens Network

(www.abn.org.au)
s Australian Copyright Council
(www.copyright.org.au)
s Australian Institute of Export
(www.aiex.com.au)
s Victorian Employers Chamber of Commerce
and Industry (www.vecci.org.au).
Figure 5.6 Local traders associations are an important

source of support for small business.
83
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The Altona Village Traders Association

The Altona Village Traders Association
has established itself as the peak business
and tourism body in the Hobsons
Bay Municipality, in particular for the
Altona area.
Marketing Altona as the destination on Port
Phillip Bay for shopping, business and tourism
is the priority for the Association.
It is important to remember that the local
community is the bread and butter of most businesses throughout the area and as it develops,
the Association will define and review its role
to keep businesses involved in the decisionmaking process to allow for maximum growth
and expansion.
84
To achieve our aims, and be truly representative of the whole community, it is important
that we have on board as many of the traders
and interested parties as possible.
It is essential that we have a unified
approach and united voice in all issues which
impact on Altona businesses.
Your membership and input into the Association will make a difference.
Source:
www.visitaltona.com.au/association.html
ISBN: 9781107665910
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ISBN: 9781107665910
THE IMPORTANCE OF
BUSINESS PLANNING
WHATS AHEAD
Planning at
commencement
of business
Financial plan
Marketing plan
Operational plan
Business
plan
Business
success
Strategic planning
Tactical planning
Operational planning
Ongoing
planning
ISBN: 9781107665910
KEY KNOWLEDGE
different types of business planning
the business plan.
Planning involves working out how to do

something or get somewhere, or achieve a
desired objective. If you wish to get to school
on time, you usually devise a plan designed to
achieve this aim. This plan might include setting
the alarm clock, checking bus timetables,
packing your school bag the night before and
working out a timetable for getting there on
time. If, on the other hand, you dont plan a way
of getting to school on time, the achievement
of your objective is left entirely to chance. As
individuals we all need to plan our lives in
AREA OF STUDY

order to achieve our objectives. Businesses are

no different! They must also plan to achieve
their objectives.
A business must plan to achieve business
objectives right from inception. Failure to plan
will see the chances of success in the business
world lessen considerably. There is an old
saying: businesses do not plan to fail, they
simply fail to plan. In other words, it is most
commonly those business operators who rush
headlong into a business venture without taking
the time to plan who do not succeed.
89
ISBN: 9781107665910
plan
an outline (formal/
informal) of an
approach to be taken
procedures
series of interrelated
steps to implement
policy
A business should be built up with a specific

strategy and direction in mind. Think of a plan
as being like a street directory. To attempt
navigation through an unfamiliar area without
consulting a street directory is hardly effective.
By consulting a street directory, however, it is
possible to assess all of the route options and
select the best one. Like a street directory,
a business plan maximises the chances of
getting to the desired destination (the business
objectives) without wasting time and other
valuable resources. Planning is, therefore, one
of the key functions within business. It is a
primary management task.
A business must know what it is trying to
achieve, both in the long and short term, and
devise a plan for how it is going to do this.
Businesses are not successful by accident.
Planning is a vital component of a successful
business operation. Planning should occur both
before the establishment of that business and
on an ongoing basis for the life of the business.
What is planning?
Planning involves working out:
s what is to be achieved (targets, objectives)
s how these will be achieved
s who will manage this process
s the time frame for achieving targets/
objectives.
All businesses should plan in order to:
s predetermine feasibility and profitability
s reduce chances of errors of judgement
s anticipate probable trouble areas
s avoid ad hoc decision making, i.e. making
decisions on the run
s improve the chances of a successful loan
application
s compare anticipated results with actual
performance
s minimise costs and maximise productivity
(efficiency)
s specify objectives and increase chances of
these being achieved.
Steps in planning
There are many planning models that a business
can use to limit the risks involved in decision
making, but most include:
1 forecasting looking ahead and trying to
anticipate future conditions and events
2 setting aims and objectives
3 devising strategies to implement aims and
objectives
4 developing policies and procedures for
achieving aims and objectives

5 prioritising tasks that need to be
performed
6 developing budgets by arranging finances
to achieve aims/objectives.
Figure 6.1 Planning for business success
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ISBN: 9781107665910
Tactical planning
(one to two years)
Tactical planning covers the short to medium
term and usually involves planning tactics or
steps within the overall business strategy. For
example, if a business strategy is to provide
superior customer service, the tactical planning
would involve working out just what is superior
customer service and the training program
required to implement this strategy. Put simply,
tactical planning sets out the tactics that make
strategy happen.
Figure 6.2 Football coach in the process of planning
business strategy
the long-term plan of
action adopted by an
organisation to achieve
its goals and objectives
tactics
activities or courses
of action taken by a
business to achieve
business objectives
Strategic plan
s Whole business planning

s Long term (2 to 5 years)
s Involves setting long-term whole
business goals
Figure 6.3 Players striving for success
Levels of business
planning
Tactical plan
Businesses must make plans for the short,

medium and long term if they are to be
successful.
s 1 to 2 years
s Each tactical plan is a step towards
achievement of strategic plan
Strategic planning (two

to five years)
This is long-term planning over a period of two
to five years and is concerned with the whole
business and its long-term direction. A strategic
plan looks at how that business intends to
compete and survive in the marketplace in the
long term. For example, where the objective is
to increase your market share, the business
strategy could be to provide a superior product
and customer service.
Operational planning
s Day to day, weekly, monthly, up to one year

s Adds up to achievement of tactical and
strategic plans
Figure 6.4 Levels of business planning
CH A P TER 6 THE IMPORTANCE OF BUSINESS PLANNING
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ISBN: 9781107665910
ACTIVITY 6.1
Complete this task in groups of two to four as directed by your teacher. Report back to the class in
either written or verbal form.
1 Your task is to plan a major event such as a family wedding or a 21st birthday party to be held in 12
months time.
2 Devise a list of aims and objectives (what, how, who and when). What specifically do you wish to
achieve at the end of the process?
3 Devise plans under the following headings: venue, drinks, catering, activities, guests, formal procedures.
4 Devise an operational plan for the person in charge of one of the tactical plans to follow on the
night. Include procedures and processes that must be followed.
5 Explain how you will know whether or not you have achieved your objectives.
The business plan

business plan
the formalised planning
a business undertakes
on a periodical basis
92
In order to optimise chances of business

success, it is important to spend time preparing
and developing a good business plan. This
document sets out the details of a business, the
direction it intends to take and how it intends
to get there. Its purpose is, firstly, to assess the
feasibility of the proposed business and to assist
raising funds and, secondly, to show how the
stated objectives of the business will be achieved
to provide a formal direction for business
ideas. In effect it is the strategic plan. A business
plan should be reviewed annually to keep the
business on track to achieving set objectives.
The functions of the business plan are:
s Define and establish the objectives and
direction of a business. Set out where a
business is headed and show how it intends
to get there.
s Assist with obtaining finance and backing for
a business. Banks, financial institutions and
investors will seldom grant finance or invest
in a new business venture without seeing a
detailed business plan.
s Help keep a business on track and focused
on achieving its objectives. A detailed
business plan helps to keep a small business
operator focused on the primary objectives
of the business and avoid making decisions
on the run.
s Enable the business operator to realistically

estimate and deal with potential costs at the
outset. This will reduce the likelihood of cost
blow-outs.
s Provide an opportunity for a business
operator to realistically assess their strengths
and weaknesses.
Components of a
business plan
While there are other formats that are acceptable,
the following is a suggested format that could
be used when drawing up a business plan.
A business plan contains:
1 a cover page
2 an executive summary
3 a mission statement and a statement of the
overall objectives of the business

4 a business profile
5 an outline of products sold
6 a marketing plan, including business
strategies to be implemented
7 an operational plan
8 a financial plan
9 appendices.
ISBN: 9781107665910
1 Cover page
Placed at the beginning of the plan, it should
state the name of the proposed business and
the names of the people who prepared the
business plan.
2 Executive summary
The first section read should be the executive
summary, which follows the cover page.
Also referred to as the front end, it is usually
written last and contains a summary of the key
points to follow. An overview of what is in
each section to follow, the executive summary
should highlight the proposed strategies that
will be used to succeed. The purpose of the
executive summary is to enable anyone reading
the document to make a quick appraisal of the
proposal. For instance, if a bank manager is
deciding about whether to finance the business,
they will simply read the executive summary to
gauge if it is worth reading further. This section
is extremely important in selling the business
to others, as it helps persuade people that what
follows in the body of the plan is worthwhile.
If the executive summary fails to impress, it is

unlikely people will bother reading any further.
It should be no more than one page in length.
Clear presentation and structure are vital.
3 Mission statement
The mission statement and/or vision statement demonstrates both what the business has
to offer the market and the overall business
aspirations. A mission statement should also
convey the intended business image. It usually
contains some of the following:
s a statement about the intended market and
types of customers the business intends to
cater for
s a reference to the types of products to
be sold
s a reference to the location of the business
market and the area it intends to serve
s clarification of the philosophy of the business, of those things the business views as
important, including values and aspirations.
executive summary
an overview or
summary of the
key points of the
business plan
mission statement
a global statement
that reflects an
organisations reason
for being or purpose
and the way it will be
managed
Table 6.1 Some examples of mission statements

Company
Mission/Vision
Gloria Jeans Coffees Vision: To be the most loved and respected coffee company in the world.
Mission: Gloria Jeans Coffees is committed to building a unified family, consistently
serving the highest quality coffee and providing outstanding personalised service in a
vibrant store atmosphere.
Values: At Gloria Jeans Coffees, our values are simple:
We demonstrate a commitment to excellence and innovation in everything we do.
Our partnerships are based on integrity and trust.
We believe in people, building and changing lives.
We foster a culture of joy and passion throughout our company.
Source: www.gloriajeanscoffees.com.au
Northern
Co-Operative Meat
Company Ltd
Vision: Through teamwork and partnership, meet the challenge of the future and
achieve excellence in quality service.
Mission: To grow with our customers and enhance their product, through efficient
processing of livestock and a commitment to service.
Source: www.cassino.com.au
continued next page
93
ISBN: 9781107665910
Company
Mission/Vision
Botanica Hair
Botanica Hair is a newly established salon conveniently located in the Paris end of the
CBD. Our mission is to provide our clientele with a truly unforgettable hair experience.
We believe caring for the beauty of your hair is as important as caring for the beauty of
your face and body.
Source: www.botanicahair.com.au
Taco Bills
Vision: To be a household name in Australia. Think Mexican Think TACO BILL!

Mission: To continue serving great Mexican food and providing an outstanding
experience.
Source: www.tacobill.com.au
ACTIVITY 6.2
1 Using the internet, obtain the mission statements of three different Australian businesses. For each
of these statements, analyse their key elements based on the four points (customers, location,
products, philosophy).
2 Working in pairs, write an appropriate mission statement for two of the following fictitious businesses.
a
b
c
d
e
f
g
An art gallery in the western suburbs of Melbourne named Nickart

A florist in South Yarra named Bloomers
A racehorse stud in country Victoria named Cowl Park
A chain of bakeries operating Australia-wide called Learmonths
An exclusive health farm in country Victoria named Tranquil Lodge
An advertising agency named Touch
A childcare facility operating in St Albans named Snorbkids.
4 Business profile
5 Products and services
This section contains a brief outline of the
This contains a description of the products and

services to be offered by the business, including:
s diagrams and plans explaining new products
in detail
s a description of the competitive advantage
of the business, meaning the factors that
will give the business an advantage over
competitors. This might be lower costs, a
better location and a better reputation or
superior customer service. Every business
must have a competitive advantage if it is to
succeed in the marketplace.
s a brief description of possible future
opportunities and developments, and an
analysis of barriers to entry into the market,
potential threats to the business and how
these will be countered.
business, including:
s a statement of the objectives of the business
s a brief rationale for why the business is
competitive
advantage
a point of difference
or superiority
held over ones
competitors
being established and how it will succeed

s a list of the business principals and directors
s an outline of the business structure
s the business location
s an outline of the experience, qualifications
and skills of the key personnel involved in
the business
s a brief description of the main activities to be
undertaken and products offered
s the unique features of the business making
it different and/or better from its competitors
s the date the business was established.
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ISBN: 9781107665910
6 Marketing plan
The marketing plan is usually one of the
larger sections in a business plan, containing an
analysis of the market, the particular industry in
which the business will be operating and how
the business will operate within that market. It
may include:
s a description of the market in which the
business will be operating, including
customer demographics, size of the market,
changing tastes and trends
s an industry analysis or evaluation of the
characteristics of the particular industry
category the business is entering into. This
is required to understand the minimum
standards of entry and to ascertain
what the businesss competitive edge
might be. A typical industry analysis
would include the:
size of the industry and its parts/segments
number of businesses in the market
number of people employed in the
industry
average size of businesses in the industry
average operating hours
average profits and earnings
relevant legal structures
industry trends.
s current market trends should be stated
s
s
and analysed, including what changes are

occurring in the market. Do people want
something different or new? How do we
know this? Are there young families in an
area? How might this affect your business?
Are peoples tastes or habits changing?
a profile of the businesss customers,
including elements such as age, income
level, lifestyle, tastes and values
an analysis of the internal strengths and
weaknesses of the business and how these
can be exploited and overcome. External to
the business, the future opportunities and
threats and how these might be overcome
should also be included. (This is known as a
SWOT analysis.)
the pricing structure and how this was decided
a description of how the business intends
to promote itself and its products, including
marketing and public relations strategies
methods of sales and distribution to be
employed. This details how the business
intends to sell and deliver its product to
customers/clients, e.g. home delivery,
internet sales, mail order, after-sales backup.
intended marketing strategy, which involves
an analysis of how the business expects to
gain and maintain a competitive edge.
marketing plan
the plan that sets
out the marketing
objectives and strategy
to be undertaken by
a business
SWOT analysis
an assessment of the
internal strengths and
weaknesses and the
external opportunities
and threats for an
organisation in a given
situation
ACTIVITY 6.3
Business analysis: Research activity
Go to http://www.dbi.vic.gov.au/research-reports/industry-atlas-of-victoria and click on the Chapter 2
Businesses in Victoria PDF
Answer the following questions:
1 What percentage of businesses are located in Victoria?
2 What percentage of Victorian small business are located in non-metropolitan Melbourne?
3 What percentage of Victorian businesses are classified as non-employing?
4 Which five industries have the largest numbers of small businesses?
5 Explore Figure 2.13 (Number of Victorian businesses with turnover under $1 million, by industry,
2009) (on page 21) to ascertain how many of these businesses are in the following categories:
a Construction
b Retail
c ICT
C H A P TER 6 THE IMPORTANCE OF BUSINESS PLANNING
95
ISBN: 9781107665910
6 Identify the industry sector that predominates in rural Victoria.

7 Identify the percentage of Victorian small business that falls into the less than $1 million turnover
category.
8 Describe where most of the small businesses in Melbourne tend to be located.
9 Explore Figure 2.20 (Number of businesses with turnover over $10 million by SLA, Melbourne,
2009). Where is the general location for most of the large businesses in Melbourne? Provide
reasons for this pattern.
10 Go to http://www.ibisworld.com.au/ and describe the services offered by this business. Why would
a person contemplating starting a new business use Ibis services?
7 Operational plan
This section provides detailed information about
the people and processes that the business will
utilise to achieve its objectives. The operational
plan should include the following.
REGULATORY STRATEGY
The regulatory strategy should specify exactly
how the business intends to comply with all
laws and regulations affecting it and its activities,
including:
s location and local government zoning
restrictions
s occupational health and safety
s
s
s
s
s
s
employee relations laws

laws relating to protection of the environment
storage and handling of dangerous goods
consumer protection laws
labelling requirements
licensing and registration requirements.
PRODUCTION PROCESS
The production process undertaken by the
business to produce its products and dispose
of waste should be described. The steps of the
production process may be outlined using a
flow chart as shown below.
Greet client on
arrival. Offer tea
and coffee
Client pays and

makes new
appointment
Final appraisal
Hair is blow dried

by stylist
Customer seated
within 10 minutes
Staff member
appraises
clients hair
Clients hair is
washed at basin
Hair is styled and

cut by stylist
Figure 6.5 The production process for a hairdresser
96
ISBN: 9781107665910
ACTIVITY 6.4
Design a flow chart demonstrating the production
process for one of the following tasks.
U
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QUALITY ASSURANCE SYSTEMS

The quality assurance systems are the processes
and procedures put into place to ensure that
standards of product and service quality remain
both consistent and high. Quality control ensures
that the service a client receives tomorrow is of
the same quality as a client received yesterday.
As the marketplace becomes more competitive,
quality assurance systems are becoming
increasingly vital.
There are three basic quality systems that
may be implemented:
s Quality control when goods and
services are physically checked before they
are sold. Examples of this are inspections
or random checks, such as those used by
many clothing manufacturers.
s Certification of quality management

systems in essence, an outside agency
or organisation (known as a certification
body) is brought in to check the way a
company conducts its business with a view
to specified quality controls and processes
established by the certification body. In
short, the business must show that it meets
set standards in how it does things; it must
also show that it follows certain procedures
and processes. When the business can show
that it meets all of these requirements, it
becomes certified. The business is then
entitled to advertise this and it is also entitled
to use the logo of the certification body in its
marketing and advertising materials.
quality control
process of checking
the quality of goods
and services
Figure 6.7 25% improvement in customer service,

250% improvement in customer retention
Figure 6.6 Goods and services should be checked for

quality before being sold
The
International
Organization
for
Standardization (ISO) is responsible for
developing the ISO 9000 family of quality
management standards, the most widely
known of the internationally recognised quality
management standards. SAI Global, which is
associated with Standards Australia, is a locally
based organisation that carries out certification
and assists businesses in meeting best practice.
Certification bodies undergo accreditation by
a national accreditation body to show that they
best practice
a form of
benchmarking where
organisations compare
themselves with the
best in their industry
or operating area
97
ISBN: 9781107665910
customer satisfaction
degree to which
customer expectations
have been met
are competent to carry out certification. The

process of obtaining certification of a quality
management system requires investment in
time, money and resources, but will generally
pay off with increased customer satisfaction,
sales and opportunities. Furthermore, gaining a
recognised quality certification such as the ISO
9000 is extremely helpful when trying to do

business with government, multinationals, large
corporations and overseas customers. A business
that has accreditation has an advantage over one
that does not, as it is immediately recognisable
as having achieved certain standards of quality.
ACTIVITY 6.5
ISO
ISO (International Organization for Standardization) is the worlds largest developer and
publisher of International Standards. ISO began
operations on 23 February 1947.
ISO is a network of the national standards
institutes of some 163 countries, with a Central
Secretariat in Geneva, Switzerland, that coordinates the system. More than 100 of ISOs
members are from developing countries.
Every full member of ISO has the right to
take part in the development of any standard
which it judges to be important to its countrys
economy. No matter what the size or strength
of that economy, each participating member in
ISO has one vote.
ISO standards are voluntary. As a nongovernmental organisation, ISO does not
regulate or legislate. However, countries may
decide to adopt ISO standards as regulations
or refer to them in legislation. In addition, ISO
standards may become a market requirement.
ISO has more than 18 000 International
Standards in its current portfolio. ISOs work
programme
ranges
from
standards
for
medical devices, the environment, safety,

information and communication technologies,
and to standards for good practice and for
services.
ISO launches the development of new standards in response to the sectors that express a
clearly established need for them.
At the end of 2009, the ISO standardsdevelopment system comprised 3238 technical
bodies in the ISO system, including 210 ISO
technical committees.
The costs of developing standards are
mainly borne by the ISO members that manage
the specific standards development projects
and the business organisations that provide
experts to participate in this work.
An average of seven ISO technical meetings takes place every working day somewhere
in the world. An increasing amount of the
work is carried out electronically, which saves
time and costs. The time it takes to develop
and publish an ISO standard is down from an
average of 4.2 years in 2001 to 2.7 years in 2009.
traditional activities, such as agriculture and

construction, through mechanical engineering,
Source: www.iso.org/iso/mediakit/
media-kit_isoinonepage.htm
manufacturing and distribution, to transport,
98
ISBN: 9781107665910
Questions
1 What is the ISO? When was it established? Where is its headquarters located?
2 Explain briefly what the ISO does.
3 Explain how meeting ISO standards might be compulsory for businesses in one country, but not in another.
4 Go to the ISO website (www.iso.org). List 10 important facts about the ISO.
5 Use the internet to find the names of 10 Australian businesses that have ISO 9000 accreditation.
s Total Quality Management (TQM) is a

system that requires every person in a business
to take responsibility for quality. People are
put into teams, often called quality circles.
Each of these groups is expected to look for
possible improvements in its own area on a
continual basis. With everyone making small
incremental improvements, the total quality
standards of the business and what it does will
improve overall. It is worth noting the strong
reputation Japanese-produced goods have for
high quality in light of their TQM practices.
ANALYSIS OF PEOPLE
The analysis of the people involved in the
business is referred to as a personnel skills
audit and involves detailed analysis of the skills:
s required within the business
s already possessed by people within the
business
s that will need to be acquired, through
training or employing someone with a
specific qualification (recruitment).
ACTIVITY 6.6
Developing a production/operations process checklist
You are the owner of a caf situated in a busy shopping centre. You have just employed two new
staff: Manuel, who has been employed as a waiter, and Polly, who is to work as a sandwich hand
responsible for making all the sandwiches. Your job is to prepare a checklist for each of the employees
to use so they can check that they are meeting the standards that you expect of them while carrying
out their jobs. You can also use this checklist to monitor the operations system.
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2 Polly should follow when making a sandwich in order to meet the required standards.
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ISBN: 9781107665910
8 Financial plan
The financial plan is crucial. This section of the
business plan will be scrutinised carefully by
anyone contemplating investing in the business.
Its purpose is to provide a statement of the
financial feasibility and potential viability of the
business. The typical plan would include:
s an analysis of the current financial position
of the business, including funds available,
value of assets and sources of finance
s income and expenditure projections for the

first five years of the business. These are
estimates based on market research of the
anticipated costs and takings expected for
this period.
s estimated profits and losses based on income
and expenditure projections
s a forecast of expected cash flow for five
years
s a break-even analysis.
ACTIVITY 6.7
1 During which months would you expect cash inflow to be at its highest and lowest points for each
of the following businesses? Give reasons for your answers.
a
b
c
d
e
f
g
h
i
Ice-cream manufacturer
Toy shop
Business tutoring VCE students
Turkey farm
Snow-ski shop
Shop selling university and secondary textbooks
Restaurant
Business selling rainwater tanks
School uniform manufacturer.
2 List all of the capital items (equipment and buildings) that would be required to establish each of the
a
b
c
d
Small clothing retail outlet

Plumbing business
Courier business
Gardening business.
3 Explain why it is not uncommon for a new business operation to expect to make a loss for the first
few months of operation.
9 Appendices
Any extra material that might strengthen the case
for a potential business should be included as
an appendix to the business plan. For example:
s brochures prepared for the business
s any patents or trademarks taken out or
acquired on behalf of the business
s the rsums of the key personnel
s any market research relevant to the business
s any articles, press releases or publicity material
featuring the business or key personnel.
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ISBN: 9781107665910
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101
ISBN: 9781107665910
8 Imagine that you are a loans officer in a bank
9 During the postwar period from 1946 to the
and it is your responsibility to assess the

loan application of a potential small business
operator.
late 1970s, Japanese-produced goods had a

reputation for poor quality.
a Explain the features you would look for in
any business plan before you would consider

lending money to that business.
a Is this still true today? Give examples to
demonstrate.
b What factors may have contributed to this
change in perception? Explain your answer.
b Devise a list of 10 features that must be
EXTENSION
QUESTION
contained in any business plan.
Design and prepare a booklet or Microsoft

PowerPoint presentation entitled How to write an
effective business plan. In this booklet:
1 Explain the reasons for preparing a
business plan.
2 List and explain the essential sections of a
business plan.
3 Give advice on business plan preparation.
4 Suggest helpful websites and links.
102
ISBN: 9781107665910
ISBN: 9781107665910
MAJOR PLANNING
THE LIFE OF A SMALL
WHATS AHEAD
Legal and
government regulations
Marketing
Planning continues
throughout the life
of a small business
Financial
Human and
physical needs
ISBN: 9781107665910

KEY KNOWLEDGE
an overview of key legal and government regulations affecting the
operation of a small business
major business planning throughout the life of a small business
human and physical resource needs
financial planning and sources of finance
marketing strategy.
AREA OF STUDY
DECISIONS THROUGHOUT
BUSINESS
The task of business planning continues throughout the life of a business. An operator must look
ahead and plan to:
s comply with legal and government regulations
s meet human and physical needs
s predict and meet future financial requirements
s anticipate and react to changes in the marketplace and market itself accordingly.
Every small business must review and plan regularly.
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ISBN: 9781107665910
compliance
when a business
meets government and
industry regulations
and standards
corporate citizenship
acceptance by an
organisation of its
responsibility to
stakeholders for its
actions and decisions
social responsibility
ethical or social
responsibility where
a government,
organisation or
individual has a duty
to society at large; is
about improving the
quality of relations with
key stakeholders
by-laws
local government laws/
regulations relating
to activities within a
municipality
Compliance with
key legal and
government
regulations
to buy a domain name for the businesss website.

This can be done by visiting the website of the
Australian Domain Name Administrator (www.
auda.org.au).
Legal compliance must be considered both

before starting a business and throughout
the life of a business. Like individual citizens,
businesses are subject to a plethora of laws
and other government-imposed restrictions
that impact on their activities. The privilege of
citizenship means that we as individuals are
subject to the laws imposed by government. In
the same way, the business sector is also subject
to laws and standards of expected behaviour.
This concept of corporate citizenship and
its consequent social obligations have
increasingly become the focus of media
attention in recent years.
A business is subject to numerous and
changing legal, ethical and social responsibility
requirements. Failure to take account of these
may mean legal prosecution, professional
deregistration and/or forcible closure of the
business. It is vital that a small business operator
complies with the relevant laws, regulations,
licensing requirements and codes of behaviour
of Australian business regulation.
Local governments by-laws affect the operation

of small business in their local areas. These vary
according to the local government.
Business registration
The Business Names Act 1962 requires the
registration of the names of all businesses that
conduct business in Victoria under a business
name. Consumer Affairs Victoria holds a registry
of business names. The operator is obliged to
display a sign showing the business name.
Any trademarks that the business wishes to
have exclusive use of must also be registered as
intellectual property. This gives legal protection
from others using your brand and business name.
Once a company has been established, it must
be registered with ASIC. It may also be advisable
106
Local government by-laws
Building and planning controls

Every small business operator will need to
approach their local council to ensure that their
chosen location and premises are appropriately
zoned. Each local government has a planning
scheme administered by its planning department.
Different areas are designated for different types
of use. For instance, large parts of any local
government area will be zoned for residential
use only. This designates the area for residential
dwellings with very few exceptions, e.g. home
offices and a few mixed businesses.
Other areas are zoned light industrial, heavy
industrial, retail and commercial. The purpose
of this system is to ensure that like businesses are
restricted to similar areas. No one, for instance,
would like to discover that the vacant block of land
next to their house has been sold to a developer
building a four-storey office block, or even a
supermarket. The system of zoning prevents this
from occurring. Council planning approval must
also be obtained for all plumbing and building
work. The operation of a home office may also
require council planning permission.
Other by-laws affecting small

business
Businesses must also be aware of other local
by-laws, including:
s parking restrictions
s times of operation
s health regulations covering hygiene and
food handling
s activities such as outdoor dining.
ISBN: 9781107665910
Figure 7.1 Zoning protects property from inappropriate development.
ACTIVITY 7.1
The following extract is adapted from the website of Brimbank City Council. Read the extract and
answer the questions that follow.
Environmental Health Services, 5 October 2010,

Revision 1
Guidelines
Environmental Health Services
Operating a business providing
hairdressing procedures
Before you can begin operating a business
providing hairdressing procedures:
s Consult with the Brimbank City Council
Environmental Health Services, once
you have selected a site, to discuss
your proposal.
s It is your responsibility to ensure that any
relevant applications through the Planning
or Building departments have been obtained.
s Please note, approval granted under the
Health & Well Being Act 2008 [sic] does not
take effect until all relevant Planning and
Building permits have been issued.
To apply for registration:

s Submit detailed plans of the interior layout
of your proposed premises.
s Obtain council approval for your plans
s Once works are completed, contact your
Environmental Health Officer to arrange a
final inspection.
s Submit an application for registration to
Brimbank
City
Council
Environmental
Health Services with the applicable fee.

1.0 General requirements
Equipment, furniture, fittings, floors and walls
should be purpose built or purchased specifically for the task to be performed. They should
be durable, safe and suitable for cleaning
and maintenance, and constructed of sealed,
CH AP T E R 7 MAJOR PLANNING DECISIONS THROUGHOUT THE LIFE OF A SMALL BUSINESS
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ISBN: 9781107665910
nonporous material. There should be adequate

lighting and ventilation throughout the premises The premises should be planned to
provide separate function-specific client and
cleaning/sterilising areas. The cleaning area
should be designed to ensure movement of
instruments/equipment in a one-way direction
from dirty to clean to sterile areas. It should
also have sufficient bench space for good
working practices.
2.0 Hand basins
A hand basin with hot and cold running water
supplied through a single outlet, plus liquid
soap or detergent and disposable paper towels
should be installed in the immediate procedure
room.
3.0 Equipment sink
Separate sinks with hot and cold running water
supplied through a single outlet (hot water not
less than 70C) should be located in the cleaning
area for instrument and equipment washing.
4.0 Linen
Paper towel, paper strips or clean linen are
recommended and must be changed between
clients. Soiled linen, towels and protective
clothing should be placed in a washable, leakproof receptacle, and laundered using hot
water (7080C) and detergent. All clean linen,
towels and clothing must be stored in a clean
environment to reduce contamination.
6.0 Dispensing
To avoid contamination, the operator must
ensure any make-up, fluid, cream, ointment or
similar substance is removed from its original
container/tube (including self-dispensing
pumps) using a clean disposable applicator. Leftover creams, ointments and similar
substances must not be returned to the original
container and must not be used on any other
client. Applicators used for dispensing must
not be re-dipped into the original container and
must be discarded after each client. Single use
applicators are recommended.
7.0 Animals
Animals, other than guide dogs for the hearingor sight-impaired client, should not be permitted in procedure areas.
8.0 Mobile hairdressing
s Mobile hairdressers must register their
principle [sic] place of business (for example,
their residence) with local government. They
must comply with these guidelines, thus
maintaining the cleanliness of equipment
and personal hygiene standards
Source: www.brimbank.vic.gov.au
5.1 Disposal of waste

All bins used for waste must be lined with a
plastic bag that can be sealed for disposal.
5.3 Disposal of general waste
All general waste, such as papers and powdered
pigments, should be placed into a plastic
bag-lined washable bin with a close-fitting lid
marked general waste.
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ISBN: 9781107665910
Questions
1 Name the local government area that enforces the above by-law on businesses within its
boundaries.
2 Describe the types of businesses that would be subject to this by-law and expected to abide
by it.
3 List the steps that must be undertaken by a small business owner in order to register a new
business of this type in this particular local government area.
4 Describe the purpose of this by-law. (Who is it designed to protect and from what? Explain.)
5 Describe in detail three requirements that must be met by a small business owner in order to
comply with this by-law.
6 Describe how you think this local government by-law might be enforced. In other words, how
would the local government ensure that the by-law is being adhered to?
7 What is likely to happen to businesses that are found to be in breach of this by-law?
Occupational health and

safety laws
In Australia it is accepted that employees have
the right to a safe workplace, and laws are
designed to ensure that employers are obliged
to provide this. In Victoria the Occupational
Health and Safety Act 2004 obliges all employers to provide a safe workplace by proactively
working to reduce all physical, chemical and
behavioural hazards as far as is practicable.
Occupational health and safety (OHS) laws
aim to prevent accidents in the workplace by
involving everyone within the business. All
workplaces must have an OHS policy devised
with input from all within the business.
An employers OHS obligations are:
s a commitment to a safe workplace covering
all workplace activities
s to involve all workers, management and
owners in the development of an OHS policy
s to communicate the OHS policy and its relevant processes and procedures to all within
the business
s to provide training in all relevant OHS procedures and processes

s to regularly monitor compliance and review
the policy.
Workplace inspectors may be called in to
assess risks and hazards, and may close down
the business until these are removed. The small
business operator therefore must obtain information on OHS legislation, and standards and
codes relevant to their particular industry. Areas
for possible consideration include:
s handling of asbestos
s toxic substances such as carcinogens
s HIV and hepatitis B
s overuse syndrome (repetitive strain injuries)
s chemicals
s noise
s machinery
s manual handling.
Each state government has its own laws and
appropriate workers compensation authority to
oversee them.
CHAP T E R 7 MAJOR PLANNING DECISIONS THROUGHOUT THE LIFE OF A SMALL BUSINESS
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ACTIVITY 7.2
Death of 18-year-old a wake-up call for employers

9 December 2010
A husband and wife manufacturing partnership
were sentenced today following the death
of an 18 year-old worker at a Thomastown
cardboard packaging factory in February 2009.
The death of the Mill Park man, who was
dragged into an exposed roller on a machine
that printed and stacked cardboard, was
described by Magistrate Sarah Dawes as the
sudden, unexpected and agonising loss of a
son and brother.
Gary Reid trading as Advanced Cartons
was convicted under two sections of the
Occupational Health and Safety Act 2004 and
fined $60 000. Cheryl Reid trading as Advanced
Cartons faced one charge under the Act and
was not convicted.
Mr and Mrs Reid were placed on good
behaviour undertakings which require them to
complete a managers safety training course.
The court heard the conveyor arm of
the printing and stacking machine had been
raised at a 90 degree angle, so workers could
complete a specialist job. This action exposed
the machines unguarded feed rollers.
The man was dragged into the rotating
feed rollers by his clothing, and died from his
injuries the following day.
This was a young man at the start of
his life, whose death could easily have been
prevented if his workplace had stopped to
consider his safety, WorkSafes Executive
Director for Health and Safety Ian Forsyth
said.
Following his death, guards and an interlocking system were installed on the machine
at a cost of around $6000.
110
Tragically, this is the price that could have

saved this young mans life, he said.
The court heard that Mr and Mrs Reid failed
to conduct a risk assessment on the machine,
imported from China, which would have
identified the risks to workers. In addition,
there was inadequate information, training and
supervision for workers using the machine.
Mr Forsyth said all Victorian employers
needed to take a careful look at how they train
and supervise young workers.
Young workers may lack the experience,
knowledge or skills to understand the risks
involved in the work they are doing.
They are more likely to follow instructions
without questioning them. Sometimes they
struggle to speak up about safety even if they
see that something at work isnt safe.
This is a wake-up call for employers,
managers and supervisors to recognise their
added responsibilities when employing young
people, and make sure their risk assessment,
training, and supervision practices reflect this,
he said.
Mr Forsyth said young workers had
the highest rate of injury in the state when
compared to other age groups.
Last year more than 2500 young Victorian
workers were injured badly enough on the job
to make a workers compensation claim.
Charges
Mr Reid was convicted on two counts under
the OHS Act 2004: one under section 21(1) &
(2) (a) and one under section 21(1) & (2) (e).
He was fined $60 000 and ordered to pay costs
of $5000.
ISBN: 9781107665910
Source: WorkSafe Victoria
Mrs Reid faced one count under section

21(1) & (2) (a). She was not convicted but was
ordered to pay costs of $5000.
Both Mr and Mrs Reid were placed on a
good behaviour undertaking requiring them to
undergo a managers safety training course.
Questions
1 Name and describe the type of the business that has been prosecuted. Where is it located?
2 Under which Act of parliament has this business been prosecuted? What penalties have been
imposed on the owners as a result?
3 According to the article, which group of employees is at most risk of being injured at work? Why
do you think this is the case?
4 Describe what has occurred and how the law was breached.
5 What changes have been introduced into the business as a result of this incident?
6 Explain who you believe is at fault in this case. Was the penalty imposed adequate in your view?
Give reasons for your answer.
7 Describe how this prosecution and the publicity surrounding it might affect the business in terms
of its reputation and sales.
Employment laws
All businesses are subject to laws and regulations
affecting their employment of staff.
s Since 1992 all Australian employers must pay
superannuation contributions on behalf of
their employers to a regulated superannuation
provider. Currently, this is at a rate of 9
per cent of the employees income. The
purpose of this is to guarantee all workers
superannuation income for their retirement.
s Workers compensation is an insurance
scheme employers pay into on behalf of
their employees. Its purpose is to provide an
income for employees and/or their families
in the event of injury, disability or even
death in the workplace. Each Australian state
has a comprehensive no-fault compensation
scheme that pays benefits to injured
workers. Employers are legally bound to pay
premiums, which vary according to the level

of risk in a workplace.
s Both state and federal governments enforce
employee relations laws that regulate
the relationship between employers and
employees. These cover procedures for:
resolving disputes in the workplace
setting minimum wages and conditions.
Minimum standards for wages and conditions
are known as awards and are established by an
independent tribunal (a type of industrial court)
called Fair Work Australia. Fair Work Australia
is the national workplace relations tribunal. It
acts like an industrial court to resolve disputes
and to establish minimum wages and conditions.
Fair Work Australia oversees and enforces:
s the safety net of minimum wages and
employment conditions
s enterprise bargaining
s industrial action
superannuation
a pension or lump
sum payment made to
workers on retirement;
the money comes
from employers
contributions made
during the working life
of the employee
workers
compensation
payment made to
employees who
are injured at their
workplace
employee relations
the relationship
between employees (or
their representatives)
and employers (or
their representatives),
encompassing all
aspects of their working
lives, including wages
and conditions of
employment based
on optimum working
relationships
award
an agreement that
sets out minimum
terms and conditions
of employment relating
to an industry
Fair Work Australia
the national
independent
workplace relations
authority with power
to carry out a range
of functions relating
to establishment of
workplace conditions,
dispute resolution and
other workplace matters
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ISBN: 9781107665910
enterprise bargaining
direct negotiation of
working conditions
and remuneration,
which takes place
between an employer
and its employees (or
representative) at a
particular workplace
enterprise agreement
the formal agreement
that results from
the enterprise
bargaining process
s dispute resolution
s termination of employment
s other workplace matters.
Since 1991, Australian employers and their
employees have been encouraged to engage in
enterprise bargaining. This is a system where
employees and employers negotiate pay and
working conditions at each individual worksite,
and then sign a legal agreement known as an
enterprise agreement, which is enforceable

for a stipulated period. These agreements may
be negotiated by a group of employees with
their employer, or a trade union, employees
and the employers. Employee relations laws
at federal and state level are constantly under
review and subject to change. It is therefore
vital that the small business operator keeps
abreast of these.
ACTIVITY 7.3
Go to the Fair Work Ombudsman website at www.fairwork.gov.au. This is a website provided by the
government for both employers and employees to check their entitlements and obligations. Using the
website, answer the following questions.
1 Go to Employment then National

Employment Standards and answer the
a What are the National Employment
Standards (NES)? Who is affected by them?
b Explain how the NES are designed to
protect employees.
c List the 10 National Employment
Standards that apply to all employees
covered by the national workplace
relations system.
d What penalties does an employer face for
only providing an enterprise agreement
to their employees with entitlements less
than the NES?
Equal opportunity, antidiscrimination and sexual

harassment legislation
There are numerous pieces of federal and state
legislation that regulate behaviour of employers
towards employees, as well as employees
towards each other. Equal opportunity legislation,
in particular, aims to ensure that employees
are judged by their employers on their merits.
Legislation relates to three main areas:
112
2 Go to Resources then Pay Rates Calculator.

Use this to calculate the minimum pay rate for
each of the following employees.
a Andrew, a Grade 2 food and beverage
attendant working in a restaurant
b Eleni, an 18-year-old third-year
apprentice chef
c Bruce, a second-year apprentice
hairdresser.
3 Go to Complaints then Fair Work

Inspectors. Summarise the role and powers
of a Fair Work Inspector.
4 Why would the federal government establish
this type of website?
s Anti-discrimination laws aim to protect

employees from discrimination on the
grounds of race, gender, sexual preference,
religion, pregnancy, ethnic background,
disability or any other personal characteristic.
Employers are also liable for the actions of
their employees in this regard. The Equal
Opportunity Commission may fine employers
if they perpetrate or allow discrimination based
on an employees personal characteristics to
occur in their workplace.
ISBN: 9781107665910
s Affirmative action laws aim to improve the

chances for career advancement for groups
that have traditionally been disadvantaged,
such as women and people of a non-Anglo
ethnic background. The Equal Opportunity
for Women in the Workplace Act 1999, for
example, requires businesses employing
more than 100 people to report on the
progress made in appointing women to
non-traditional work areas.
s Federal sexual harassment legislation
outlaws unwanted or uninvited sexual
behaviour that is offensive, embarrassing
or humiliating in the workplace either by
employers to workers or between workers.
There are clearly specified procedures for
investigating a sexual harassment claim that
must be followed by employers.
State government laws

regulate trading hours
Different types of businesses will have different
trading hours allowed. The type of business
and locality are issues considered when trading
hours are determined. It is important for a small

business to keep up with changes to public
holidays and the trading hours allowed by laws
on these days.
Environment protection
laws
Environment protection laws are enacted
by governments at all levels to protect the
environment. A business will be prosecuted
if it fails to meet the environmental standards
defined in a particular law. An operator is
required to become acquainted with the
relevant environmental legislation and ensure
that the business meets expected standards.
The Environmental Protection Authority
(EPA) is the Victorian body charged with
enforcing environmental laws. Areas that are
covered include:
s noise
s waste discharge
s use of toxic substances
s emission into the environment.
ACTIVITY 7.4
Visit the website of Environmental Protection Authority Victoria at www.epa.vic.gov.au and answer the
1 Briefly describe the role of the EPA.

2 List 10 facts about EPA Victoria.
3 Explain how a polluter can be reported to
the EPA.
4 What is an environmental audit? Name two
recent environmental audits conducted by
the EPA.
5 What is a Pollution Abatement Notice? When
is one of these issued? What are the penalties
for ignoring a Pollution Abatement Notice?
6 Click on News Centre and then EPA

Media Releases. Briefly outline two recent
prosecutions launched by the EPA against
small businesses in Victoria. For each one:
a name the business
b describe the damage it inflicted on the
environment
c outline the penalties imposed.
7 Were these penalties justified in your view?

Explain what you would have done if you were
the judge in each case and justify your views.
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ISBN: 9781107665910
Storage of dangerous
goods and chemicals
This is regulated to protect employees and
the community at large. A business may
be prosecuted if found to store dangerous
substances or goods in an inappropriate manner.
Consumer protection laws
advertising
informing potential
buyers about
a product
cooling-off period
a period of time where
a purchaser (in some
cases) is permitted
to change their mind
about a purchase
114
Numerous pieces of legislation have been

enacted by both state and federal governments
with the intention of protecting consumers from
unscrupulous business practices. Each state
has a Sale of Goods Act outlining the rights and
duties of buyers and sellers. Goods sold must:
s correspond with their description
s be of merchantable quality
s be suited to the purpose for which they
are sold
s be consistent from a sample to the full
quantity.
The federal Competition and Consumer Act
2010 aims to encourage fair trading practices. It
prohibits any misleading or deceptive conduct in
trade, as well as restrictive trade practices, that
is any behaviour that prevents another business
from operating freely in the market. Deceptive or
misleading advertising is also illegal. Victorian
traders are also subject to the conditions of the
Fair Trading Act 1999. A small business operator
will need to be aware of laws relating to:
s weights and measures
s packaging requirements stipulating
minimum packaging standards for products
s labelling certain types of information must
be stated on the packaging of designated
products, e.g. food products must state
ingredients in order of volume
s cooling-off periods customers sometimes
have a period of time during which they
are entitled to change their mind about a
purchase
s pricing
s mailing regulations
s refunds and exchanges.
ACTIVITY 7.5
1 Examine the labelling of at least four food
items. Describe three factors that they all have
in common in regard to their labelling. Do you
think these would be a legal requirement for
food labels? What information do you deduce
must be displayed on food labels? Give
reasons for your answer.
2 Examine the labelling on three household
cleaning products. What factors do the three
labels have in common? Why do you think
these things have to be on this type of label?
3 What information do you look for on each of the
following items? Give reasons for your answer.
a A packet of biscuits
b A tube of toothpaste.
ACTIVITY 7.6
1 Go to the website of Consumer Affairs Victoria
at www.consumer.vic.gov.au. Go to Shopping
and trading and answer the following questions
relating to returns and refunds.
a Describe the circumstances under which
a trader is legally obliged to provide a
refund at a customers request.
b Does a refund have to be a cash refund or
will a credit note suffice?
c Describe the circumstances where a
customer is not legally entitled to a refund.
d Is it legal to hang up a sign saying No
Refund in Victoria?
e Are the following signs legal in Victoria?
Explain your answer.
i Refunds on Unworn Items Only
ii No Refund on Sale Items.
2 Working in pairs, visit three small businesses.

Ask each what their policy is in regard to refunds
and exchanges.
3 How does the policy of each business compare
with their legal obligations in regard to refunds
and exchanges?
ISBN: 9781107665910
Privacy
Insurance
The federal Privacy Act 1988 regulates how

a business may handle and use the personal
information of people. Personal information
is any information about an identifiable
individual, such as names and addresses,
income and marital status. Compliance with the
Act means that the businesses concerned must
always inform people that such information
is being collected. The information must only
be used for the purpose specified, be open to
scrutiny by the individuals concerned and only
be used for a reasonable purpose.
Every business requires some form of insurance.

Insurance policies must be changed and
updated as the business grows and diversifies.
Before commencement, the small business
operator should be fully aware of the risks
involved in running the business and take
out insurance accordingly. This is known as
risk management.
An insurance policy is a legal contract
designed to give financial protection in the event
of disaster. Using an insurance broker to assess
the businesss insurance requirements is advisable
prior to arranging the insurance policies. This is
known as conducting a risk assessment. A
business owner can obtain reduced premiums
if they take action to reduce their level of risk.
For example, installing fireproof doors, smoke
alarms and extinguishers reduces fire risk.
An insurance policy works by the insured
(client) paying a sum of money (premium) to an
insurer (usually an insurance company). In return,
the insurer guarantees to financially compensate
the client for accidental losses incurred.
Premiums increase according to the amount of
risk and the cost of replacement or amount of
financial protection offered. For example, it costs
more to insure against fire in a bushfire-prone
area. Similarly, a retail business that is located in
an area with high rates of burglary or is broken
into on more than one occasion may have to pay
higher insurance premiums.
Two types of insurance are compulsory and
must be purchased by all businesses:
s workers compensation insurance taken
out on behalf of employees to protect them
financially against disability or sickness that
is work-related. In Victoria this is called
WorkCover.
s motor vehicle third-party this type
of insurance is compulsory for all motor
vehicles, both private and business. It
protects all passengers and pedestrians from
injury and death in the event of a motor
vehicle accident.
Taxation
There is an old saying: there are only two
things that are certain in this life: death
and taxation. A business must pay tax. A
business operator will need to contact the
Australian Taxation Office (ATO) in regard to
the following:
s A business carrying out an enterprise in
Australia must obtain an Australian Business
Number (ABN). It is a legal requirement for
businesses in Australia.
s Business partnerships and companies also
require their own tax file number (TFN).
s All businesses must also pay tax on their
income, and collect income tax from the
wages of their employees.
s Businesses are required to collect Goods and
Services Tax (GST) from their sales.
s A business activity statement (BAS) must be
submitted periodically to advise the ATO and
remit tax due on income earned during that
period, plus any GST and employee income
tax owed.
s Fringe benefits tax (FBT) and capital gains
tax (CGT) may also apply.
s A business with employees may also be
subject to state government payroll tax.
risk assessment
conducted by an
insurance company to
assess the level of risk
for which insurance
cover is sought
premium
periodic payment
made to an insurance
company
115
ISBN: 9781107665910
Figure 7.2 Some businesses have higher levels of risk than others. Each business
will therefore have different insurance requirements.
Table 7.1 Insurance coverage for small business
product liability
the responsibility of
a manufacturer or
distributor for harm
or injury that results
from a defective
product; the common
law or statutory duty
of manufacturers,
distributors or suppliers
to warn consumers
about any possible
harmful effects of a
product or its misuse
116
Insurance type
Description
Burglary
Protects against forced entry, theft and damage
Motor vehicle
Protects against vehicle theft and damage to the vehicle in an accident. Third-party
property insurance covers damage to other vehicles
Fire and property
Covers against damage to property in the event of fire and other natural disasters,
such as flood
Public liability
Covers for claims made against the business by a third party, such as a client, for
injury, death or personal loss. This is protection against being sued
Partnership
Covers the life of each business partner
Product liability
Protects against damage or injury to clients/customers caused by faulty or defective

products sold by the business
Machinery
Protects against losses incurred by machine breakdown
Personal disability
Offers income protection to the business owners in the event of sickness or injury
Theft of cash and/or

goods in transit
Protects against theft of goods and/or cash during transportation to or from

the business
Loss of profits
Covers loss of income after an event such as fire or flood and while rebuilding is
taking place
ISBN: 9781107665910
ACTIVITY 7.7
1 Working in groups, devise a role-play scenario
for an insurance broker trying to sell insurance
to the following businesses.
a
b
c
d
Childcare centre
Gymnasium
Restaurant
Builder.
2 Devise a poster or booklet outlining the

different types of insurance a small business
might require.
Approvals relate to local government building

regulations and zoning laws. A business will
need to gain approval for building alterations.
ACTIVITY 7.8
Using the BLIS website at www.business.
vic.gov.au/blis, compile a list of the licensing
requirements for each of the following
businesses.
1 Tattooist
2 Caf
Business licences,
permits and approvals
Most businesses require some type of licence,
permit or approval from a government authority
or professional association to operate. Licences
grant the right to perform a specified activity or
role. For example, skilled tradespeople and/or
professionals such as accountants need to be
licensed with the appropriate authority. Often
a particular qualification is required in order
to practise. A licence is issued for a specified
period of time and must be reapplied for once
this period has elapsed. For example, a medical
practitioner must be registered with the Health
Insurance Commission to treat patients under the
Australian system of Medicare. Similarly, other
types of business may need to have registration
or a licence from a specified body or organisation.
Some businesses require a variety of
licences. For example, a restaurant might
require the following:
s food premises registration for preparing and
selling meals
s liquor licensing for selling alcohol
s APRA copyright licensing for playing music
s local council permits for footpath seating.
Permits are usually available from local
government for a fee. These give permission to
carry out a specified activity, such as footpath
trading or storage of dangerous goods.
3 Real estate agent

4 Builder
5 Beautician.
licence
a permit or approval
to operate
Codes of practice
Codes of practice are sets of guidelines
established by external bodies to regulate the
standards of behaviour and conduct within an
industry. They may be known as any of the
following: code of ethics, code of conduct,
good practice, professional conduct, standards,
rules or specifications. While they are not legally
enforceable, and breaches are not subject to
law, they are usually enforced by the authority
also responsible for licensing. A breach of an
industry code of practice can result in a business
losing its licence to trade.
Often an industry code of practice is used
by an industry as a form of self-regulation.
Australian consumers have become much more
aware of the ethical and social responsibility
issues covered by industry codes of conduct.
Breaches of these are often reported in the media
and can potentially create a poor business image.
code of conduct
guidelines to regulate
standards of behaviour
and conduct either
within an organisation
or within an industry
self-regulation
a group or industry
regulates its own
conduct and behaviour
117
ISBN: 9781107665910
Human and physical

needs of a business
resources
inputs used in
production: land,
natural resources,
labour, entrepreneurial
skills, capital and
technology
workforce planning
planning undertaken to
forecast the
supply of and
demand for workers
Planning must occur on an ongoing basis to

ensure that the future human and physical
resource requirements of the business are met.
Correct provision of physical resources is essential
if a business is to provide quality products in an
efficient manner, and therefore remain competitive.
Different businesses have differing resource
requirements. These will also change throughout
the life of the business as a business expands into
new markets or diversifies its product range.
Meeting the physical and human resource
requirements of a business is an ongoing
cycle involving:
s sourcing and either purchasing or leasing the
required resources, such as raw materials,
equipment, buildings and labour
s negotiation of leasing or purchase
arrangements
s maintaining supplies and a relationship
with suppliers
s making arrangements for servicing and
maintenance of equipment and other
capital items. This may involve contracts
with service providers and or establishing
maintenance procedures.
s replacement of resources when they reach
the end of their life cycle, e.g. vehicles or IT
equipment and software.
Planning to meet physical and human resource

requirements of a business continues throughout
the life of the business, therefore ongoing costs
of maintaining resources and sourcing new ones
must be taken into account. A delivery van, for
example, will involve more than the initial cost
of purchase. Ongoing operating costs, such as
servicing, petrol and replacement parts such as
tyres, must also be budgeted for. Also, at some
future stage the van will need to be replaced.
As a business expands it will require greater
amounts of resources, which in turn will increase
the business operating costs.
Workforce planning is carried out to attract
and maintain a constant supply of workers to keep
the business operating. This involves forecasting
the likely future demand for employees and
taking steps to ensure that this demand is met.
This may involve establishing and maintaining
a relationship with an employment agency that
supplies temporary workers. It also requires the
development of policies and procedures to:
s employ staff with appropriate skills and
qualifications
s train staff
s motivate staff
s deal with seasonal variations in employment
requirements, e.g. employing more staff,
often as casuals, during busy periods
s monitor staff turnover and assess reasons for
staff leaving.
Figure 7.3 All businesses must plan to purchase equipment and maintain it on an ongoing basis.
118
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Figure 7.4 Workforce planning and training are extremely important.
Financial planning
Initial and ongoing financial planning is
important. An owner must plan to meet the
initial establishment costs (both start-up and
purchase of large capital items such as vehicles
or machinery) as well as the costs of keeping
the business operating day to day (operating
costs). In addition, planning to meet future
anticipated costs, such as rises in the price of
inputs or meeting plans for business expansion
or diversification, must be undertaken.
The need for business

finance
Business failure can often be attributed to
the lack of financial planning and control.
Effective financial management is essential for
the successful daily running of a business and
its long-term prosperity. Businesses have to
consider a number of factors when deciding
between alternative sources of finance:
s purpose of the finance is it for the day-today running of the business or for the
purchase of assets such as equipment?
s amount required if it is just for the short
term, an overdraft might be sufficient
s time period the money is needed for

example, is the money needed for a large
purchase such as new business premises?
s costs associated with the loan the interest
rate on the loan as well as the recurring
administrative costs have to be considered
s financial situation of the business a
business with a poor cash flow might find it
difficult to borrow money as it represents a
higher risk to the lender
s external factors factors beyond the control
of the business, such as the global economy,
affect the availability of money.
Raising finance
There are three sources of finance available to
business operators that can be used to meet
start-up costs, capital and ongoing costs:
s owners/shareholders equity money
contributed by the business owners
s reserves profits that are invested back into
the business
s borrowed or invested funds from lending
institutions, other investors such as a
Business Angel or venture capitalists, or
from family or friends.
start-up costs
costs or expenses
associated with
establishing a new
business; may include
registration of a
company name, legal
costs, buying fixtures
and fittings and major
assets such as buildings
owners/shareholders
equity
money contributed by
the business owners
venture capitalist
an investor who
provides capital to startup ventures or helps a
business to expand its
operations
119
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Table 7.2 Types of small business finance

Loan period
Definition/description
Source/types
Short-term finance
(working capital) up
to three years
Money needed to fund the

day-to-day operation of the
business. To cover financing
shortfalls day to day. Repaid
in short term.
Bank overdraft: Interest calculated daily on amount

owed. Taken out with a bank.
Usually smaller amounts.

Generally higher interest
rate (more expensive).
Commercial bill: Arrangement where money is made

available for a short period at end of which loan
must be repaid (30 up to 180 days). Usually for
seasonal funding needs.
Debtor finance: Where a finance company provides
a cash advance to a business against sales made
but not yet paid for by customers. Loan is repaid
once customer pays.
Trade credit: Buying of goods and services that
do not require immediate payment. From trade
suppliers.
Credit cards: From banks, credit unions.
Medium-term finance
three to 10 years
Mainly used to finance

equipment purchases,
business expansion and
development of new
products.
Term loan: Loan over an agreed period of time

where principal and interest are paid off in monthly
instalments. Used to structure repayments to
correspond with income produced by what has been
purchased with the money.
Leasing: Loan financier purchases the equipment
and then leases it back to the business in return
for regular repayments. Often involves an offer for
borrower to purchase the equipment for an agreed
residual value at end of a specified time.
Personal loan: Loan in the name of the business
owner rather than the business
itself. Can then be considered as equity
or a loan to the business.
Long-term finance
in excess of 10 years
120
Used to fund the purchase

of assets such as the
business itself, land,
buildings, plant or machinery
that will contribute to profit
over the years.
Term loans: Loan over an agreed period of time

where principal and interest are paid off in monthly
instalments. Used to structure repayments to
correspond with income produced by what has
been purchased with the money.
ISBN: 9781107665910
Planning a
marketing strategy
A small business owner must plan initial and
ongoing strategies to market the business and
its products or services. (These are described
in greater detail in chapters 15 to 18.) A
marketing plan details how customers/clients
will be attracted to the business and how they
will be maintained over time. This plan must
be reviewed and reassessed regularly in light of
changes in the market.
The small business operator must determine
and specify:
s business objectives
s who their customers are (market segment)
s what their customers want (needs and wants)
s why customers will buy from them and not
from the competition (competitive advantage).
Market research
The first step in marketing a business is to
conduct market research. This is the process of
gathering information about the market through
a number of measures, including:
s discussions with others in the same industry
and potential customers and suppliers
s employing a market research company to
conduct research
s the internet
s trade and industry association research
s Australian Bureau of Statistics research
(much of this is free).
Market research should aim to define the:
s products: What benefits do they bring to
the consumer? What features are valued by
consumers? What is the products life cycle?
What is the potential for substitute products
to come on the market? (Refer to chapter 18.)
s target market: What group of consumers is
likely to buy the product and what is their
demographic? (Refer to chapter 18.)
s competitors: Who are they and what are
their strengths and weaknesses?
Marketing plan
After market research has been done, the
business operator needs to draw up a marketing
plan for the business. This will include goals
and marketing strategies. (Refer to chapters 17
and 18.)
The marketing plan must be reviewed and
reevaluated regularly to:
s follow up and react to changing trends in
the market
s keep up to date with the latest market
research statistics.
121
ISBN: 9781107665910
ACTIVITY 7.9
Make the most of your cross-promotion activities

Have you considered all of your crosspromotional opportunities? There may be
other businesses you may be able to work with
where you cross-promote each others services.
Think of a business that complements your
products or services but doesnt compete
with you. A friend of mine recently engaged
the services of a nanny recruiting agency. After
having her baby, she is now returning to work
and needs a nanny to look after her child. Upon
signing up with an agency, they sent her a bag
of goodies which included a gift voucher for
a $50 make-up session at an upmarket beauty
salon. It was a smart gesture on the part of
the nanny agency, who is often dealing with
mums who are returning to work many
of whom would welcome a complimentary
makeover after months of sleep deprivation
and baby spew. So my friend rocked up to
her makeover and walked out looking like
a million dollars. She also purchased $1500
worth of make-up and skincare at the end of
her session. (Yes, either it was very good make-
122
up or all that sleep deprivation and baby spew

were really taking a toll!) However, it goes to
show what some smart marketing and good
cross-promotion can do. And it didnt cost the
upmarket beauty salon a cent. When you think
about it, if someones likely to purchase $1500
worth of make-up, the salon is likely to give
that customer a free make-up session anyway!
All they did was find a complementary business
the nanny agency and offer them free gift
vouchers for their clients. The nanny agency
looks good for providing some relevant valueadded services to clients. And the beauty salon
gets a significant amount of business from it.
Sure, theres a risk that my friend may not have
bought anything at all. But somehow, I think
that the beauty salon knows that months of no
sleep and baby spew are a potent combination
when it comes to helping return-to-workmothers part with their not-yet-earned cash!
Source: Sydney Morning Herald.
Posted by Valerie Khoo, 11 July 2008
ISBN: 9781107665910
Questions
1 Explain what the marketing strategy of cross-promotion is.
2 Identify and explain the incidence of cross-promotion discussed in this article.
3 Identify the target market of the beauty salon in the article. Describe the characteristics of this
target market.
4 Describe the need of the customer/client that was being satisfied by the beauty salon in this
case. What benefits did the customer receive?
5 Was this a successful marketing strategy in your view? Discuss.
6 For each of the following small business pairs, explain a cross-promotional strategy that could be
undertaken to market and benefit both businesses.
a
b
c
d
Screamers Child Care Centre Pty Ltd and Little Tackers Hair Stylist
Jemmas Dog Training School and Hugos Pet Shop
JJs Sportz Store and Claires Swim School
A builder and a plumber.
123
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CHAPTER SUMMARY
Planning continues throughout the life of all small

businesses. A business must plan for:
U compliance with legal and government
regulations, such as business registration, local
government by-laws, occupational health and
safety, employment laws, equal opportunity,
environmental laws, consumer protection,
taxation, insurance, codes of practice
s HUMANANDPHYSICALRESOURCENEEDSWHICH
CANINCLUDESOURCINGANDLEASINGPURCHASEOF
EQUIPMENTRAWMATERIALSANDSOONTOMEET
ONGOINGREQUIREMENTSINCLUDINGSEASONAL
VARIATIONSANDEXPANSIONNEGOTIATIONOF
1 Define the following terms and explain how
CHAPTER SUMMARY
QUESTIONS
each relates to the issue of small business

legal compliance.
a By-law
b Social responsibility
c Occupational health and safety
d Business registration
e Workers compensation
f
Insurance premium
g Risk assessment
h GST
i
Code of conduct
Licence.
2 List the main areas of legal compliance with which
small business operators must be acquainted.

3 Explain where the Registry of Victorian
Businesses is located. Suggest reasons why a

business is required to submit a list of possible
business names rather than simply one when
applying for business registration.
LEASESANDPURCHASEOFPREMISESMAINTAINING
RELATIONSHIPWITHRELIABLESUPPLIERSSERVICING
ANDMAINTENANCEOFEQUIPMENTREPLACEMENT
OFRESOURCESWHENREQUIREDWORKFORCEPLANNING
CONDUCTEDTOATTRACTANDMAINTAINASUPPLYOF
WORKERSANDINVOLVINGFORECASTINGANDPLANNING
TOMEETFUTUREREQUIREMENTS
s lNANCIALNEEDSTOMEETBOTHONGOINGANDINITIAL
COSTSANDTHENEEDFORRAISINGlNANCE
s MARKETINGSTRATEGYTOATTRACTMAINTAINAND
GROWACUSTOMERCLIENTBASEALSOINVOLVES
MARKETRESEARCHTODElNEPRODUCTSTARGET
MARKETANDMAINCOMPETITORS
best placed in a commercial retail area,

while a wholesale butcher might be better
in a light industrial area.
Business
a Bookshop
b Oil refinery
c Supermarket
d Office complex
e Home office
f
124
Warehouse
g Block of units
h Gymnasium
i
School.
5 To which organisation would an employer
go for advice on the following?

a Resolution of an employees sexual
harassment claim
b Obtaining a licence to discharge waste
into the environment
4 Classify each of the following businesses into
the local government zone you think would

be the most appropriate (residential, light
industrial, heavy industrial, commercial retail).
For example, a retail butchers shop would be
Local government
zone
c Obtaining an ABN
d Finding out their legal obligations in
regard to consumer rights.
ISBN: 9781107665910
6 List the occupational health and safety
risks that may exist in each of the following

businesses. Consider factors such as
equipment, machinery, training of staff,
dangerous nature of materials used and the
inherent danger in the tasks being completed.
a Ski school
b Factory
c Butchers shop.
7 Explain the legal redress a consumer might
have in the following situations.

a They purchased a product different from
the sample displayed in the store.

b They are sold an underweight product.
c They buy a product with incorrect labelling.
d They change their mind two days after
making a mail-order purchase.
1 Conduct a risk assessment of your school.

b Looking at the results of your risk
with each of the following:

a A printer and computer
b A new business premises
c A delivery van.
9 Identify and explain the most appropriate
types of finance needed.

a Purchasing a new cash register
b Purchasing a block of land for the
purposes of building a business

warehouse
c Covering the wage bill for the
following week
d Developing a new product.
10
10 What is marketing? Explain why it is important
for a small business to establish a marketing

plan that is regularly reviewed and updated.
c Pharmacists (The Pharmacy Guild)

d Car dealers (Motor Car Traders
Association).
assessment, what types of insurance would

you recommend the school purchase?
3 Design a code of practice for students in
c Is there any evidence that the school has
4 Discuss the social obligations you believe
attempted to lessen the level of risk, e.g.

is there any fire-fighting equipment?
2 Make a list of the items that you believe
EXTENSION
QUESTIONS
a List the risks that exist.
8 List and explain the ongoing costs associated
your school.
Australian business has to the general
community. Use examples to support
your arguments.
should be included in the code of practice

for each of the following industries or
professions. Then, by referring to the
websites of the appropriate industry group,
locate the actual code of ethics for one of
these groups. Discuss any differences and
similarities between what you suggested as
appropriate standards and what is actually
stipulated.
a Real estate (Real Estate Institute
of Victoria)
b School teachers (Victorian Institute
of Teaching)
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ONGOING EVALUATION
OF SMALL BUSINESS
WHATS AHEAD
Business success
Key Performance
Indicators
Degree of achievement
of business judged by
level of efficiency and
effectiveness of objectives
Business failure
ISBN: 9781107665910
KEY KNOWLEDGE
strategies used to undertake ongoing evaluation of small business,
including key performance indicators
practices that contribute to ethical and socially responsible management
with respect to decision making, planning and evaluation.
It is a startling fact that in Australia between
Given these statistics and with the inten-
60 per cent and 70 per cent of all new
tion of not becoming a business failure, prior
businesses will cease to exist within a few years.
to embarking on any small business venture a
It is estimated that 90 per cent of these failures
potential business owner should:
will occur within three years of a business
s reflect upon these figures
opening, and 95 per cent within the first five
s pre-plan
years. That adds up to approximately 40 000
s consider the methods to be employed in
Australian small businesses ceasing to operate
ongoing evaluation of the businesss perfor-
each year (or more than 100 per day). While a
mance against its stated objectives and targets
significant proportion of these are due to non-
s regularly evaluate the performance of the
financial causes, such as owners retiring, many
AREA OF STUDY

business using Key Performance Indicators.
are caused by financial failure.
127
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ACTIVITY 8.1
Full hit of GFC on Australian business revealed

by Chalpat Sonti
128
The global financial crisis left a wake of destruction through the world economy, and Australia was not immune.
Just how badly, or well, businesses survived
the global financial crisis and other economic
turmoil of the past two years is evident from
In WA, about 57 000 businesses with an

ABN and registered for GST, including 10 100
new businesses, were forced to the wall over
the two years surveyed.
That is an attrition rate of 26.9 per cent of
all new businesses in the period.
new official figures.

Australian Bureau of Statistics data shows
in the two years from June 2007 encompassing the boom and subsequent bust more than
638 000 Australian businesses shut up shop.
Nationwide, there was a 26.4 per cent
failure rate in the two years.
About 615 000 businesses started up in
the period, meaning the total number of businesses fell about 23 000 to 2.05 million. Most of
the net loss, about 20 700, occurred in 200809.
It is the first period since the ABS began
collecting the data in 2003 that the number of
businesses fell.
But despite the GFC happening in the
middle of the survey period, there was a
surprising decrease in attrition rates from
15.4 per cent to 13.1 per cent between the
200708 and 200809 financial years.
In the four years to 2007, while the failure
rates remained between 14 and 16 per cent,
the number of new businesses increased at a
greater rate. The 14.4 per cent more start-ups
in 200809 was the lowest level in the six years.
Business failures varied across the states,
with rates slightly higher in the boom states of
WA and Queensland.
In NSW, there were 185 000 fewer businesses in 2009 than two years earlier, an attrition
rate of 26.6 per cent, while Victoria lost 133
000, or 25.7 per cent, of its trading enterprises.
Queensland had 117 000 fewer businesses,
a drop of 27.7 per cent
However, the figures for small business
told a different tale.
The number of businesses with up to 20
employees fell 24 931 nationally in the period,
with more than 80 per cent, or 20 000, of the
fall occurring during the worst of the financial
crisis, in 200809.
Most of the fall was in businesses employing between one and four people.
But federal shadow parliamentary secretary for small business Scott Ryan said the
national drop in small business numbers was
worrying on other future fronts.
Small business is the economys canary, a
key leading indicator, Mr Ryan said.
Source: WA Today, 22 October 2010
ISBN: 9781107665910
Questions
1 How many Australian small businesses closed between June 2007 and June 2009? How many of
these employed less than five people?
2 What percentage was the failure rate for business during this period:
a nationally?
b in New South Wales?
c in Western Australia?
d in Queensland?
e in Victoria?
3 Explain what was surprising about these figures in light of the economic conditions.
4 Were small businesses less or more likely to fail than large businesses? Give figures to support
your conclusion. Explain why you think this is so.
5 Explain what is meant by the following statement: Small business is the economys canary, a key
leading indicator.
What is business
failure?
Why businesses fail
Business failure takes one of two forms:

bankruptcy or insolvency.
Bankruptcy
Bankruptcy is a legal process imposed by the
courts that occurs when a business closes its
doors because it cannot or will not pay its debts.
When bankruptcy occurs, the business
owners assets are sold and the proceeds are
distributed to creditors (the people/organisations
to whom money is owed). If the sale of assets is
insufficient to meet outstanding debts, creditors
have to accept partial payment (e.g. 60 cents in
the dollar).
Numerous studies have been conducted to

identify the primary reason for small business
failure. A common finding is that most
businesses fail as a result of internal business
factors that are directly under the control of
management. It is estimated that up to 90 per
cent of all business failures are associated with
managerial inexperience, incompetence or poor
management practice in general.
It is vital that small business operators are
aware of the importance of their own role in
determining business success. Small business
owners must be able to evaluate both their
personal performance and the performance of
the business on an ongoing and regular basis.
bankruptcy
legal process that
requires a business
owners assets to be
sold to discharge debts
owed to creditors
insolvency
a business that closes
due to inability to meet
financial commitments
and sells its business
assets to repay
outstanding debts
Insolvency
Insolvency occurs when a business closes
itself down because it cannot meet its
financial commitments and/or is unable to
trade profitably. Its assets are then sold to
pay the outstanding financial commitments
of the business, such as creditors or
employee entitlements.
Figure 8.1 A business prepares to close its doors.
CH A P TER 8 ONGOING EVALUATION OF SMALL BUSINESS
129
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effective
the degree to which an
organisation achieves
its stated goals and
objectives; doing the
right things
productivity
a measure of the
functioning and
efficiency of a
production system
efficiency
the way an organisation
uses its available
resources to achieve its
goals and objectives;
doing things right
working capital
net current assets
of the business; the
day-to-day finance
required for operating a
business
liquidity
ability of a business
to meet its short-term
liabilities (debts)
They must be able to correct problems as they

arise rather than allowing problems and/or
worrying trends to grow into major headaches.
To do this, Key Performance Indicators may be
utilised as tools of performance measurement.
Strategies used for

ongoing business
evaluation
Good business management involves making
the most effective and efficient use of the
resources available to the business.
Business efficiency
All resources are a business cost. Minimising
resource use reduces production costs. Optimal
efficiency in the use of resources translates into
improved productivity. By making the most
efficient use of available resources, a business
will produce maximum output for minimal costs
of production. This is known as efficiency.
It is the role of management to create the
environment in which a business operates at its
most efficient level.
Figure 8.3 Example of capital assets
A business must establish measures by

which its use of resources as a ratio to output
can be assessed on a regular basis. An efficient
business is able to keep costs down and will
be better able to compete on price. There are
seven basic categories of resources used by any
business to produce goods and/or services:
s Cash and funds money readily available
to buy other resources. Cash flow refers
to money coming into and flowing out of
the business.
s Working capital the amount of cash
reserves (liquidity) a business holds to meet
short-term commitments
s People/labour workers in the business
s Capital assets tangible property that
cannot easily be converted into cash and that
is usually held for a long period, including
property, machinery, and so on
s Raw
materials
inputs
to
the
production process
s Component parts manufactured parts
that go into production of goods and services
s Time a non-renewable resource
s Expertise and knowledge valuable
Figure 8.2 Staff are often a businesss most valuable resource.
130
resources to any business.
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ACTIVITY 8.2
Classify each of the following resources as:
cash, labour, capital, raw materials, time or
information (some come under more than one
category). For example, a computer would be
classified as a capital item.
1 A receptionist
2 A milking machine on a dairy farm
3 $10 000 in the businesss bank account
Figure 8.4 Making a profit is one aspect of a businesss

objectives.
4 Having a staff member who is a worldrenowned expert in the businesss field

5 Flour for a bakery
6 Water for a swimming school
7 A spare 30 minutes
8 Results of your latest market research done
by a staff member with a PhD in marketing
9 A cash register
10 A delivery van.
Business effectiveness
Another measure of business success is
effectiveness in achieving stated business
objectives. All businesses set themselves specific
objectives to be achieved in a specified period
of time. They should then evaluate themselves
according to how well those objectives have
been achieved within the time frame.
If resources are being utilised effectively,
they are being used to achieve the organisations
objectives.
Business objectives may be:
s financial objectives objectives that are
directly related to the monetary aspect of the
business (profit and cost levels are examples)
s non-financial objectives objectives not
directly related to the monetary aspect of
the business. Examples are to increase staff
morale, improve environmental performance,
or to adopt socially responsible practices.
Measuring
effectiveness and
efficiency through
Key Performance
Indicators
All businesses should develop appropriate Key
Performance Indicators (KPIs). These are
tools of measurement that are used to evaluate
effectiveness in achieving stated objectives and
efficiency in the use of resources in other
words, the things that tell a business how well it is
performing. KPIs are quantifiable measurements
of performance and must be consistent with
the business objectives. A KPI must be
measurable over time and relate directly to core
business activities.
The steps in developing KPIs are:
1 Establish organisational objectives, both
financial and non-financial.
Key Performance
Indicators (KPIs)
criteria or measures
used to evaluate
performance of an
organisation in terms
of effectiveness and
efficiency
benchmark
a standard against
which a business will
make comparisons, e.g.
an industry standard
2 Plan how these objectives will be achieved.

3 Develop KPIs to measure progress and level
of success in achievement of these objectives.

KPIs are comparative tools by which the
businesss performance can be measured against
a set standard or benchmark. A benchmark
might be set at a previous performance level
or the performance of a competitor. There
are two types of KPI: financial and
non-financial performance.
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Financial performance
indicators
rate of return
measure of the return
(%) a shareholder/
owner receives on their
initial investment
These are measures that are often closely

linked with efficiency. Examples of these are
profitability, rate of return on investments, rate
of return on assets, working capital levels, sales
revenue and rate of return on shareholders

investments. Every small business must prepare
income statements and balance sheets in order
to ascertain and assess their performance against
financial indicators. Table 8.1 outlines some of
the key financial measures that may be used
as KPIs.
Table 8.1 Key financial measures and indicators
inventory
the holding or storage
of raw materials,
component parts,
work in progress and
finished goods
liabilities
what a business owes
to an external party
or entity
132
Key financial measure
Indicator
Assets
Any item of economic value owned by an individual

or corporation, especially that which could be converted to cash.
Examples are cash, securities, accounts receivable, inventory,
office equipment, real estate, a car and other property. (What
you own that is worth something)
Gearing
The percentage of company assets that are financed by

borrowing compared to the proportion financed by owners
equity. (How much is still being paid off)
Liabilities
An obligation that legally binds an individual or company to settle

a debt. A liability is recorded on the balance sheet. Examples
are accounts payable, taxes, wages, accrued expenses, and
deferred revenues. Current liabilities are debts payable within
one year, while long-term liabilities are debts payable over a
longer period. (What you still need to pay later)
Liquidity ratio
A measure of extent to which a corporation or other entity can

quickly turn assets into cash and cover short-term liabilities; also
known as cash asset ratio or cash ratio. (How much cash you
can raise quickly)
Profit
The positive gain after subtracting all expenses from amount

taken. (What is left over after all the expenses are taken out)
Net profit after tax
Net profit after tax has been deducted. (Profit after government
taxes have been paid)
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Key financial measure
Indicator
Net profit
Calculated by subtracting total expenses from total revenue,

showing what has been earned (or lost) in a given period of time
(usually one year). Also referred to as net income, net earnings
or bottom line. (What money is made after all expenses)
net profit
gross profit less
expenses and
overheads of running
the business
Gross profit
Revenue minus all costs directly related to making the revenue.

Costs can include manufacturing expenses, raw materials,
labour, selling, marketing and other expenses.
net assets
total assets less current
liabilities, i.e. working
capital
Operating profit margin
A measure that indicates how effective a company is at

controlling the costs and expenses associated with their normal
business operations. (How much it is costing you to make
money)
Owner equity
Total assets minus total liabilities of an individual or company.

Also called net worth or net assets. (How much of the business
you own outright)
current assets
short-term assets
that are likely to be
converted into cash
before the end of the
financial year, e.g. bank
accounts, stock and
debtors
Return on investment (ROI)
Measures how effectively the business uses its capital to

generate profit; the higher the ROI, the better. (How efficiently
you use your assets and resources)
Return on total assets (ROTA)
Measures how effectively a company uses its assets. Calculated

by income before interest and tax divided by fixed assets +
current assets. (What you get back from your assets)
Revenue
Total amount of money received for goods sold or services

sold over a certain time. Calculated before any expenses
are subtracted. Net income can be calculated by subtracting
expenses from revenue. (How much money you collect)
Net sales
Gross sales revenue minus returns and discounts, shown in an

income statement as sales revenue. (The real value of what you
have sold)
Profitability ratio
Measurement of the level of profit compared to variables such

as sales turnover and net assets
profitability ratio
measurement of the
level of profit compared
to variables such as
sales turnover and net
assets
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Non-financial
performance indicators
staff turnover
number of employees
leaving an organisation
in a given period
of time
social responsibility
ethical or social
responsibility where
a government,
organisation or
individual has a duty
to society at large; is
about improving the
quality of relations with
key stakeholders
triple bottom
line reporting
reporting on
financial, social
and environmental
performance
134
These are areas of business performance

expressed in non-monetary terms. They
can affect the financial performance of the
organisation. For example, a KPI may be the
level of staff morale. Low morale will adversely
affect worker productivity as commitment to
work and motivation will be reduced, resulting
in staff absenteeism or staff turnover. This
will subsequently affect profits, sales and other
financial KPIs. Non-financial KPIs can include:
s level of staff satisfaction, which can
be measured quantitatively by rate of
staff absenteeism and staff turnover, or
qualitatively by attitudinal survey results.
s levels of environmental impact. It is
becoming common for businesses to
set themselves objectives in relation to
their environmental impact. This may be
reflecting the businesss own philosophy.
It may also be in response to laws passed
by governments designed to protect the
environment, or simply because consumers
express a preference for dealing with an
environmentally responsible business. A
glance at the supermarket shelves, for
example, will reveal numerous products
that market themselves as clean or
environmentally responsible. Similarly,
businesses such as The Body Shop base
their entire marketing campaigns on being
environmentally and socially responsible.
KPIs of this type might include measures
of emission levels, numbers of new greener
products and levels of environmental
reputation. Quality of product labelling and
the provision of information to consumers
about
potentially
toxic
components
and products is another measure of
environmental responsibility.
s levels of social responsibility. Businesses
are increasingly in the public spotlight for
their performance in the area of social
responsibility. The Australian community

is increasingly demanding good corporate
citizenship. Measures of levels of social
responsibility could be business involvement
in sponsorship of worthy causes, adoption of
programs to employ disadvantaged groups
(such as Esprit and their work with homeless
youth or Ford Australias commitment to
assisting unemployed youth), or simply
the reputation of the business in the local
community.
Triple bottom line

reporting
The Corporations Act 2001 requires all Australian
companies to produce financial reports. In
addition to this and as a consequence of a
growing sense in the community of a need for
everyone, both individual and corporate citizens,
to take greater responsibility for environmental
and social issues, the concept of triple bottom
line reporting (TBL) has emerged. TBL is based
on the belief that a business has a responsibility
to all its stakeholders, not just to its owners/
shareholders, for the effects of its products and
activities. Consequently, a business is obliged to
be aware of its effects on the environment and
society, as well be concerned for its financial
performance. A business that engages in TBL
reporting is showing that it is willing to be
accountable to all stakeholders for environmental
and social performance and not just its
financial performance.
TBL is reporting on:
s financial performance
s the social outcomes of the business activities,
such as job creation, wages and working
conditions, research and development, and
so on
s environmental impact of the business
activities on water, land, biodiversity, use of
resources, human health, and so on.
The use of TBL is increasing worldwide as
businesses recognise that reputation and image
ISBN: 9781107665910
are affected by performance in all three areas.

A business that adopts TBL might choose to
implement some of the following:
s awareness of and willingness to act to reduce
carbon footprint
s setting up an ethically invested staff
superannuation scheme
s reducing the use of resources such as water
s using GreenPower
s recycling
s supporting community activities
s developing green products.
ACTIVITY 8.3
Suggest a KPI that would be appropriate for each
of the following businesses to adopt.
1 A childcare centre wanting to measure

customer satisfaction
2 A shoe store wanting to measure its financial
performance
3 A dairy farm wanting to measure productivity
4 A caf wanting to measure the quality of
customer service
5 A factory wanting to measure its level of
environmental responsibility.
Benchmarking
benchmarking
comparing the
performance of a
business to industry
standards or the
market leaders in the
industry
A business can measure its performance by

benchmarking. This may involve comparing
its performance to industry standards or the
market leaders in the industry.
ACTIVITY 8.4
Fruits of success in a blooming good idea

by Denise McNabb
At 27, with a hard-earned deposit for her first
home in the bank, Kelly Baker faced one of the
biggest decisions of her life.
She had spotted an innovative idea for gift
giving on an overseas trip and it was germinating in her marketing head as an enterprising
business prospect.
It needed start-up money but the banks
werent receptive. But after talking it through
with her family and friends and with her sister
Abbey eager to come on board, Kelly Baker
made her choice.
House buying went on the back burner and
using her life savings, online gift retailer Edible
Blooms was born
Her idea puts both longevity and edibility
into flowers.
Its a visual quirky take on the traditional

florist offering. What looks like beautiful floral
arrangements from a short distance are
actually chocolate, fruit and cookie-laden
bouquets, gift and hampers.
Five years on since her investment decision, Baker has taken the business from her
original base in Queensland to Victoria, New
South Wales, South Australia and New Zealand.
Sights are now set on the United Kingdom then
possibly Asia.
Baker says her initial decision to
draw on her house deposit has been so
rewarding she has never contemplated an
exit plan.
I just love the business too much,
she says.
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Her punt paid off in November 2009 when

Edible Blooms was named MYOB Small Business of the Year at the Telstra Business Awards.
The New Zealand affiliate, opened in
November 2008 by her first employee Sarah
Bruce, also picked up the web-voted Peoples
Choice Award for Best Corporate Gift Service
across the Tasman.
The company is considered one of Australias fastest growing online enterprises and
more than 70 per cent of its business comes
through the internet. Baker says it can receive
10 000 hits a day and many more on Valentines Day. She says growth is also strong in
New Zealand
Baker frowns on the discounting being
done by rivals who have set up similar businesses after she was first to market. But she
welcomes the competition.
Though she wont reveal figures because
the company is private, Baker says revenue
last year was 40 per cent higher than the previous year with revenue for the whole five years
averaging a 40 per cent increase each year.
She started small with just nine fresh fruit
blooms in the online store. There are now more
than 120 different types of bouquets, using
thousands of foiled chocolates and tonnes of
fruit. She has special bouquets for occasions
like Christmas and for those who like bubbly

or beer with their sweet or fruity treats.
By keeping staff numbers tight (there
are now 25 in Australia) and outsourcing accounts and IT she says she can pay
her staff well and that keeps them happy
and loyal.
But Edible Blooms has not been all smooth
sailing. Being a business where time management is crucial, in the early days crashing
computer systems was nerve-wracking, says
Baker. The job also consumed her life for its
first two-and-a-half years.
If theres one sound piece of advice she
would like to give anyone going out on their
own is to start with saved money and remain
cash-flow positive as she has done from day
one. No debt has enabled her to grow apace.
Baker says in an online business you have
to invest the money in good systems. Shes sunk
thousands of dollars not only into the website,
but also into upgrading to a technology where
every facet of the business is integrated.
From her dashboard she can watch sales
as they are happening in any of her online
stores from any location. With this technology
she says can grow revenue four-fold without
spending any more on infrastructure.
Source: The Age, 6 October 2010
Figure 8.5 A large punt on her future has paid off for Edible Blooms founder Kelly Baker.
136
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Questions
1 Name and describe the business that is the subject of this article. Identify and describe why it was an
innovative business idea.
2 Identify and describe how each of the following could be used as an indicator of business success. In
your answer describe how each can demonstrate an aspect of a businesss success.
a Physical expansion, such as number of outlets or distribution of customers
b Awards and recognition
c Number of sales
d Number of website hits
e Staff morale and staff retention
f
Level of debt.
3 Describe how well the business in the article is performing according to each of the above indicators
of business success.
4 List and describe three key performance indicators that are mentioned in the article and are used to
measure the success of this business.
Table 8.2 Common Key Performance Indicators

Performance
indicator
Classification
Description
Profits
Financial
What is left after

If the business is
Financial records
expenses are deducted making any money, i.e.
from business revenue financial viability
Cash flow
Financial
How much money

is coming into the
business and passing
through it
If the business is
selling its products
Sales figures
If sales are growing
Bank records
Percentage of total
sales in a market
How sales figures

compare to
competitors figures
Sales figures
Good corporate
citizenship
Whether or not the

business is meeting
legal and social
expectations and
standards regarding
the environment
Emission levels
Market share
Level of social
responsibility
Benchmarking
Financial
Non-financial
Financial and
non-financial
What it
demonstrates
Tools used to assess

this indicator
Takings
ABS statistics
EPA audit results

Relationship with local
community
Wastage rates of raw
materials
Demonstrates areas
Comparing processes,
Comparing
where the business
procedures and
performance of
different aspects of the can and has to improve tactics adopted by
leading performers in
business with better
comparable fields
performing businesses
and adopting their
successful practice
Comparing
performance against
industry standards
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CHAPTER SUMMARY
s !LARGEPERCENTAGEOF!USTRALIANSMALL
BUSINESSESWILLNOTEXISTWITHINlVEYEARSOF
COMMENCEMENT!SIGNIlCANTPROPORTIONOFTHIS
ISDUETOlNANCIALFAILUREOFTHEBUSINESS
s "USINESSOWNERSMUSTBEPREPAREDTOPRE PLAN
ANDMEASURETHEIRPERFORMANCEAGAINST+EY
0ERFORMANCE)NDICATORS+0)
s 4YPESOFlNANCIALFAILURE
Bankruptcy a legal process imposed by
courts. If a business is unable to repay its
creditors, its assets are seized and sold.
Proceeds are distributed among creditors.
Insolvency when a business closes itself
down due to an inability to trade profitably.
s 4HEPRIMARYREASONFORBUSINESSFAILUREISPOOR
MANAGEMENT)TISIMPORTANTTHATABUSINESSIS
ABLETOEVALUATEITSPERFORMANCEONANONGOING
BASISANDCORRECTPROBLEMSASTHEYARISE
INVOLVESMAKINGTHEMOSTEFFECTIVEANDEFlCIENT
USEOFTHESERESOURCES
s "USINESSEFFECTIVENESSISAMEASUREOFBUSINESS
SUCCESSINTHEACHIEVEMENTOFSTATEDOBJECTIVES
Financial objectives relate to monetary
aspects of the business.
Non-financial objectives relate to factors
such as staff morale, environmental and
social impacts.
s 4HEREISAWIDERANGEOF+0)SAVAILABLEFOR
BUSINESSESTOMEASUREEFFECTIVENESSAND
EFlCIENCY
s +EY0ERFORMANCE)NDICATORSAREMEASUREMENT
TOOLSUSEDTOEVALUATEPERFORMANCE
s "USINESSPERFORMANCECANBEMEASUREDFOR
EFlCIENCYANDEFFECTIVENESS%FlCIENCYMEASURES
EVALUATEUSEOFRESOURCESINTHEPRODUCTIONOF
GOODSANDSERVICES'OODBUSINESSMANAGEMENT
CHAPTER SUMMARY
QUESTIONS
1 List and define the two forms of business failure.

2 Identify the six basic categories of resources
used to produce goods and services.

Demonstrate these using a concept/mind map.
3 Define the following terms and then use each in
a sentence to demonstrate your understanding.

a Benchmarking
b Key Performance Indicator
c Social responsibility
d Financial indicator.
4 Distinguish and explain the difference between
business effectiveness and efficiency.

5 Explain the importance of objective-setting for
138
small business. Use an example to illustrate

your explanation.
6 For each of the following examples of
small business, list three financial and three

non-financial KPIs that might be used as
measures of business success. Justify your
responses.
a A butcher in a suburban shopping strip
b A childcare centre
c A fitness centre
d A catering business.
7 Explain triple bottom line reporting. Why is
the use of TBL increasing worldwide?
ISBN: 9781107665910
1 Think of a small business you are in regular
2 Discuss the importance of ongoing evaluation
a Write a paragraph describing the
business. Include what the business sells,

where it is located and who its customers
are.
b Describe why you patronise that business
rather than one of its competitors.

c Imagine that you are the owner of this
of business performance to the small business

operator. In your answer, explain the different
types of evaluation tools available to the small
business operator to judge their degree of
business success and their application. In your
answer also discuss:
EXTENSION
QUESTIONS
contact with (this could be anything from

a fast-food restaurant chain to a clothing
retailer, or even your school). Then
complete the following tasks.
U financial KPIs
U non-financial KPIs
U how each of these is used to measure
business success levels
U why a business must engage in ongoing
evaluation.
business. List five objectives you would

set for the business over the next 12
months. Justify your selection.
d Describe at least five KPIs that you would
use in order to evaluate the success of

the business. Explain your choices.
e Design and construct an information
chart similar to table 8.1 and enter these

KPIs accordingly.
CH A P T E R 8 ONGOING EVALUATION OF SMALL BUSINESS
139
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INTRODUCTORY
ACCOUNTING FOR SMALL
WHATS AHEAD
Reasons
Types
Source documents
Price setting
Accounting for small

business
Cash book
Cash control
Evaluation
Taxation obligations
Simple financial reports
Cash flow
Profit and loss

statements
Taxation types
Impact on
structure
Balance sheet
ISBN: 9781107665910
DAY-TO-DAY OPERATIONS
KEY KNOWLEDGE
Students will learn the following about day-to-day operations:

reasons for keeping source documents
elements of a cash book
taxation obligations and the implications for decisions on business
structure
purpose of the Goods and Services Tax (GST)
concepts used within simple financial reports, such as profit and loss
statement, cash flow report or balance sheet
price setting, including calculation of break-even point
ethical and socially responsible management of accounting practices.
Good financial management is critical to the

ongoing success of any business. When starting
out in business, an individual needs to find out
how much funding is needed, where this can
be obtained and what is required to manage the
businesss financial arrangements. The operation
and continued success of any organisation
encompasses many tasks and practices. It is
therefore essential that the manager and/or
owner of the business has the necessary skills

to carry out these duties.
Some of the most vital aspects of business
operations are financial management, record
keeping and the ability to evaluate financial
performance. Evaluation allows a small business
owner or manager to plan for the future and
ensure that the business stays financially viable.
AREA OF STUDY
BUSINESS
record keeping
keeping accurate
records of all
matters related
to business
activities
141
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Keeping source
documents and
other financial
records
financial management
managing the financial
activities relating to the
operation of a business
All businesses need to ensure that they have

accurate records. Information on financial
matters can be gained from a number of
sources. According to the St George Bank, some
of the key factors crucial to effective financial
management are:
s using reputable accounting software that
automates critical financial reports (such
as profit and loss statement and balance
sheet) to make sure that taxation reporting
is completed
s keeping on top of accounting and
bookkeeping tasks
s sending bills promptly and following up
outstanding invoices swiftly
s having a workable budget that includes
regularly updated cash flow projections
s having strategies to manage cash flow before

it becomes critical
s taking into account the time, cost of wages
and materials and other elements involved in
delivering the product or service.
Effective financial management allows the
owner and/or manager to confirm whether the
business is profitable and to explore further
opportunities to boost profitability.
Inability to control business finances can lead
to a number of problems. The major financial
causes of business failure include:
s inadequate record keeping and control over
finance. Failure to keep accurate financial
records will mean that the business owner
will not be able to determine whether the
business is operating successfully.
s future trends and potential problems not
detected or solved in time
s inability to keep up to date with government
legislation and taxation obligations that
require businesses to pay income and
company tax and to collect the Goods and
Services Tax (GST) revenue on behalf of the
federal government.
Owner/manager
Government
bodies
Competitors
Business
Prospective
owners and
investors
Employees
Financial
institutions
Figure 9.1 Stakeholders in the business
142
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It is vital, therefore, for a business to maintain

accurate financial records. There are a number
of stakeholders who may need, or are interested
in, financial information about the viability of
an organisation. A number of financial areas are
important and should be monitored by a small
business. These records include:
s cash book
s cash control
s inventory (stock) control
s taxation
s preparation of financial records.
Reasons for keeping

source documents
While it is a fact that many small businesses
fail as the result of poor or inadequate financial
record keeping and management, there are a
number of basic steps a small business owner
can take to prevent failure. Using a simple
accounting or bookkeeping system will allow a
business to quickly track the financial position.
It is important that all businesses, regardless of
size, keep records of financial transactions such as
sales, payments of expenses and credit sales, and
documents that provide evidence of these financial
transactions. A source document is one that
provides evidence of a transaction. Between
businesses, the type of evidence required will
vary. The evidence (the source document) should
contain at least the following information:
s transaction date
s type of transaction and document
s financial (or monetary) value of the
transaction
s names of those involved, e.g. the customer
or supplier, and a description of the goods
or services required.
If these source documents are not kept, it

is almost impossible for a business to track the
financial data or prove expenditure, e.g. stock
loss for taxation purposes. Regardless of the
bookkeeping or accounting system used, this
type of basic information must be kept.
Elements of a cash book

A cash book is one of the simplest forms of
financial record keeping. A cash book sets
out all of the cash transactions of a business,
including receipts and payments.
Cash transactions
Once a business starts operation it enters into
transactions, which must be correctly recorded.
Examples of transactions include revenue from
the sale of a good or service, cash payments,
including employee wages, payment of rent
and the registering of a business name. These
transactions are contractual arrangements. If, for
example, a customer telephones an electrical
retailer with an enquiry about the price and
features of a DVD player, this is not a transaction.
If, as a result of the phone call, the customer
purchases the DVD player, then a transaction
has taken place. A business needs to ensure that
it keeps evidence of all transactions.
inventory
the holding or storage
of raw materials,
component parts,
work in progress and
finished goods
transactions
contractual
arrangements
undertaken by a
business, e.g. payment
of wages
source document
a document that
provides evidence of
a transaction
cash book
one of the simplest
forms of financial
record keeping;
sets out all the cash
transactions of a
business, including
receipts and payments
evidence
information that
identifies the type of
transaction, its date,
parties and financial
value (if any)
Figure 9.2 Transactions such as the payment of wages

are contractual obligations
CHAPT ER 9 INTRODUCTORY ACCOUNTING FOR SMALL BUSINESS
143
ISBN: 9781107665910
ACTIVITY 9.1
Determine whether the following events are
transactions. Give reasons for your answers.
1 A customer places their name on a mailing

list.
2 A manufacturer purchases raw materials.
3 A supplier distributes a catalogue of plumbing
parts to a hardware store.
4 A customer returns a faulty CD player.
5 A phone bill is paid by an advertising agency
using an American Express card.
ACTIVITY 9.2
Complete three receipts using the following
information. Use the receipt shown below as
a guide.
1 10/9/11, Kingston Sporting Store, 99 High

Street, Kingston VIC 3364. Cash sale for
supply of three cricket bats at $45 each.
2 17/11/11, Peters Formal Hire, 122 Station
Avenue, Kew VIC 3101. Cash sale for hire
of formal suit ($95).
3 15/2/12, Stevens Christmas Trees, 88 Williams
Road, Port Melbourne VIC 3207. Sale of
one Christmas tree ($37) and Christmas
decorations ($23).
Cash receipts
A cash receipt is a source document and
provides evidence for the business. Cash source
documents include:
s receipts
s cash register roll or summary
s pay-in book
s cheques received
s EFTPOS records
s credit card transaction records.
RECEIPT
A receipt is a record of cash transactions and
money received by the business.
CASH REGISTER ROLL OR

REGISTER SUMMARY
Most retail stores use electronic cash registers.
A cash transaction is recorded by the business,
often on a cash register roll, or a summary can
be accessed from the register.
PAY-IN BOOK OR SLIP

When cash is deposited into the bank, a pay-in
book or slip is completed. The slip provides
evidence of cash banked by the business. It is a
sound practice to bank cash daily to ensure that
the records balance with the cash received or
paid out by the business.
DIRECT CREDIT AND EFTPOS

TRANSACTIONS
Figure 9.3 Cash receipt for the sale of goods
144
With advances in technology, businesses are

increasingly allowing customers to directly credit
the bank account of the business through the use
of EFTPOS (Electronic Funds Transfer at Point
of Sale). While direct credit is still recognised as
a cash transaction, actual cash does not change
hands. Instead, the money is transferred into the
bank account of the business by the customers
financial institution. Common examples of direct
credit include gym membership fees, insurance
and lease payments by customers.
ISBN: 9781107665910
Increasingly, customers are using electronic

methods of payment such as BPAY through
internet and phone banking rather than paying
cash directly to the business. Over 20 000 billers
now accept BPAY as a payment option from a
cheque, savings, transaction, credit card or debit
account. The growth in the use of EFTPOS and
internet banking means that small businesses
need to check that these electronic transactions
are in the business records and bank accounts.
Failure to check may mean that cash flow is not
accurate or the business records are not up to
date. Services such as BPAY also help businesses
by providing a complete list of transactions at
the end of each day, removing the need for
laborious manual checks of their records.
CREDIT CARD TRANSACTIONS

While these transactions do not involve cash,
many businesses now offer credit card facilities.
Some credit cards available on the market are
American Express, Visa and MasterCard. The
financial institution or credit card provider
reimburses the business for the sale, with the
business also paying a fee for the use of these
facilities. Credit card sales are generally recorded
as cash sales transactions by the business.
ACTIVITY 9.3
Classify each of the following as a cash sale,
EFTPOS or credit transaction.
1 A customer paid $35 for groceries in the

supermarket.
2 An insurance payment was made by BPAY.
3 A customer purchased a lounge suite on six
months interest-free terms on their Myer store
card.
4 A customer paid $57 cash by cheque for a
gas bill.
5 A customer paid for an eBay purchase using
the online PayPal system (an electronic
transfer of funds system).
Registered to BPAY Pty Ltd
ABN 69 079 137 518
Figure 9.4 This logo on a bill means that you can use the
BPAY option, a feature of internet and phone banking.
Cash payments
Source or primary evidence documents are also
required as evidence for all cash payments
made by a business. This evidence is usually in
the form of a cheque butt, bank statement and
the petty cash book. This type of evidence is
discussed later in this chapter.
Cheques
Businesses often make payments by cheque
(there are some exceptions see explanation
of petty cash in this chapter). A cheque is
simply an IOU to the person or business to
whom the cheque has been made out. The
bank involved then transfers this amount out
of the account of the business, paying it into
the account of the person owed the money. A
cheque butt provides the business with a record
of the cheque issued. Cheques are now used
less frequently, as businesses and individuals
are using electronic transactions and direct
debit payments.
A cheque has a number of features, including:
s date
s amount (in words and numbers)
s drawer (who wrote the cheque)
s payee (the person to whom the cheque
is made)
s authorised signature/s
s banks name and where the account is held.
CHAPT E R 9 INTRODUCTORY ACCOUNTING FOR SMALL BUSINESS
credit card
facility enabling
customers to enter
into transactions where
cash payment is not
required at the time
of purchase, with the
customer later making
a payment to the credit
card provider
cash payment
items purchased and
paid for in cash
bank statement
a periodical
statement where
the bank itemises
the transactions,
e.g. debits, credits,
government and bank
charges, relating to
that account
cheque
an instruction to the
bank to pay money
from your account to
the person named on
the cheque (drawee)
cheque butt
form of evidence to
support writing of the
cheque and payment of
an account
145
ISBN: 9781107665910
A261
3/11/2011
$43.25
Figure 9.5 Cheque and cheque butt
ACTIVITY 9.4
Complete the cheque details and cheque butt for
the two payments below. Use the cheque and
cheque butt shown above as a guide.
1 A cheque was written on 31/3/12 to EL Gas

for $67.85.
2 A cheque was written on 2/4/12 to John Jones
Appliance Repairs for $74.50 for repairs to a
DVD player.
146
ACTIVITY 9.5
Draw up the petty cash vouchers for the following
transactions on 5 January 2012. Use the example
shown above as a guide.
1 Paid $2.50 for postage stamps.

2 Paid $16.75 for tea and coffee for
staff amenities.
Periodic payments
3 Paid $6.70 for tram fare reimbursement.
Businesses now have periodic payments

(direct debits or payments) made by the bank
or other financial institution on behalf of the
business. The business has authorised the bank
to withdraw the amount from its bank account.
For instance, lease payments, insurance
instalments and electricity bills and many other
transactions and regular payments can be made
by direct payment.
4 Paid $28.55 for a taxi fare reimbursement.
Petty cash
petty cash
a small amount of cash
held to pay for items
such as stamps, tea
and coffee
Figure 9.6 Petty cash voucher
Businesses usually need to make small payments

that do not require a cheque or a direct debit or
electronic payment. Examples include stamps,
tea, coffee and tram fares. The petty cash
system allows small amounts of cash to be
kept on hand for these expenses. A petty cash
voucher should be completed when petty cash
is required; this voucher provides evidence of
the expenditure, which is then recorded in the
petty cash book.
Cash book
All source documents for payments must be
kept by the business as evidence of transactions.
These primary records are then used to complete
the cash book.
A cash book can vary according to the business.
Some essential information must be included:
the date, details of the transaction, receipt and
cheque numbers and columns for different types
of payments and receipts. The cash book can
be kept manually as a multicolumn cash book,
on a spreadsheet program such as Microsoft
Excel or on a computerised accounting package
such as MYOB (Mind Your Own Business) or
QuickBooks. The cash book allows a business
to determine the cash coming in (receipts) and
going out (payments) for the business. It also
allows the business owner to calculate the cash
balance during a specified period of time.
ISBN: 9781107665910
Figure 9.7 Example of a cash book for Bobs Pet Grooming Service
ACTIVITY 9.6
Complete the cash book for JJs Administrative
Services for the month of August 2011. Use the
example shown above as a guide.
01 1/8/11, fees received $1845. Rec. no. 122.

2 3/8/11, paid rent on office $1230. Ch. no. 667.
3 5/8/11, fees received $957. Rec. no. 123.
4 10/8/11, paid wages $649. Ch. no. 668.
5 11/8/11, received commission $825.
Rec. no. 124.
6 13/8/11, paid for stationery $73. Ch. no. 669.
7 17/8/11, received fees $950. Rec. no. 125.
8 21/8/11, paid advertising fees $297.
Ch. no. 670.
9 25/8/11, received fees $820. Rec. no. 125.
10 29/8/11, paid the lease payment on the laptop
computer $230. Ch. no. 671.
Cash control
For a business to be financially successful, it
must keep control over cash and cash flow.
Cash flow is tracking the cash or money
coming into and going out of the business. It is
essential for a business to have a record of and
to control all cash transactions. Controls can
take a number of forms.
s Cash registers should be used to hold cash,
with no cash being kept on counters or in
places where it can be seen easily.
s Cash should be banked regularly, preferably

daily. For security reasons, banking should
not be done at the same time or by the same
person and should be taken to the bank by
different routes. Cash should be kept in an
inconspicuous container or bag.
s In some businesses, for security reasons,
the duties of handling cash, banking and
writing cheques are completed by different
people. The same employee should not be
handling all aspects of the cash. Cheques
should require at least two signatories as a
precaution against theft and fraud.
s Bank statements and cash books should
be checked regularly and reconciled.
Reconciliation involves ensuring that all
cheques have been presented to the bank.
s Correct procedures should be in place for
petty cash. Cash should not be reimbursed
without a receipt and a petty cash voucher.
The petty cash tin should be locked and
kept in a secure place.
Being able to interpret and understand what is
occurring in the cash transactions of the business
is critical. If a business does not keep up to
date with the financial information, making sure
all transactions are recorded, that petty cash is
controlled and bank statements are checked,
then it is likely that incorrect information may be
included. This could have serious implications
for a small business.
CHAPT ER 9 INTRODUCTORY ACCOUNTING FOR SMALL BUSINESS
cash flow
the movement of
cash into (income
and capital) and out
of (purchases and
expenses) a business
147
ISBN: 9781107665910
ACTIVITY 9.7
Read the scenario and answer the question that follows.
Sally Williams has been successfully running

her business Sensational Dog Grooming for
the past six months. She has been trying to
keep her records manually in a cash book.
This seemed to be working; however, she
cant account for $120 of petty cash expenses,
although she may have used some of it to buy
coffees and dinner during the last month. Her
bank statements are sent every three months,

but Sally has not had time to check them
properly. She wrote three cheques for suppliers
and has received a phone call from one of them
telling her that the bank refused to cash the
cheque as her account was overdrawn. Another
supplier has sent a reminder notice regarding
late payment.
Question
Advise Sally as to what she could do to ensure that she can gain control over her financial records.
The difference between

profit and cash
profit
the surplus remaining
after costs are
deducted from sales
revenue
overdraft
a short-term, flexible
loan facility giving a
business the right to
borrow up to an agreed
amount as and when
needed by the business
depreciation
depreciation is an
expense; when an
asset is written off
during the time it is
used by a business;
for example, a car may
be depreciated by 20
per cent per year over
five years
148
Profit is the difference between income earned

by the business and the expenses incurred while
earning that income. Expenses include items such
as electricity, wages, advertising and car expenses.
While cash is critical, it is not necessarily profit.
There are a number of differences between cash
and profit
s Profit is a paper amount after the financial
reports have been completed.
s Cash is the amount of money a business has
on hand.
s A business can have an excellent profit figure;
however, it does not mean the business is
able to meet its cash obligations.
s An organisation may have very high levels
of cash in the business, yet its profit figure
is poor.
s If cash levels are insufficient, it may mean that
an organisation has to draw on its overdraft
(a line of credit available from the bank or
financial institution).
s Profit is determined by the record keeping

of the business it is not a cash amount.
Expenses such as goodwill and depreciation
(e.g. the wear and tear on an asset such as a
motor vehicle) are taken into account when
determining profit; however, they are not
cash amounts.
Figure 9.8 Be sure to bank cash daily, but take a different

route each time.
ISBN: 9781107665910
Taxation obligations Income tax

has a progressive income tax system;
and the implications Australia
that is, the rate of tax increases as income
increases. The system is PAYG (Pay As You Go)
for decisions on
and tax is normally paid during the financial
business structure year each week, fortnight or month.
All businesses, small, medium and large, are
subject to state and federal taxation. There is a
range of taxes that can affect an organisation.
Forms of taxation include:
s payroll tax
s Goods and Services Tax
s income tax
s company tax
s fringe benefits tax.
Note: current tax rates and information

about tax obligations can be obtained from the
Australian Taxation Office (ATO) website at
www.ato.gov.au.
taxation
a levy, designed to
raise revenue, imposed
by governments on
businesses
and individuals
Payroll tax
Payroll tax is a state tax that is levied on wages
paid. Wages can include salaries, allowances,
commissions and bonuses. All employers are
required to register for and pay this tax when
the total wages bill exceeds a certain amount.
Figure 9.9 Planning and good record keeping can help
avoid cash flow problems.
Table 9.1 Taxation rates on income, 201011

Taxable income
Tax on this income
$0$6000
Nil
$6001$37 000
15c for each $1 over $6000
$37 001$80 000
$4650 plus 30c for each $1 over $37 000
$80 001$180 000
$17 550 plus 37c for each $1 over $80 000
$180 001 and over
$54 550 plus 45c for each $1 over $180 000
*The above rates do not include the Medicare levy of 1.5%.

Source: www.ato.gov.au
149
ISBN: 9781107665910
ACTIVITY 9.8
Calculate the tax paid by each of the following
individuals. Use table 9.1 to determine the
amount.
1 Tom earned $27 880 during the last

financial year.
2 James earned $5950 from his part-time job.
3 Petra earned $103 000 during the last
financial year.
Company tax
All organisations that are registered companies
must pay company tax. The general rate of tax
is 30 per cent and is calculated on the difference
between company income and deductions.
Therefore, if a company has a taxable income
of $30 000, company tax of $9000 is payable.
Fringe benefits tax

fringe benefits tax
(FBT)
a tax on the value of
company-provided
benefits for employees
in lieu of income, e.g.
cars, entertainment
fringe benefits
benefits received by
employees in addition
to their normal wage
or salary, e.g. company
car, medical benefits
Goods and Services
Tax (GST)
a value added tax on all
goods and services; in
Australia, the rate of tax
is 10 per cent
150
A fringe benefits tax (FBT) is levied at a rate

of 46.5 per cent on any benefits other than
income received by employees. FBT is paid
on fringe benefits to employees, such as
cheap loans, motor vehicles, and meals and
entertainment. FBT is paid by the organisation,
not the individual.
This tax is collected by the seller or retailer and

is submitted to the ATO. For example, if a digital
camera costs $685, an additional 10 per cent
tax of $68.50 would be payable. The total
selling price (GST inclusive) of the camera is
therefore $753.50.
All businesses registered for GST must
complete a business activity statement (BAS)
form and lodge the GST collected with the
ATO. Source documents such as an invoice are
important for a business to ensure that there
is evidence of any GST collected and to gain
credit for GST that may have been paid by
the business. The GST collection and rules are
complex; further information can be obtained
from the ATO website (www.ato.gov.au).
ACTIVITY 9.9
Calculate the GST on the following items.
Calculate all items at a 10 per cent and a 15 per
cent GST rate.
1 A DVD costing $15.00

2 A movie ticket costing $14.50
3 A take-away meal costing $75.00
4 A new pair of runners costing $135.95.
The purpose of the Goods Implications of taxation

obligations on business
and Services Tax (GST)
structure
The Goods and Services Tax (GST) in Australia
is a value added tax (VAT) on the supply of goods
and services in Australia. It was introduced by
the federal government and has been in place
since 1 July 2000. The basic premise of this tax
was to broaden the tax base, which was heavily
biased towards the provision of services.
The GST has been set at 10 per cent
on all goods and services, excluding fresh
produce and some services, such as medical.
Taxation is a complex area and business

owners should seek advice from an accountant
or solicitor before deciding on a business
structure. While there are many reasons why
a particular business structure is used, taxation
considerations may be one influencing factor.
The type of business structure adopted has
particular taxation implications for the owner/s.
These are set out in table 9.2.
ISBN: 9781107665910
Table 9.2 Business structure and taxation implications

Business structure
Taxation type
Possible implications
Sole trader
Income tax
The owner and the business are not separate.

Any income or profit obtained by the business
will be taxed at the individual business
owners personal taxation rate.
Partnership
Income tax
The income or profit earned by the partnership

will be distributed between the partners
according to the partnership agreement. This
money is then treated as income tax and each
partner will pay income tax according to the
income earned.
Company
Company tax
In a company, the owner and the company

are treated separately and both are entities.
The company pays tax on every dollar of profit
earned. If the owner takes money out of the
business, it is treated as a salary or wage. The
owner will then pay income tax on the amount
received.
Simple financial
reports for small
business
Business managers and owners need to keep
financial records to ensure their own records
are accurate and that their obligations can be
met. The primary records and transactions are
used in the preparation of financial reports.
These accounting reports provide organisations
with information about profit or loss, rates of
return on investment and the value of assets
and liabilities. Reports are usually prepared on
a regular basis, every three, six or 12 months.
A number of financial or accounting reports
can be completed. The main reports generated
by small businesses include:
s Profit and loss statement an accounting
report that outlines the revenue less the
expenses for an accounting period. It provides
a business with an overview of whether it has

made a profit for the accounting period.
s Balance sheet an accounting report
that sets out the assets, liabilities and the
proprietorship of a business as at a given
date. Balance sheets can include tangible
assets such as cars and furniture and
intangible assets such as goodwill.
s Cash flow report a cash flow report
allows a business to track and report on
cash coming in and out of the business. As
discussed earlier in the chapter, profit and
assets
items of monetary
value owned by the
business
intangible assets
assets that have a
monetary value to
the business, but no
physical form, e.g.
goodwill, copyright,
patents
cash are not the same thing and a business

needs to ensure that it has sufficient cash to
cover its own expenses.
To complete a financial report, the life of the
business is divided into a number of accounting periods. A business is assumed to have a
continuous life, yet stakeholders need to regularly monitor and evaluate its performance.
151
ISBN: 9781107665910
Primary records and their use in financial reports

Primary records and source documents flow into the financial reports of the business.
Cash flow report

Primary records
receipts, bank, cheque
butts, direct debits and
credits
Cash book
Profit and loss
statement
Records such as
credit transactions,
debtors and liabilities
Balance sheet
Figure 9.10 Flow of records into the financial reports
Figure 9.11 Example of cash book and cash flow report for Mels
Hardware and Equipment Hire Store
152
Figure 9.12 Example of profit and loss statement and balance sheet
for Mels Hardware and Equipment Hire Store
ISBN: 9781107665910
ACTIVITY 9.10
Ian and Phoebe own the Lorne Grove Caf.
A number of cheques have been written and
dishonoured by the bank due to insufficient
funds and the business has been charged for
these. Phoebe completes the cash book for
the caf; however, she does not check the
bank statement. A friend, Kate, is studying
accounting. Phoebe has asked her to check
the business records. Phoebe provided
Kate with the following information from
the cash book and the bank. The caf is a
small concern and all transactions are cash.
Additional information:
s The opening balance in the bank statement
for 3 May is $976.00.
s The bank statement also included account
keeping fees for May of $23 and also
during the month a direct payment for a
lease of $128.
Figure 9.13 Lorne Grove Caf cash book for the

month of May 2011
Question
Using the above information, complete a cash flow report. The cash book will have to be updated
using information from the bank statement.
Evaluation of financial
performance
Any small business owner and manager needs
to be able to understand what the financial
information and financial reports are indicating
about business performance. It is vital that this
information is timely to ensure that the business
is viable and able to meet its commitments.
To analyse the performance of the business,
it is necessary to break down the information
so it can be interpreted and analysed. If a small
business owner does not have the ability to
understand the financial reports, it is important
that the business has a close relationship with a
bookkeeper or an accountant.
There are a number of ratios or pieces of

information that a business can use. These
include:
s cash and profit figures both are
important and the two concepts are not the
same thing. Cash is necessary so that the
business has enough cash to pay its expenses
and commitments. Profit is calculated in the
profit and loss statement and can give an
indication of overall performance.
s sales analysis it is important for a business
to be able to calculate its sales turnover and
sales figures. If sales drop, profit normally
drops as well. Sales figures can be examined
as dollar figures or as a percentage increase
or decrease.
153
ISBN: 9781107665910
owners equity
the amount of money or
capital invested in the
business
debtor
customer who has
bought goods or
services on credit
terms and owes the
business money
debtors turnover
amount of time taken
for a debtor to pay
their account
Year one $98,500
Year two $103,400
affected. Debtors turnover is calculated by

dividing the credit sales (non-cash sales) for
the period by the average level of debtors.
The lower the ratio the better, as it means
debtors are paying in the time required.
s non-financial analysis this is also important, but difficult to measure. Non-financial
information could include:
independence and the chance to be your
own boss
better lifestyle and the opportunity to
work hours that suit
development of products and services.
Many business owners enjoy the challenges
and the satisfaction of developing new
niches and goods and services.
Price-setting strategies
Year three $109,000
Year four $121,300
It is important for a business to ensure that it

has correctly priced its products and services
and it has taken into account all of the costs
and expenses involved in producing (if a
manufacturer) and selling a product. There are
a number of different ways for a small business
to develop prices. The method chosen should be
one that suits the business. Price-setting methods
include the following:
Recommended retail price

Figure 9.14 Sales figures for BB Coffee Makers
s return on owners investment a way

of evaluating business performance is to
compare the net profit of the business to
the funds invested by the owner. Return
on owners investment can be calculated
Percentage mark-up
by dividing net profit by average owners
This means that a mark-up is added to the cost

price of an item. A business, for example, may
decide to add 50 per cent to the cost price of
every product. An item that cost the business
$5.00 will be sold for $7.50 ($5.00 plus 50 per
cent ($2.50) equals $7.50).
equity (capital).
s debtors turnover ratio businesses must
make sure that all money owed by debtors
is chased up. If this money is not collected,
the cash flow of the business is adversely
154
Wholesalers and suppliers will often set a

recommended retail price (RRP) for a product.
While a business does not have to follow this,
it is usually a good starting point. Trying to sell
below the recommended price may mean that
all costs and expenses involved in selling the
product are not covered.
ISBN: 9781107665910
ACTIVITY 9.11
Nat Bain and Mel Kane have been operating

Expert Health and Beauty Services for the past
five years. The business has been expanding
and has a well-established clientele and
strong reputation. Mel is concerned that the
business may have reached its peak and is
looking at ways to expand the business further.
Their accountant, Matt, has given them the
following information.
Data
Sales/Revenue
Profit
Debitors turnover
(ratio)
Return on Owners
Investment (%)
Non financial number of hours
worked per week
by Nat & Mel
Year One
$38 000
$9 000
3
Year Two
$52 000
$12 000
3.2
Year Three
$98 000
$19 000
3.1
Year Four
$109 000
$21 000
4
5%
7%
10%
12%
40 hours
42 hours
50 hours
55 hours
Figure 9.15 Financial performance
Questions
1 Using the information in the above table, comment on the businesss performance over the past
four years. The report should be written for Nat and Mel, who are not accountants.
2 Suggest a possible strategy or idea that might allow Mel and Nat to enjoy business success without
increasing their hours.
Competition and
competitors prices
A close competitor may mean that a business has
to adjust some of its pricing methods to ensure
that it gains and retains customers. Some new
businesses will start with a number of specials
to try to establish themselves and to gain market
share against other businesses.
in the number of items sold or produced. An

example of a variable cost might be the materials
associated with making the actual product.
Break-even point can be calculated using
a formula:
break-even point (in units)
Break-even point
Break-even analysis is used by a business to
make sure that selling prices enable the business
to make the desired level of profit. Break-even
point is the point where revenue (income) is
equal to expenses. To do this a business needs
to look at its fixed costs. These are costs that do
not change regardless of the amount of a product
or service produced or provided, e.g. rent on
premises. It also needs to examine variable
costs. These are costs that vary with a change
fixed costs
selling price less variable costs
For example, a florist selling roses has

a fixed cost of $2000 with a variable cost of
$5.00 per bunch. Selling these roses at $10.00
a bunch, 400 bunches of roses must be sold to
reach break-even point. If a $200 profit is to be
made, the florist will need to sell 440 bunches
of roses.
break-even point
the level of sales at
which total revenue is
equal to total expenses;
the business makes
neither a loss nor
a profit at this level
of sales
fixed costs
costs that in the short
term do not vary
with output
155
ISBN: 9781107665910
ACTIVITY 9.12
Calculate the prices for the following situations using one of the above price-setting strategies.
1 The wholesale price for ready-made dinners is $6.70 per dinner. Sam would like to sell these and
make a 15 per cent profit.
2 Georgia and Blake have opened a pizza restaurant. They wish to make $500 profit per week. They
have calculated the fixed costs for the restaurant to be $2500 per week and variable costs are
$4.00 per pizza. Calculate how many pizzas they will need to sell each week.
3 The wholesaler has decided that the retail price of CDs should be $18.95.
4 Aiden has decided to establish a coffee shop in a shopping centre. He has a major competitor who
sells coffee and cake for $5.50. Aiden would like to undercut the competitor by 5 per cent.
Ethical and socially

responsible
management of
accounting practices
It is important that a small business keeps
correct accounting records to ensure that it
only claims expenses it is entitled to. Some
small business owners may try to reduce their
taxation obligations by not officially recognising
some of the revenue earned by the business.
This has implications for the economy as a
whole, as it may mean that taxation revenue for
the government is less and essential services are
not available to the community. Avoiding tax is
a serious criminal offence.
Small businesses need to ensure that they meet
the taxation obligations and expenses required
for the employment of staff. If the business
employs staff, the correct wages and conditions
must be provided and other obligations such as
156
long-service leave entitlements, superannuation

contributions and holiday pay also need to be
accounted for. Too often the newspapers and
media run stories of businesses that have gone
into liquidation and employees have lost their
entitlements.
Ethical practices also extend to the pricing
of goods and services. If a small business is one
of the few suppliers of a service or product,
while it may be able to charge a higher or
premium price, it may still wish to charge a
reasonable price. Ethical pricing may also
mean that a business chooses not to exceed the
recommended retail price. Legislation such as
the Trade Practices Act 1974 outlines penalties
for illegal pricing.
Ethical practices may extend to choosing
suppliers who are known to follow socially
responsible and ethical business practices.
Sometimes the ethical and socially responsible
decisions may be more costly in terms of
financial concerns in the short term, but enhance
the reputation of the business in the long term.
ISBN: 9781107665910
s !NUMBEROFDIFFERENTSTAKEHOLDERSINTHE
BUSINESSSUCHASlNANCIALINSTITUTIONS
CREDITORSEMPLOYEESANDOWNERMANAGERS
RELYONlNANCIALRECORDSTODETERMINETHE
BUSINESSSPROGRESS
s !TRANSACTIONISACONTRACTUALAGREEMENT
BETWEENTHEBUSINESSANDANOTHERENTITY
!LLTRANSACTIONSMUSTBERECORDEDINTHE
BUSINESSRECORDS
s !BUSINESSNEEDSTOKEEPEVIDENCEOFALL
TRANSACTIONS
s #ASHSOURCEDOCUMENTSINCLUDERECEIPTS
CASHREGISTERROLLORSUMMARYPAY INBOOK
CHEQUESRECEIVED%&40/3RECORDSAND
CREDITCARDTRANSACTIONS
s #HEQUESAREANORDERBYTHEDRAWERPERSON
WRITINGTHECHEQUE TOTHEBANKDRAWEE TO
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THEPAYEE #HEQUESAREUSUALLYUSEDBYA
BUSINESSTOMAKEPAYMENTS
s 0ETTYCASHISUSEDWHENABUSINESSNEEDS
TOMAKESMALLPAYMENTSSUCHASTRAM
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!PETTYCASHBOOKRECORDSALLPETTYCASH
TRANSACTIONS
1 $ElNETHEFOLLOWINGTERMSANDTHENUSE
s /RGANISATIONSMUSTENSURETHATTAXATION
OBLIGATIONSAREMET-ANYSMALLBUSINESSES
PROVIDEGOODSORSERVICESAND'34OF
PERCENTMUSTBECOLLECTEDANDPASSEDONTO
THE!4/!USTRALIAN4AXATION/FlCE /THER
TAXATIONOBLIGATIONSINCLUDECOMPANYTAX
INCOMETAXANDPAYROLLTAX
s &INANCIALREPORTSCOMPLETEDBYASMALL
BUSINESSINCLUDEBALANCESHEETPROlTAND
LOSSSTATEMENTANDCASHmOWREPORT
s "USINESSESNEEDTOBEABLETOUSEAND
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REPORTSTOASSESSPERFORMANCEANDPLANFOR
THEFUTURE
s 0RICESETTINGISANIMPORTANTAREAFORA
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PERCENTAGEMARK UPANDRECOMMENDED
RETAILPRICE
s 3MALLBUSINESSESALSONEEDTOENSURETHAT
THEIRlNANCIALANDBOOKKEEPINGPRACTICES
AREETHICALINTERMSOFHONESTANDCORRECT
lNANCIALINFORMATION
3 #LASSIFYEACHOFTHEFOLLOWINGTRANSACTIONS
a Transaction
ASEITHERARECEIPTORAPAYMENT7HAT
SOURCEEVIDENCEORPRIMARYRECORDSWOULDA
BUSINESSREQUIREFORTHESETRANSACTIONS
b Bank statement
a Paid internet and phone bill to Optus
c Cash flow
b Paid six months of insurance to RACV
d Expense.
c Purchased inventory
2 7HATISATRANSACTION7HYSHOULDAN
ORGANISATIONACCURATELYRECORDTHIS
INFORMATION
CHAPTER SUMMARY
QUESTIONS
EACHINASENTENCETODEMONSTRATEYOUR
UNDERSTANDING
s "USINESSESMUSTTAKESTEPSTOENSURETHATALL
CASHISSECURED
CHAPTER SUMMARY
s !LACKOFlNANCIALCONTROLSANDINADEQUATE
RECORDKEEPINGAREAMONGTHEMAJORREASONS
FORBUSINESSFAILURE
d Paid phone rental

e Received bank interest
f
Sold stock.
157
ISBN: 9781107665910
4 #ALCULATETHEBREAK EVENPOINTFOR3OlES
#ELLARS&IXEDCOSTSAREPERWEEK
VARIABLECOSTSAREPERBOTTLEOFWINE
ANDTHESELLINGPRICEISPERBOTTLE
5 /UTLINETHREEREASONSWHYITISIMPORTANT
TOHAVECONTROLOVERTHECASHOFAN
ORGANISATION3UGGESTTWOSECURITYFEATURES
ORPRACTICESTHATWOULDASSISTINTHE
MANAGEMENTOFCASH
8 5SETHEFOLLOWINGINFORMATIONTOCOMPLETEA
PROlTANDLOSSSTATEMENTFORTHEYEARENDING
*UNEFOR!MANDAS&ASHION"OUTIQUE
$ETERMINEWHICHTRANSACTIONSAREREVENUE
ANDWHICHAREEXPENSES
9 7HYISITIMPORTANTTOEVALUATETHElNANCIAL
POSITIONOFABUSINESSUSINGTHElNANCIAL
RECORDSANDREPORTS0ROVIDEATLEASTFOUR
REASONSINYOURRESPONSE
6 #OMPLETEACASHBOOKFOR3URESHS3KI
3ALESAND(IREFORTHEMONTHOF*UNE
4HISEXERCISEMAYBECOMPLETEDONA
SPREADSHEET
a 2/6, sales $950. Rec. no. B015.
b 3/6, paid wages $650. Ch. no. 1115.
c 5/6, sales $923. Rec. no. B016.
d 10/6, paid insurance $139. Ch. no. 1116.
e 12/6, received $170, bank interest.
f
15/6, paid phone bill $234. Ch. no. 1117.
g 21/6, hire fees $819. Rec. no. B017.

h 23/6, sales $735. Rec. no. B018.
i
27/6, paid wages $450. Ch. no. 1118.
28/6, sales $812. Rec. no. B019.
7 5SINGTHEINFORMATIONFROMQUESTION
COMPLETEACASHmOWREPORT4HEBANK
BALANCEATTHEBEGINNINGOF*UNEIS
ANDTHEREWEREBANKCHARGESOF
158
Figure 9.16 Revenue and expenses
10 5SINGINFORMATIONFROMTHE!USTRALIAN
10
4AXATION/FlCEWEBSITEWWWATOGOVAU
CREATEAPOSTERORPAMPHLETOUTLININGTHE
TAXATIONOBLIGATIONSOFASMALLBUSINESS
ISBN: 9781107665910
Marty established his business in 1996 and

has seen a growth of around 25 per cent every
year since he started. He does not employ
anyone and his business records are relatively
simple.
He keeps detailed paper records of cheques,
receipts, sales and expenses. These are then
given to a bookkeeper once a month to be
transcribed into MYOB. His accountant then
uses the computerised records to complete tax
returns.
The introduction of the GST has actually
simplified Martys record keeping. Before this
he had private customers paying 22 per cent
sales tax, which he forwarded on to the Taxation
Office. Schools were exempt from sales tax
and so he had to keep two sets of books. After the

introduction of the GST, all customers pay the same
amount of tax (GST at 10 per cent). While some
prices have increased due to the GST, bookkeeping
has become simpler.
EXTENSION
QUESTION
Read the following summary of an interview

with Marty, a Melbourne-based sole trader
dealing in the sale and repair of new and used
woodwind and brass instruments.
1 /UTLINETHETYPESOFlNANCIALRECORDS-ARTY
WOULDNEEDTOKEEPFORHISBUSINESS"ESPECIlC
INYOURRESPONSE
2 (OWHASTHEINTRODUCTIONOFTHE'34BENElTED
THEBOOKKEEPINGPROCESSOFTHEBUSINESS
3 5SINGTHE!USTRALIAN4AXATION/FlCEWEBSITE
WWWATOGOVAU OUTLINETHEOTHERTAXESASMALL
BUSINESSWOULDBELIABLEFOR
4 7HYCOULDITBEMORECOST EFFECTIVEFORASMALL
BUSINESSOWNERTOEMPLOYABOOKKEEPERPART
TIMETOCOMPLETETHElNANCIALRECORDS
5 ,ISTlVEPIECESOFADVICEYOUBELIEVEASMALL
BUSINESSOWNERNEEDSTOSUCCESSFULLYMANAGE
THElNANCIALRECORDSOFTHEBUSINESS
159
ISBN: 9781107665910
10
MANAGEMENT OF STAFF
IN SMALL BUSINESS
WHATS AHEAD
Maintaining and
managing staff
Legislation
Job analysis
and planning
Management of staff
Employing staff
Employment
arrangements
Recruitment and
selection of staff

responsible employment
practices
Methods
Interview
process
ISBN: 9781107665910
KEY KNOWLEDGE

types of recruitment and selection methods
reasons for, and distinctions between, employment arrangements
including full-time, part-time, casual status
an overview of relevant legislation such as occupational health and
safety (OH&S) and equal employment opportunities (EEO)
ethical and socially responsible management of employment practices.
Staffing of a business, whether it be a micro, small, medium or large business, is important for
the day-to-day management of business operations. The factors to be considered and many of
the procedures and legislative requirements are similar regardless of the size of the organisation.
Employees are one of the most important assets of a business and play a major role in its success or
failure. It is important, therefore, that the most suitable staff are chosen. If the business has a positive
relationship with its employees, they will assist in the growth and success of the organisation.
AREA OF STUDY
employee
a person working for
another person or a
business for wages or
a salary; enters into an
employment contract
and is under the control
and direction of
the employer
161
ISBN: 9781107665910
Figure 10.1 The right people are central to

business success.
The importance of
good management
of staff
The Business Enterprise Centre (BEC) argues
that choosing and keeping the right people
is central to the successful functioning of any
business. Their advice is to treat staff as human
beings and this will usually translate into a
profitable and efficient use of employees skills
and time.
One study by Tim Bartrim of the BEC
found that small businesses in Australia are
generally less likely to adopt formal human
resource
management
(HRM)
practices,
including recruitment and selection procedures,

written occupational health and safety (OH&S)
guidelines,
162
and
performance
evaluation
practices. While management in small, medium

and large organisations have similar views
regarding human resources, managers in
small firms are less likely to receive training in
employee relations and are unlikely to develop
formal strategies. It is critical for all small
businesses to employ staff who are able to assist
in the success of the business.
The replacement cost associated with hiring
the wrong person can be huge. Costs associated
with advertising, interviews, checking with
referees and induction costs and time can all
add up to become an expensive and timeconsuming exercise.
Losing good staff may also mean the loss
of customers. A small business must therefore
ensure that decisions regarding staffing are
the correct ones. It is important that efficient
and trustworthy employees are retained by
the business.
For a microbusiness or small business, the
decision to employ staff is a major one. Many
small business owners may be reluctant to
employ a person, preferring to work longer
hours and manage with the support of family
and friends. Many are reluctant to employ
anyone, believing these employees would not
have the same commitment to the business
as the owner/s would. Instead, many small
businesses will outsource some functions or
decide to remain a microbusiness.
However, for many small to medium
organisations, there comes a time when it
becomes necessary to employ staff, as the
owner or manager simply cannot complete all
of the tasks required. It then becomes vital that
the right person is employed.
If a business or organisation clearly defines
what is required, adheres to the legislative
requirements, and values the employees, then
the employment of staff should benefit all
and allow the business to continue to expand
and prosper.
ISBN: 9781107665910
Types of recruitment
methods and
selection processes
Employing staff is an important decision for a small
business, and a number of issues and concerns
need to be addressed. The stages or steps involved
in employing staff include the following.
Job analysis and

determining staffing needs
Once an organisation has determined how
many employees it requires so it can operate
more effectively and efficiently, it will be
necessary to determine what type of employees
are needed. As part of this process a business
should carry out a job analysis, which allows
the business to determine what tasks a new
employee will need to perform and what skills
they will need to carry out these tasks. In some
smaller businesses one employee may in fact
need to perform a range of tasks, therefore
requiring them to become multiskilled. A small

business owner or manager may simply draw
up a checklist of essential and desirable skills
for a position. The main considerations are that
the actual position and requirements have been
investigated before the position is advertised.
A job analysis provides information needed
to develop both the job description and job
specification. A job description is usually a
statement of duties, working conditions and
other requirements for a particular job. A job
description for a computer salesperson, for
example, might include duties such as selling
to the public, managing accounts of regular
clients, organising repairs and perhaps training
customers to use the product. A job specification
is a statement of the skills, abilities, education
and previous experience required by a person
to complete a particular job. The computer
salesperson would require a number of skills
and abilities, including prior sales experience,
excellent computer skills, communication skills
and perhaps a formal qualification in training or
information technology.
job analysis
a systematic process
of gathering
information relating to
a job being performed
job description
a written description
of a jobs title, duties
and responsibilities,
including its location on
the organisational chart
job specification
detailed listing of
the personal skills
and characteristics
required to perform
a particular job
ACTIVITY 10.1
Thompson Electronics is a small business that

employs one person. The company has won a
new contract to install security systems in a
chain of youth hostels. The two owners, Thai
and Huang, need to employ another person to

manage the office while they are onsite, answer
phone enquiries and to make sure all financial
records are up to date.
Questions
1 Develop a brief job description for the office assistant position.
2 List the skills and qualifications the new employee should possess.
CHAP TER 1 0 MANAGEMENT OF STAFF IN SMALL BUSINESS
163
ISBN: 9781107665910
s noticeboards a job vacancy notice may be

displayed on an internal noticeboard inviting
existing employees to apply for a position.
Externally, you will often see a recruitment
notice in the window of a small business.
s advertisements placed in major or
local newspapers, or on the internet on a
job search website. Specialist magazines or
websites may also lead to suitable applicants.
s employment agencies used if the
manager/owner believes they do not have
the expertise or time to recruit effectively.
Although this may be expensive, it may be
of benefit in the long term as the most suitable and qualified person can be found.
s networking, personal contacts and
word of mouth managers can seek out
people who they already know and believe
Figure 10.2 Advertise positions on the internet, as well as in newspapers, magazines
would be suitable for the job. This is often
and newsletters.
used by small businesses.
s previous applicants if an organisation has
advertised positions in the past, it may have
details of previous applicants who possess
Recruitment means attempting to find a pool of
recruitment
the skills and experience for the new job.
the process of finding
suitable applicants for a job. Most small businesses
If the job needs are clear and the correct
the best qualified pool
will need to recruit from outside the organisation
of applicants
rather than internally. There are a number of ways method of recruitment has been used, then the
business should gain an employee with the
a business can recruit staff. These include:
required skills and attributes (also known as the
selection criteria) for a job.
Table 10.1 Internal versus external recruitment
Types of recruitment and

selection processes
Advantages of internal recruitment
Advantages of external recruitment
s -ORALEMAYBEINCREASEDASEMPLOYEESHAVEA
CHANCEOFPROMOTION
s -OREPOTENTIALEMPLOYEESAREAVAILABLE
s )NDIVIDUALSSKILLSANDTALENTSAREALREADYKNOWN
s /FFERSACAREERPATHFOREMPLOYEES
s #OSTSOFRECRUITINGSTAFFAREUSUALLYREDUCED
s 4RAININGCOSTSMAYBEREDUCEDASTHECANDIDATES
ALREADYHAVETHENECESSARYSKILLS
s -AYBEAGOODWAYTOINTRODUCENEWIDEASAND
PRACTICESINTOANORGANISATION
s %MPLOYEESAREALREADYPARTOFTHEORGANISATION
ANDKNOWWHATISEXPECTED
Disadvantages of internal recruitment
Disadvantages of external recruitment
s 0OORATTITUDESANDWORKHABITSMAYCONTINUE
s #OSTSOFRECRUITINGMAYBEHIGHER
s 4RAININGCOSTSMAYINCREASE
s -ORALEAMONGEXISTINGSTAFFMAYBELOWERED
s 4HEREMAYBEALIMITEDNUMBEROFAPPLICANTS
s /UTSIDEEMPLOYEESMAYNOTlTINWITHTHE
ORGANISATION
s 0ERSONMAYPROVEUNSUITABLEFORTHEROLE
164
ISBN: 9781107665910
ACTIVITY 10.2
Refer back to the job description developed for
Thompson Electronics in activity 10.1.
1 Outline the methods that Thai and Huang

could use to find a person for the position.
2 Design a job advertisement for the position of
office assistant for inclusion in a newspaper.
Stage 1: Screen and

short-list applicants
Short-listing means to work through the
applicants and make sure that the only ones
interviewed are those who meet the selection
criteria. Otherwise, much time and money is
wasted in interviewing too many applicants
or interviewing unsuitable candidates. Those
involved in the short-listing process should be
the members of the selection panel.
Although it may be difficult in some smaller
businesses, it is usually better to have a number
of people involved in the selection process as
one individuals opinion may be clouded by bias
or preconceived ideas. If the business consists
of only one person, he or she will usually
conduct the interview and make the final
selection of the employee.
Stage 2: Interview
short-listed applicants
Figure 10.3 The right employee has skills to match the

businesss needs.
Methods of
selecting staff
Staff selection involves choosing the most
suitable person for the job from the pool of
applicants. There are usually four steps:
1 Screen the applicants and short-list the most
suitable ones.
2 Interview the short-listed applicants.
3 Complete background checks.
4 Advise all applicants on the outcome of the
interview process.
Interviews are an important part of the

selection process, and some larger organisations
incorporate testing as part of the process.
However, a small business will usually rely on
the interview as the means of selection. It is
important, therefore, that the interview panel
is well prepared as interviews can sometimes
go wrong. This may occur for a number of
reasons, including:
s The panel was not clear about the actual job.
s Applications were not screened properly,
background checks were not carried out and
referees were not contacted.
s The questions asked were not suitable or
were asked in an inappropriate manner.
There are a number of Acts of parliament and
legislation that also affect the types of questions
that can be asked of an applicant. Equal
opportunity and anti-discrimination legislation
makes it illegal to ask questions relating to the
sex (gender), marital status, race or religion of a
candidate, as they are not deemed relevant to a
candidates ability to complete a job.
selection
process undertaken
by an organisation
to decide whether to
make a job offer to
a candidate
short-listing
working through the
applicants and making
sure that the only ones
interviewed are those
who meet the selection
criteria
selection criteria
predetermined
criteria created to
assist interviewers
in selecting the best
applicant for a job
interview
a formal meeting
enabling one or more
persons to question
and evaluate another
person; a selection
device used to gather
information about a
job applicant
165
ISBN: 9781107665910
STEP 1
The interview panel has met together before the interviews,
read the applications and short-listed candidates.
STEP 2
Questions have been developed in terms of the selection
criteria and in accordance with legislation such as
equal opportunities.
STEP 3
A suitable location has been chosen and there are no
interruptions or distractions.
STEP 4
The person being interviewed is put at ease and the panel
asks questions to draw out information from the applicants.
Openended questions and what if scenarios may be used.
STEP 5
At the completion of the interview the applicant should walk
away with all relevant information and be clear about the
next stage; for example, when a decision will be made.
STEP 6
Once the interview is over, the panel should discuss their
notes and impressions. Applicants can be ranked against
the selection criteria.
STEP 7
The most suitable person should be chosen and informed.
Figure 10.4 Requirements for a successful interview
166
ISBN: 9781107665910
ACTIVITY 10.3
In groups of three or four, develop a set of six
good and six bad interview questions for the
position of customer service officer.
1 Role-play the interviews, with each group

presenting their good and bad interviews.
2 As a class, compile a list of those questions
that were good or appropriate.
3 What were the characteristics of these good
questions?
Figure 10.5 Successful job interview
ACTIVITY 10.4
Read the following job advertisement for an administrative assistant at Andersons Osteopathy Clinic
and answer the questions that follow.
A person is required for a busy osteopathy

clinic in the eastern suburbs. The successful
applicant will be responsible for answering
phones, greeting patients, taking bookings
and providing written information about the
practice and treatments available. Ordering
stationery, supplies and keeping the consulting
rooms clean and well stocked will also be a key
role.
The successful applicant will have the
following skills and qualifications:
s Excellent communication and interpersonal
s Knowledge of databases, MYOB and email

s Working knowledge of a range of software
packages, including Microsoft Word,
PowerPoint, Publisher and Excel
s An eye for detail
s Sound organisational skills
s Experience working in a health industry
environment preferred.
Send a rsum to Sharni and Kelsey
c/- Andersons Osteopathy Clinic
PO Box 977
Warrandyte VIC 3113
Closing date: 12 July 2012
skills
Questions
1 Using the advertisement and any other relevant information, design six questions you would ask at
an interview for the administrative assistant position.
2 Why is it important to plan before an interview?
3 Why should selection criteria be used as a guide for questions?
167
ISBN: 9781107665910
Stage 3: Perform background

and reference checks
referee
a person who can be
contacted to comment
on the skills and
qualities of a potential
employee; part of the
selection process
reference check
investigation that looks
into a job candidates
background; contact
can be made with
previous employers to
verify work details or
tertiary institutions to
check qualifications
contract of
employment
a legally binding
agreement between an
employee and employer
that sets out the terms
and conditions of the job
full-time position
employees are employed
usually for five days a
week, 38 hours a week;
these positions are
normally permanent
Even if the business is small, it should

always make time to check the referees and
background of potential employees. Applicants
have been known to exaggerate or falsify
their rsum. There have been examples of
applicants lying about their experience or
backgrounds. One large organisation, for
example, employed a convicted armed robber
in their mail room (where sensitive mail and
cheques were processed). Another organisation
employed a person in a senior position on the
strength of their financial management, only to
find out a few months later that the person had
falsified tertiary qualifications and had, in fact,
been bankrupted twice.
A reference check may be as simple
as making a few phone calls to check with a
previous employer or a named referee. This
process may also be useful as it can go beyond
the information covered on a rsum or in an
interview. If the choice between candidates is
a difficult one, the reference check may be an
important factor in making the final selection.
Some organisations also test applicants. This may
take a number of forms, such as personality and
IQ tests, or it may simply be a test on filing or
word processing for an office administration role.
Part-time work
an employee works a
fraction, e.g. 0.5, of
normal working hours
Figure 10.6 Background checks are vital for choosing

the right candidate for a job.
168
Stage 4: The job offer

Once a suitable applicant has been chosen, that
person should be contacted. This is initially by
phone and should be done as soon as possible.
It should then be followed up with a formal
letter and a contract of employment supplied.
Sometimes the appointment is subject to a
medical check-up.
Unsuccessful applicants should also be notified
of the outcome of their interview; this is often
done by letter. Unsuccessful applications may be
kept on file for a future job or if the successful
applicant does not take up the position. This
could provide a small business with a suitable
applicant without the time and expense of going
through the recruitment process from scratch.
Employment
arrangements
Once a job candidate has been offered a position,
their salary and conditions will be established.
A business needs to ensure that it has decided
on what type of employment arrangements are
required for the business to use staff efficiently.
Reasons for, and

distinctions between,
employment
arrangements
There are a number of different types of employment
arrangements. These include the following:
s A full-time position is usually a five-day,
38-hour week position. Full-time positions
are usually permanent and employees have
entitlements such as sick leave, holiday leave
and long-service leave.
s Part-time work is a growing type of
employment arrangement. The nature of the
part-time arrangement is agreed between the
employer and employee. For one employee
it may mean they work two or three days
ISBN: 9781107665910
per week, for another they may only work

between 10 a.m. and 3 p.m. each day.
Usually these positions are permanent and
employees have pro rata entitlements to
holidays, sick leave and long-service leave.
Part-time work may suit the business and
also employees, as some people do not want
full-time work and it may allow the business
more flexibility.
s Many sectors of the economy, such as the
retail sector, have a large number of casual
employees. While the rate of pay is usually
higher for casuals, these employees do not
receive sick leave or paid holidays. There is
little job security for casual workers. Casual
employees provide an organisation with a
great deal of flexibility, as it may increase or
reduce the number of employees working at
different times of the year to suit changes in
business conditions.
Reasons for employment

arrangements
A small business manager or owner needs to
determine the type of employment arrangements
that suit its particular circumstances. Full-time
employees maintain continuity of a job and
service and allow the owner or manager some
opportunity to leave the business for a holiday
secure in the knowledge that an employee is
able to keep the business running.
Part-time and casual positions offer more
flexibility for the business. Many women with
small children, for example, often want parttime work rather than a full-time position,
particularly if there is a possibility of flexible
hours. The business will also benefit, as it has
reliable employees who know the operation of
the business and is also able to reduce the costs
and expenses of wages. Casual employment
also suits a small business that at certain times of
the year (e.g. at Christmas) may need extra staff.
This form of employment allows for flexibility.
Maintaining
employees in
the business
It is recommended that newly appointed staff
receive induction training to help them settle into
their new role. Businesses with high staff retention
also tend to offer training for both personal and
professional development. This helps to boost
staff morale, as it makes employees feel that their
contributions are valued.
Induction of staff
Once a person has accepted a job offer, it
is imperative that the organisation makes
the employee feel valued. To make sure
that an employee fits into the organisation,
it is important that some form of induction
program is in place. In a larger business, there
is usually a person overseeing the induction
program. In a small business, the induction
program may be far less formal and could take
the form of:
s a formal training program a number of
new employees may attend training days
and receive information on the role, the
way the business operates, and its culture
s a mentor or buddy system an experienced
employee or supervisor is paired up with
the new employee to help them learn the
job processes and procedures
s on-the-job training a new employee
may be given a training program and the
appropriate skills in the workplace.
The main purpose of induction is to
ensure that the new employee understands
the business, its history, corporate culture,
and policies and procedures, including
dress codes, occupational health and safety
policies and procedures, and how to use the
technology and software programs required
for the business. The better the early induction
is, the more quickly a new employee will settle
into the business.
casual employees
employed on a shortterm or irregular basis;
do not attract any
leave entitlements
induction
the process of
introducing new
workers to their place
of work, their job
role, their colleagues,
supervisors,
management and
corporate culture
training
the process of
providing an employee
with the knowledge of
specific skills needed
to do a job
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A follow-up interview or some type of

formal contact should also be completed a few
months after the employee has started. This
provides another opportunity for the employee
to be supported and gives the new employee a
chance to discuss what information is required.
It may also assist in development of the next lot

of training or future induction programs.
If the induction process is not undertaken
or is inadequate, the new employee is likely to
leave within the first three months.
ACTIVITY 10.5
Motivating and retaining your staff

One of the keys to growing any successful
business is retaining quality employees. Keeping
them motivated and retained in a competitive
job market is crucial to the ongoing health and
success of your business.
Not only does high staff turnover result
in a significant direct cost to your business,
but it can also have a negative ongoing effect
by fostering an unstable, inconsistent and
non-cohesive work culture.
s worklife balance benefits such as flexible
Staff benefits and incentives
Staff incentives can be financial or non-
Implementing effective and meaningful staff

benefits and incentives can help you to attract
high-quality staff, boost the productivity and
morale of your workforce as well as to motivate
and retain your valued employees.
financial but they should be substantial enough
Benefits
Benefits should complement remuneration
and salary rather than be used as a substitute
for good pay, and ideally, they should be
personalised to individual staff members to
ensure that they are genuinely beneficial and
meaningful.
Some simple non-financial benefits and
perks to consider include:
s additional leave days, e.g. on staff birthdays
s complimentary items such as parking, gym
membership or cinema/sporting tickets
s subsidised staff cafeterias
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working hours, working from home, study

leave or childcare assistance
s staff discounts on company products/services
s complimentary staff massages or yoga
classes
s yearly offsite team-building experiences
s high-quality, personalised Christmas and
birthday gifts.
Incentives
to motivate your staff and reflect the effort and

time involved in accomplishing the objective/s.
Offering incentives can also be a useful means
of retaining staff.
Incentives can include:
s offering top performing staff profit-sharing
opportunities or shares in your company
s praising and recognising staff for their effort
and achievements
s expressing genuine thanks for a job well done
s offering promotions, salary increases or
lump-sum bonuses based on performance
s celebrating individual, team and company
successes
s offering non-financial bonuses such as
weekends away, event tickets or spa
treatments to reward effort.
ISBN: 9781107665910
Staff development
Communication
Many employees identify opportunities for

professional development in the workplace as
a key contributor to their satisfaction levels
at work.
Offering a structured staff development
program and ongoing opportunities for
personal and professional growth will
ensure increased skill-levels, capabilities and
expertise of the staff and will also promote
high staff retention and ultimately the success
and growth of the business in the long term.
Some of the ways that you can motivate and
retain staff through development opportunities
Communication in any successful business
include:
s one-on-one mentoring such as weekly
mentoring sessions with more senior
staff members
s structured performance management
s opportunities for increased responsibility and more challenging roles based on
performance
s new or additional work tasks based on
employees interests
s formal training and skills development
s subsidising further study
s regular reviews of staff development aims.
when they feel that their employers listen to
Communication and appraisals
to measure the performance of your staff
Successful communication and consultation

between you and your staff is critical to your
businesss success.
and identify any particular strengths that can
should be a two-way process. Its important to

clearly communicate your business objectives
and your employees role in achieving them. If
your staff have a clear understanding of how
their individual contribution fits into the big
picture of your business, their work efforts will
be more focused and effective.
You should also encourage your staff to
express their own views and suggestions and
provide feedback on processes and management. Not only do employees experience a
greater degree of job satisfaction and morale
and value their opinion, but your staff can also
be a valuable source of ideas for improvement
and growth.
Appraisals
Setting
clear,
measurable
performance
objectives for your staff and reviewing them at

regular intervals is a crucial factor in promoting
and retaining high-quality staff.
Performance objectives provide staff with
focus and motivation as well as a sense of
accomplishment and morale when objectives
are met or exceeded. They also enable you
be leveraged or weaknesses that need to be

addressed.
Source: Adapted from www.smallbusinesshq.com.au/factsheet/11919-motivating-and-retaining-your-staff.htm
Questions
1 Why is it important for small businesses to attract and keep skilled and motivated employees?
2 Identify two staff benefits and two incentives small business owners could implement.
3 Discuss how these could be used to improve productivity and business performance.
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Figure 10.7 A good induction program is very important for retaining employees.
Training programs
Many businesses also ensure that staff are kept
up to date with changes in the job requirements.
Training programs should be in place and should
attempt to identify any gaps in employee skills
or knowledge. While this is an added cost, there
are many benefits from a relevant and effective
training program.
These include:
s improved skill levels of employees
s greater potential for improved productivity
s more motivated workplace, as staff
feel valued
s reduction in staff turnover, as employees
may have a more varied and interesting job
and better promotion opportunities.
ACTIVITY 10.6
1 How could the following situations be handled
in the workplace?
a A new employee, Abdul, is not sure where
the stationery supplies are kept. It is part
of his job to order supplies.
b Mariette is not sure whether a task is part
of her job. Her work colleague Yasmin has
told her that she must do it.
c There are new training programs starting
over the next three months. Megan would
like to attend, but she is not sure about
the procedure to follow.
2 Design a checklist or pamphlet for a new
student starting in VCE at your school.
Figure 10.8 Having the right employees in the right positions is important.
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Separation of
employees from
the organisation
There are occasions when employees separate
from the business. Employees may leave
voluntarily or may be subject to an involuntary
termination due to dismissal or retrenchment.
s Resignation and retirement are both
voluntary separations as the employee
has made a decision to withdraw from the
workforce or to gain another position or
may have decided to pursue further education
or training.
s Dismissal
and
retrenchment
are
involuntary separations
from
the
organisation. This may arise due to the
position no longer being available or
because the employees performance is
unsatisfactory. If an employee resigns,
it is often good practice to conduct an
exit interview with the employee to
find out why they are leaving. If a large
number of employees are leaving, then
a business should try to establish why
this is happening. If trends or patterns
emerge, the business can try to take
steps to stop this from occurring in
the future.
Overview of
relevant legislation
termination
ending of the
employment
relationship
Business owners and managers need to

comply with a range of legislation covering
areas such as occupational health and safety
requirements, equal opportunity, taxation
obligations, as well as employee wages, leave,
superannuation and conditions.
resignation
voluntary termination
that occurs when an
employee leaves the
workplace, usually to
go to another job
Occupational
health and safety
The Victorian Occupational Health and
Safety Act 2004 outlines the employers
responsibility to provide a safe workplace
for employees. This includes maintaining
equipment, providing facilities for employees
and providing relevant information and training.
Other employer obligations include keeping
checks on the health and safety of employees
and on conditions in the workplace.
Employees also have a number of obligations.
These include cooperation with employers
in the area of occupational health and safety
(OH&S) and to not wilfully place themselves or
other employees at risk.
The Act also sets out the methods to
resolve health and safety issues. An OH&S
representative can inspect the workplace
and a health and safety committee should be
established, with both employer and employees
being represented on the committee.
It is important that employers are aware of their
obligations to provide a safe and healthy workplace.
Penalties for a breach of these obligations can be
substantial. The Victorian Government amended
the Act to increase the penalties for workplace
accidents and directors and owners can now be
given both gaol sentences and fines. Penalties for
breaches of the Occupational Health and Safety
Act 2004 have been increased, as workplace
safety is a high priority.
Figure 10.9 Separation of employees from

the organisation
retirement
voluntary termination
where an employee
decides to leave the
paid workforce
voluntary separation
occurs when an
employee has made a
decision to withdraw
from the workplace
dismissal
termination of an
employment contract
due to incompetence
or indiscipline
retrenchment
the expression used
to describe what
occurs to an employee
whose employment is
terminated by reason
of his or her job
becoming redundant
involuntary
separation
occurs when an
employee is retrenched
or dismissed from
an organisation
exit interview
an interview to find out
why an employee is
leaving
Occupational Health
and Safety Act 2004
framework for providing
a safe and healthy work
environment
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ACTIVITY 10.7
Study the following scenarios and determine
whether the organisation is at fault in terms of
occupational health and safety regulations.
Give reasons for your answers.
1 Frank has suffered a hearing loss. He works

with cutting equipment. The business provides
ear protection, but Frank did not wear them.
2 Katie started work at a chemical
manufacturing company. She had to collect
some cleaning chemicals for a process.
Katie did not wear the correct clothing and
she had not been given any training.
3 Sally works as a receptionist in an office.
She has had problems with her back and neck.
Her computer sits on a table near a window.
4 Sam lifted a heavy package from a truck by
himself and hurt his back. He had access to a
lifting machine. All staff were trained in its use.
features, impairment/disability, lawful sexual

activity, parental status and industrial activity.
It is important that all businesses ensure that
their selection and recruitment policies adhere
Figure 10.10 Employers must provide a safe and
healthy workplace.
Equal employment
opportunities
equal employment
opportunity (EEO)
providing people with
a fair and equitable
opportunity to succeed
without any form of
discrimination based on
age, sex, race
or nationality
174
Under federal and state equal employment

opportunity (EEO) legislation and antidiscrimination legislation, an employer, regardless
of their size, may be legally responsible for
discrimination and harassment that occurs in
the workplace or in connection with a persons
employment unless it can be shown that all
reasonable steps have been taken to reduce this
liability. Under state and federal legislation, it is
illegal to discriminate on the basis of gender, race,
religion, age, marital status, pregnancy, physical
to this legislation, particularly when questioning

and forming opinions on the suitability of an
applicant.
Businesses must take all reasonable steps to
make sure that their workplace provides for equal
employment opportunities. This is not defined
in the legislation because what is reasonable
for a large corporation may not be reasonable
for a small business. Rather, they are worked
out on a case-by-case basis. It does, however,
mean that employers must actively implement
precautionary measures to minimise the risk of
discrimination and harassment occurring.
The role of management in small business is
particularly important. The working relationship
between management and their employees tends
ISBN: 9781107665910
to be close and management is usually aware of

what is going on in the business. This puts them
in a good position to take direct action if they
observe or are otherwise alerted to harassment
or discrimination. It also means that managers
need to demonstrate effective leadership by
setting an example with their own behaviour
and promoting a climate of mutual respect in the
workplace.
It is recommended that small businesses,
particularly those nearing 20 employees, have
a written policy on equal opportunity and
harassment, particularly sexual harassment.
Generic models of policies on areas such as
harassment can be adapted. Policies need to be
in place and known by all employees.

responsible
management
of employment
practices
Employees are extremely important for the
smooth operation of a business. While many
small businesses may find it difficult to recruit and
retain staff, loyal and well-motivated employees
are an asset for any business. Ethical and
socially responsible recruitment practices will
usually protect a business and ensure positive
employee relationships. Ethical employment
practices can include the following:
s Clear role and job descriptions allow

employees to complete the job they were
recruited to do, not be imposed upon to
complete additional, unmanageable tasks.
s All relevant legislation, such as equal
employment
opportunity
legislation,
is followed. This would mean the best
applicant is selected for the job, based on
their competency, while also ensuring that
no discrimination or bias occurred during
the selection process.
s Employees are paid the correct amount,
and conditions adhere to agreements and
awards that are relevant to the industry or
workplace.
s Flexibility of work practices and hours will
often allow employees to manage to balance
their home and work life.
s Policies relating to bullying, harassment,
promotion and separation from the organisation
are all fully documented and adhered to.
Small businesses should also try to incorporate
socially responsible practices into their
management of staff. This may include allowing
staff to have time to work with local communities,
sponsor what the staff perceive as worthwhile
causes and invest superannuation funds into
green or socially responsible investment
companies. Small businesses that are seen as
socially responsible will often find that they attract
staff due to their reputation and also staff will tend
to be more loyal and motivated, which will then
result in a lower level of staff turnover.
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CHAPTER SUMMARY
U It can be a costly exercise for a small

business if the wrong person is employed;
therefore it is important that steps are taken
to employ the right person for the position.
U The first part of the employment cycle
is a job analysis. It allows the business to
determine what skills are needed for a
position.
employment cycle
The entire process
from human
resource planning
to termination of
the employment
contract
U If employees are not inducted correctly, they

may leave the organisation.
U There are a number of employment
arrangements. These include full-time
permanent, part-time permanent, and casual.
U Employees can be recruited from external

and internal sources.
U Legislative requirements an employer must

adhere to include:
U Staff can be recruited through noticeboards,

advertising, employment agencies,
networking and previous applicants.
occupational health and safety legislation

equal employment opportunity
legislation.
U There are two ways an employee can
separate from an organisation:
U The four parts of the staff selection process are:
screening and short-listing applicants

interviewing
completing background checks
advising all applicants of the outcome for
a position.
U The interview process should include
questions (both open and closed) that are
based on the selection criteria, the use of a
each in a sentence to demonstrate your

understanding.
CHAPTER SUMMARY
QUESTIONS
U It is important that new employees are

inducted into the business. This may involve
a formal training program or a mentor or
buddy system.
U A job description is a statement of the

duties, working conditions and other
requirements of a particular job.
1 Define the following terms and then use
a Induction
b Rsum
c Job analysis
d Motivation.
2 Why is it important for an organisation to
be clear about a job description and the job

requirements before advertising a position?
3 Describe the methods that can be used to
recruit a new employee.
176
panel of interviewers where possible, and

background and reference checks.
voluntary separation by resignation or

retirement
involuntary separation through dismissal
or retrenchment.
U Small businesses should try to adhere to
socially responsible and ethical practices
when managing staff.
4 List two advantages and two disadvantages
of internal recruitment.
5 List two advantages and two disadvantages
of external recruitment.
6 Why is it important for an employee to be
interviewed by a number of people rather

than just one?
7 Outline why it is important for a small
business to adhere to legislative requirements

relating to the management of staff.
8 Why is it important to conduct an exit
interview when an employee leaves an

organisation? How can this information be
used for future staffing needs?
ISBN: 9781107665910
9 Obtain a job description and selection
criteria for a position. These may be

obtained by contacting an agency about
a job vacancy or investigating a website
such as www.seek.com.au. Using the job
description and selection criteria, develop a
series of questions that could be used in a
job interview.
Wanda took the position, arrived the

first day and was not clear about what the
job entailed. Three weeks later, she left the
job. Cassie decided not to re-advertise the
position and gave it to her cousin Sarah. Even
though Sarah was enthusiastic, she found it
difficult coping with the position. Cassie was
disappointed with her performance; however,
she felt it was a bit awkward to retrench her.
U good phone manner
1 Update the job description for the salon
EXTENSION
QUESTION
Cassie and Lauren decided that their business,

Exquisite Hair Styles, had expanded enough to
employ a person to coordinate the 20 staff who
work across three salons. The person would
be responsible for ordering supplies, staff
rosters and client appointments. Cassie got a
job description for a receptionist from one of
her friends. The job description outlined the
following skills:
manager and receptionist.
U typing skills
2 Compile six questions that could be asked in
U good communication skills
the job interview.
U basic computer skills.

Lauren decided to advertise the job and
three people applied. One was not suitable,
the other two were interviewed. The interviews
were carried out by Kristy, the senior stylist, and
after the interviews it was decided that Wanda
would be offered the position, even though she
did not have any recent relevant experience.
Reference checks were not done.
3 Outline any other possible tests or
procedures that could have been carried out

as part of the selection process.
4 Describe some of the problems or issues
that arose during the selection process.

5 Outline an appropriate induction policy that
Exquisite Hair Styles could introduce.
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11
INFORMATION AND
TECHNOLOGIES IN
WHATS AHEAD
responsible management
of ICT
ICT in small business

Implications of the
use of technology and
e-commerce
Strategies to select
Software
Security of
information
Costs and
benefits
Hardware
Use of ICT
ISBN: 9781107665910
KEY KNOWLEDGE

strategies to select appropriate hardware and software to meet small
business needs
possible use of available technologies, such as databases, spreadsheets,
presentation software, internet, podcasts, SMS and blogs or emerging
technologies
uses of e-commerce
implications of the use of available technology and e-commerce, such
as benefits and costs to the small business
reasons for, and methods of, ensuring the security of technology and
information
ethical and socially responsible management of ICT in small business.
It took 13 years for television to reach the level

of penetration in homes and offices achieved
by the personal computer in just four years.
Technological advances have occurred at a rapid
rate. The growing power of personal computers
and laptops, the development of specialist
software, increased access to the internet,
AREA OF STUDY
COMMUNICATION
SMALL BUSINESS
wireless internet, the new batch of mobile

phones, iPods and iPhones and the growth of
e-commerce have led to a growing reliance on
information and communication technologies
(ICT) in all facets of life. Computers and
technology have become an important aspect
of business life and daily operations.
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Strategies to select
appropriate hardware
and software to meet
small business needs
World Wide Web

(WWW)
communications
system that allows
access to information
through a computer
with a modem
Small businesses need to use ICT as part of their

day-to-day business operations. Information
technology is now essential and not an option,
even for the smallest business. According to the
Australian Bureau of Statistics (ABS) (see www.
abs.gov.au), the percentage of small to medium
businesses using ICT has increased. In 200708,
92.3 per cent of small to medium businesses had
internet access and 95.4 per cent used broadband
in their business activities. In addition 50.5 per
cent of small businesses used the World Wide
Web (WWW) to make orders and 28.6 per cent
received orders via the internet. Businesses are
expected to increasingly adopt more advanced
broadband applications that have traditionally
been restricted to larger companies.
To ensure that the best and most suitable
technology is chosen, the manager or owner must
establish strategies to select suitable and viable
hardware and software.
Strategies may include:

s gathering information from a range of sources,
such as retailers of computers, articles on
the internet, operators of similar businesses,
and publications of consumer or industry
associations
s leasing rather than purchasing hardware.
Leasing agreements may cover repairs and
allow a small business to regularly upgrade
hardware and software.
s purchasing a software program that allows
for a free trial period, free upgrades, technical
support or free training.
When examining the use of technology,
it is important to divide the technology into
its components. The areas that should be
investigated include:
s identification of the application, the purpose
and the reasons for the investment in this type
of ICT
s software specification there are many types
of software packages and programs available;
the business needs to be clear about what the
software is required to do
s system specification what hardware is required?
Does the computer need to be networked
with others? What other devices are required?
Figure 11.1 Mobile phones are an

ever-present ICT in business.
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Possible use
of available
technologies
The range of information and communication
technologies is daunting for many business
owners and it is important that a business is
clear about what it is going to use ICT for.
Computer hardware
Businesses have increased access to technologies
and ICT has become less expensive. Businesses
are now able to lease or purchase technology
and incorporate it into day-to-day operations.
New hardware includes many of the devices
described below.
Computers, laptops,
storage devices
Computers have become smaller and at the
same time much more powerful. Computers
within the office or business can be networked

to printers and the internet. Increasingly, laptop
computers also allow employees to work from a
range of locations. The office is now portable.
The amount of information that can be
stored on devices such as USB memory sticks
(flash drives), external hard drives and CDs/
DVDs has also changed the way businesses can
store, transport and exchange data.
ACTIVITY 11.1
1 In a small group, list four different types of
technology available for businesses.
a How have these technologies changed?
For example, mobile phones are smaller
and have many more applications.
b How have these types of technology
changed in the last five years?
c Describe how a small to medium business
could use these technologies.
2 Choose one type of technology and design
a poster outlining the benefits of using this
technology in a small business.
Figure 11.2 New technologies in business
CH APT E R 11 INFORMATION AND COMMUNICATION TECHNOLOGIES IN SMALL BUSINESS
181
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Modems and wireless networks

Many businesses now have wireless networks
so that the internet can be accessed by
computers from a number of locations within
their premises without the need for cables.
Further developments in broadband have also
meant that businesses can access the internet
and emails via a USB device or internet card
outside the office.
Mobile phones and

similar devices
The increasing use of mobile phones,
iPhones, iPads, PDAs, GPS (global positioning
systems) and wireless handheld devices such
as BlackBerry (a smart-phone with video,
software and services to connect to the
internet), means that employees and owners
have instant access to communication in any
place. Mobile phones have become smaller
and have many more features, including
cameras, access to the internet, email and
the ability to download and store materials.
While these are used by people in their daily
lives, they also allow small businesses to
easily contact customers and gather and store
information. A GPS may be a vital tool for
employees and owners who spend a great
deal of time visiting clients and customers.
Personal computerised diaries, wireless
handheld devices and PDAs (Personal Digital
Assistants) are also used to manage and store
information in an electronic form. Meetings,
appointments and dates can all be stored
quickly and conveniently.
scanned in and then printed. Many printers

are now also multifunction devices that are a
fax, photocopier and scanner all in one. These
advances have allowed businesses to reduce
their costs and save time.
Data projectors
Presentations by businesses have become
increasingly important as a means of communicating with, and presenting information to,
clients, customers and employees.
Interactive whiteboards and

electronic whiteboards
Electronic whiteboards may be used by
businesses to develop ideas, plans and as
a brainstorming activity. The interactive
whiteboard further enhances the features of
the electronic whiteboard by allowing the data
and information to be changed, manipulated
and further enhanced. The ability to save the
information to the computer and then to print
off the screen or the saved file allows for great
freedom of operations.
Scanners, faxes, printers

and photocopiers
Printers and photocopiers have added features
that allow small businesses to customise and
produce documents in ways they were not
able to in the past. Printers and photocopiers
can now produce high-quality brochures and
catalogues; information and pictures can be
182
Figure 11.3 Multifunction devices help save time.
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Software packages to
meet business needs
The purchase, set-up and training costs for some
software packages that are required in a modern
business can be high; however, the time saved
makes it cost-effective. For the vast majority of
small businesses, computerisation is essential.
Word processing
Nearly everyone uses a word processing package
of some sort in the course of their employment,
leisure and education. Word processing packages
have allowed small businesses to complete their
own documents and records as required.
Spreadsheets
Spreadsheets
are
another
widespread
business application. A spreadsheet allows a
small business to keep its financial records
electronically. It can be set up with formulas to
allow for the automatic calculation of figures,
such as totals, reducing the likelihood of
human error.
The information from spreadsheets can also
be transformed into pie charts and graphs. A
pictorial representation of financial information
can often make it easier for non-accountants
to understand.
Spreadsheets such as Microsoft Excel also

have other functions that can be useful for a
business. The use of averages, minimum and
maximum values and What If scenarios can
assist in the calculation of pricing strategies and
business planning. The What If function, for
example, allows a business to quickly calculate
and change data on a range of questions or
scenarios, such as What would happen if prices
were increased by 5 per cent? This would allow
the business (based on researched assumptions)
to determine whether profit levels would
increase and by how much.
Databases
A database is described as a comprehensive
collection of related data organised for
convenient access, generally in a computer and
managed by a database management system. It
is a structure that contains information, which
is usually stored and presented in rows or
columns, similar to a spreadsheet. Information
in a database can be reorganised and presented
in a number of ways. The data is presented
in reports or queries. It allows businesses that
may usually keep records in paper form (e.g.
a florist tracking types of flowers ordered) to
use a computerised database instead. One wellknown database application is Microsoft Access.
Surname
First
name
Title
Street
number
Street name
Suburb
Anderson
Greg
Mr
100
High Street
Kew
Brown
Toni
Ms
33
Weston Road
Collins
Trevor
Mr
99
Davies
Melinda
Mrs
Knight
Kelvin
Townsend
Andrea
State
Post
Code
Customer
Victoria
3101
And
Watsonia
Victoria
3087
Bro
Carie Court
Somers
Victoria
3194
Col
338
Dorking Road
Box Hill
Victoria
3129
Dav
Mr
56
Ester Circuit
Eltham
Victoria
3095
Kni
Mrs
Ratray Road
Montmorencey Victoria
3094
Tow
Figure 11.4 Example of a customer database using Microsoft Access
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Presentation software
Desktop publishing packages allow businesses

to develop posters, pamphlets and brochures
that can be used for displays and advertising
of the businesss products and services. The
continual development of multimedia software
and graphic manipulation of data and images
has allowed businesses to produce increasingly
sophisticated brochures and products.
software packages for small businesses are MYOB

(Mind Your Own Business) and QuickBooks.
Many accountants now require their small
business clients to submit their financial records
in a computerised format.
Other specialist software useful in business
includes Computer Aided Design (CAD)
software. A number of industry-specific
packages have been developed. For example,
there are specialist programs for hotels, medical
practices, real estate agents and law firms.
MICROSOFT POWERPOINT
The internet
Microsoft PowerPoint is a useful software

package that allows a business to easily present
information to employees or prospective clients.
PowerPoint allows a visual representation to
accompany an oral presentation. Information,
tables, data, movies and pictures can also be
added to these presentations.
The internet is a worldwide network of

computers providing access to information and
business opportunities. Nearly all households
and businesses large and small have access
to the internet and it is very much a way of life.
It is now assumed that all businesses have a
website. It allows customers to quickly check
the products and services of a business without
leaving home. According to an Australian
Bureau of Statistics (ABS) report on information
technology use, 98 per cent of Australian
businesses had internet access with broadband
as the main type of connection in 200809
(see www.abs.gov.au).
DESKTOP PUBLISHING
Specialist business software

There are a number of different specialist software
packages available for small businesses to use.
Accounting packages in particular have been
through a rapid development phase and offer
many new functions. Two popular accounting
Figure 11.5 Example of a PowerPoint presentation
184
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ACTIVITY 11.2
Recommend a software package for each of the
following situations. Describe two benefits of
using that particular application. For example,
Jana would like to keep records of all customer
names and addresses and has chosen a
database package to keep these records.
1 Ellie wants to keep a record of all of

her customers.
2 Dong Joon would like to keep his financial
records in a computerised form.
3 Laura wants to design letterheads and flyers
for her newly established business.
4 Antonio has to submit GST receipts from his
hairdressing business.
5 Tom is a cabinet maker who designs his own
kitchens and furniture.
6 Matt would like to design furniture for clients.
Web pages
Many businesses, regardless of size, have a web
page for customers and potential customers to
access. It is now common for customers to visit
a business website before phoning or visiting
personally. It is essential, therefore, that every
business has a web page that is interesting,
eye-catching and informative, as it is often the
first contact with the business.
While there are many web page designers
and specialists, there are also software programs
available for a business to use to set up its own
web page. Alternatively, a web designer may
be hired, usually at a cost of $75 to $200 an
hour. There are also ongoing costs involved
in keeping the site interesting and up to date.
Often, because of competing demands on
small business owners and lack of expertise,
it is a good idea to use a specialist company.
Businesses wishing to establish their own
website can use specialist software programs.
There are a number of steps that must be

followed to successfully set up a website. These
include obtaining a domain name assuming
the name wanted is available to protect the
name of the website and the ability to use it.
A second factor is hosting, which is similar
to renting space; in the case of a website, it
is renting hard drive space on a server. A
server is a computer that is connected to the
internet, visible to anyone online who types
in the specific website address (URL) or finds
the address through a businesss marketing, or
through a search engine.
A great deal of money has been thrown at
developing web pages for no justifiable reason
other than everyone else is doing it. Examining
other websites can provide a method of market
research: it provides information on what might
appeal to consumers, what graphics could be
used and what information should be included
on the web page.
Web pages that provide information on
products and services, links to other useful
sites and are interactive are more likely to be
visited more than once. A good website has the
following attributes:
s good
design
with
interesting
and
relevant content
s easy to move between pages and navigate
the whole site
s provides contact details such as email
address, phone and fax numbers
s a section for frequently asked questions with
the answers
s simple graphics, as complex graphics take
a long time to load and visitors may not be
patient enough to wait
s good grammar and correct spelling
s any links included are working
s accurate and up-to-date contact and product
information.
web page
a page on the World
Wide Web that allows
the public to examine
information about a
company and its range
of products
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s (OME
s 7HATWEDO
s #ONTACTUS
Welcome to Bentley Interiors

7EAREASMALLBUSINESSTHATHASBEENOPERATING
IN$IAMOND#REEKNOWSINCE7ETRAVELFAR
ANDWIDEANDAREHAPPYTOGOANYWHEREOURSERVICES ARE REQUIRED 7E SET VERY HIGH STANDARDS
ANDTAKEPRIDEINOFFERINGTHETYPEOFSERVICEAND
QUALITYTHATWEWOULDEXPECTOURSELVES
/UR RETAIL STORE OFFERS OVER FABRIC
SAMPLESWITHOCCASIONALFURNITUREANDAVARIETY
OFGIFTS
186
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ACTIVITY 11.3
$APHNEAND2UBYHAVEASMALLBUSINESSCALLED
3EW 7HAT SPECIALISING IN UNIQUE !USTRALIANA
PATCHWORK QUILT DESIGNS AND UNUSUAL ANTIQUE
FABRICS 4HE BUSINESS HAS GROWN STEADILY OVER
THEPASTTHREEYEARSANDTHECOMPANYHASSTARTED
TOGETCUSTOMERENQUIRIESFROMAROUND!USTRALIA
AND!MERICA4HEPARTNERSFEELTHATTHETIMEIS
NOWRIGHTTOHAVEAWEBSITESOTHATTHEPOTENTIAL
CUSTOMERS OUTSIDE 6ICTORIA CAN BE REACHED
4HE PAIR BELIEVES THAT THE SITE SHOULD INCLUDE
INFORMATIONABOUTTHEBUSINESSCONTACTDETAILS
ACATALOGUEANDASECTIONFORCUSTOMERFEEDBACK
ANDSUGGESTIONS
Question
Design a website for Sew What using the good design principles discussed above. Make up contact
details, addresses, phone and fax numbers and quilt designs. This design can be completed on paper
or as an actual website using web design software.
Podcasts
Figure 11.6 Most people self-publish on the internet;

therefore much of the material on the World Wide Web is
not checked or regulated.
Another way businesses can gain advertising

and, ultimately, market share is to use podcasts.
A podcast is little more than an audio file
(usually an MP3 file) placed on a website that
allows people to subscribe and automatically
download any new content recordings.
Most podcasts are formatted like radio shows.
Hosts will interview guests or simply decide to
talk about a subject that they feel is of interest to
someone. From a business standpoint, it can be
a very powerful way to produce content that will
make a website interactive. Ideas for a podcast
may include interviewing clients and customers
and asking questions about the service or
quality of products that were provided.
There are a number of benefits for a business
in creating podcasts, including:
s small cost and quick set-up
s easy way to gain an audience
podcast
an audio file (usually
an MP3 file) placed on
a website that allows
people to subscribe and
automatically download
any new content
recordings
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SMS
a communications
protocol that allows
the interchange of
short text messages
between mobile
telephone devices
blog
a web log or website,
usually maintained
by an individual or
a business, with
regular commentaries,
descriptions of events,
or other material such
as graphics or video
Facebook
a social networking
website where people
can connect to friends
and their friends;
businesses can use this
as a way of connecting
with others and to
market their products
Twitter
a microblog where
users can make
comments up to 140
characters instantly
s business is in the media

s business has control over what is in the
podcast and all content.
Using a human voice the business allows
customers to relate to the business as people
and adds an extra connection and relationship
with the public.
SMS
SMS, or text messaging, is a new way to gain
access to customers. It is instantaneous, easy
and cost-effective. There are a number of
benefits for a business using SMS, including
the fact that one message can be simply and
simultaneously sent to many customers and
contacts. It allows consumers and customers to
respond quickly and easily.
Many businesses are now taking up this
technology as a means of expanding their
business base. One real estate agent, for
example, uses SMS technology to provide
a virtual tour of any listed property for any
mobile phone user anywhere in the world. This
is a small cost to the potential purchaser and
provides another means of gaining information
about a property.
Blogs
A blog (short for web log) is a website, usually
maintained by an individual or a business, with
regular commentaries, descriptions of events,
or other material such as graphics or video.
188
Many blogs provide commentary or news

on a particular subject; others function as more
of a personal diary. A typical blog combines
text, images and links to other blogs. The
opportunity for readers to leave comments in
an interactive format is an important part of
many blogs. A blog allows a business to set up a
forum for customers to ask questions and place
their experiences on the blog for others to read.
Most blogs are text-based; however, there have
been developments that will allow blogs to also
include video.
Other emerging technologies

The rapid rate of change in technology has
provided many opportunities for all types of
businesses. The increased use of social networking
such as Facebook and Twitter can also be used
by businesses to develop a customer base.
Facebook is a social networking website where
people can connect with friends. Businesses can
use this as a way of connecting with others and
marketing their products. Twitter is a microblog.
It is like a blog, only smaller. Users have 140
characters to communicate a message, so it has
to be short, concise and of interest. Twitter is
another means to communicate with an audience
or group of people. Twitter is simple and once a
business or person has signed up it can be used
immediately. By default, Twitter feeds are set to
public, so the potential number of people that
can be reached is unlimited.
ISBN: 9781107665910
ACTIVITY 11.4
The 10 next social media trends

BY"RAD(OWARTH/CTOBER
3OCIAL MEDIA STILL DOMINATES HEADLINES AS THE
GETPEOPLETOTHESITE4HENTHEYWOULDARRIVE
NEW DIRECTION FOR BUSINESS MARKETING BUT IT
MAYBEENTERACOMPETITIONANDTHENDISAPPEAR
SEEMSMANYBUSINESSESARERESISTINGTHECALL!
7ITH &ACEBOOK YOU HAVE AN OPPORTUNITY FOR
RECENTSURVEYBY/PTUSFOUNDTHATONLYOF
AN ONGOING ENGAGEMENT BECAUSE TO ENTER A
SMALLBUSINESSESUSEDSOCIALMEDIATOPROMOTE
COMPETITIONTHEYHAVETOhLIKEvTHEPAGE
THEIR BUSINESS WHILE HAD NO NEAR TERM

PLANSTOSTART
Shopping goes social, online
)TSANUNDERSTANDABLERESPONSE*USTASTHEY
3O YOUVE GOT THOUSANDS OF FANS LIKING YOUR
BEGINTOUNDERSTANDTHECONCEPTSOFSOCIALMEDIA
&ACEBOOKPAGEnWHYNOTSELLTHEMSOMETHING
MARKETING SOMETHING NEW COMES ALONG AND

CHANGESEVERYTHING"USINESSESTHATHAVEBARELY
COMETOGRIPSWITHBLOGGINGAND&ACEBOOKMUST
ALSONOWCONTENDWITH4WITTER&OURSQUAREAND
AHOSTOFOTHERNEWTECHNOLOGIESANDSERVICES
!CCORDING TO /PTUS MARKETING DIRECTOR
FORSMALLANDMEDIUMBUSINESS0HIL/FFERTHE
MAINREASONSMALLBUSINESSOWNERSGAVEFORNOT
GETTINGINTOSOCIALMEDIAWASTHATITWASAFAD
3ECONDWASTHATITWOULDSOMEHOWNEGATIVELY
HURTTHEIRBRANDBYGIVINGAVOICETODETRACTORS
ANDTHATTHEYWERESIMPLYTOOBUSY
"ELOWAREOFTHELATESTTRENDSTOHITTHE
SOCIALMEDIALANDSCAPE
RIP micro-sites
7ITH MORE THAN MILLION ACTIVE USERS
&ACEBOOKISHAVINGASIGNIlCANTIMPACTONTHE
RESTOFTHEWEBDISTORTINGTRAFlCmOWSANDUSER
#OMPANIESSUCHAS!DGREGATEWWWADGREGATE
COM AND 0AYVMENT WWWPAYVMENTCOM
ARE MAKING IT EASY FOR BRANDS TO SELL THROUGH
&ACEBOOKWITHACOMPLETEE#OMMERCESOLUTION
3HOPPING ITSELF IS ALSO DEVELOPING A SOCIAL
ELEMENT THANKS TO SERVICES SUCH AS 3HWOWP
WWWSHWOWPCOM WHICH LETS A USER KEEP
TRACK OF THEIR SHOPPING HISTORY AND THEN SHARE
IT WITH OTHERS 3OCIAL MEDIA RESEARCHER 2OSS
$AWSON EXPECTS STRONG GROWTH FROM SOCIAL
SHOPPINGSERVICES
Making use of whats out there

4HEREISAHUGEAMOUNTOFINFORMATIONALREADY
INSOCIALTOOLSABOUTWOULD BECUSTOMERSnWHY
NOTUSEIT
!LTHOUGH PERHAPS NOT STRICTLY AN EXAMPLE
OFSOCIALMEDIATHEENERGYCOMPANY/RIGINHAS
BEHAVIOUR -AJOR BRANDS HAVE NOTICED WITH
BEENUSING'OOGLE%ARTHFORMORETHANAYEAR
A PROLIFERATION OF FAN PAGES SPRINGING UP FOR
TO HELP POTENTIAL CLIENTS lND OUT IF THEIR ROOF

IS SUITABLE FOR MOUNTING SOLAR PANELS /RIGINS
EVERYTHING
!CCORDING TO THE HEAD OF DIGITAL AT PUBLIC
HEADOFRESIDENTIALSOLAR$OMINIC$RENENSAYS
RELATIONS lRM %DELMAN !USTRALIA -ATTHEW
THETOOLISUSEDTOBRINGUPANAERIALPHOTOGRAPH
'AIN THE RESULT HAS BEEN THE DEATH OF THE
OF A CALLERS RESIDENCE WHICH CAN BE USED TO
SO CALLED MICRO SITES ONCE LAUNCHED BY BRANDS
DETERMINE THE CHARACTERISTICS OF THEIR ROOF
TO SUPPORT SPECIlC CAMPAIGNS @)NCREASINGLY
0REVIOUSLY/RIGINHADTOSENDATECHNICIANOUT
THAT IS MOVING ONTO &ACEBOOK 'AIN SAYS
TOEVERYHOMEORHAVECUSTOMERSTAKEPHOTOS
@7ITHAMICROSITEYOUHADTOGENERATEMEDIATO
OFTHEIRROOFANDEMAILTHEMIN
189
ISBN: 9781107665910
Mixing it with the business
The rise of the mini-blog
-ANY COMMERCIAL SOFTWARE SUPPLIERS ARE NOW

BUILDING SOCIAL TOOLS AND FUNCTIONALITY DIRECTLY
INTO ENTERPRISE APPLICATIONS 4HE CHARGE WAS
LED BY 3ALESFORCECOM WHICH IN *UNE THIS
YEAR INTRODUCED 4WITTER AND &ACEBOOK LIKE
FUNCTIONALITY INTO ITS SOFTWARE )TS #HATTER
SOFTWARE ENABLES USERS TO FOLLOW WHAT OTHER
PEOPLE ARE DOING AND PROCESSES IN THE
BUSINESSCANALSOBESETUPTOREPORTSIGNIlCANT
DEVELOPMENTSTOTHEPEOPLEMOSTINTERESTED
!N AUDIT OF 3ALESFORCECOM CUSTOMERS BY
-ARKET4OOLSEIGHTWEEKSAFTERTHELAUNCHFOUND
4HE POPULARITY OF 4WITTER IN PART REmECTS A

DESIRE FOR IMMEDIATE GRATIlCATION IN POSTING
AND CONSUMPTION OF INFORMATION 7ITH SO
MANY BLOGS TODAY SIMPLY REPOSTING INTERESTING
INFORMATION WITH ADDED COMMENTARY ITS NOT
SURPRISINGTHATSOMEONEHASFOUNDAMID POINT
BETWEENTHETWOIDEASLEADINGTOSERVICESSUCH
AS 4UMBLR WWWTUMBLRCOM AND 0OSTEROUS
WWWPOSTEROUSCOM $AWSON CALLS THESE
SERVICES MINI BLOGS AS THEY TAKE WHAT 4WITTER
AND&ACEBOOKHAVEDONEINALLOWINGPEOPLETO
EASILYSHARECONTENTTHATTHEYLIKEANDMOVED
CUSTOMERS HAD SEEN A INCREASE IN TEAM

COLLABORATION A INCREASE IN THE ABILITY TO
lNDINFORMATIONAINCREASEINPRODUCTIVITY
ANDADROPINEMAILUSAGE#OOPERSAYSHIS
COMPANYSOWNUSEOFEMAILISDOWNBY
THATBACKONTOTHEBROADERWEB
@4HEUPDATESON&ACEBOOKHAVESHIFTEDFROM
BEINGVERYPERSONALTHINGSTOBEINGALOTMORE
ABOUT SHARING ARTICLES AND CONTENT $AWSON
SAYS@4HEMINI BLOGSAREALMOSTPURELYSHARING
TOOLS BUT YOU CAN ACTUALLY SEE THE CONTENT AS
WELLWHICHBRINGSITALOTMORETOLIFE
Location, location, location

,OCATIONSACROSS!USTRALIAAREPRESIDEDOVERBY
ANUMBEROFVIRTUAL@MAYORSTHANKSTOTHERISING
POPULARITY OF &OURSQUARE WWWFOURSQUARE
COM AMOBILEAPPLICATIONGAMETHATLETSUSERS
@CHECK IN TO LOCATIONS AND LEAVE COMMENTS
OR ALERT THEIR FRIENDS 7HOEVER CHECKS INTO
A LOCATION THE MOST BECOMES ITS MAYOR 4HE
NUMBER OF !USTRALIAN USERS IS CURRENTLY SMALL
BUTMARKETERSINTHE53ARETARGETINGTHELARGER
USERPOPULATIONTHEREWITHSPECIALOFFERSWHEN
THEYCHECK INTONEARBYLOCATIONS
!CCORDING TO 'AIN @CHECKING IN WILL
GET A BOOST FROM &ACEBOOKS INTRODUCTION OF ITS OWN LOCATION BASED SERVICE
&ACEBOOK0LACES
(E SAYS THERE IS ALSO POTENTIAL FOR BRANDS
TOENCOURAGEUSERSTOCOMETOTHEIRREAL WORLD
LOCATIONANDCHECK INTORECEIVEASPECIALOFFER
190
Talking to no one
.EXTTIMEYOUlNDYOURSELFENJOYINGALONGCHAT
ONLINE IT MIGHT BE WORTH CHECKING WHETHER
THE PERSON AT THE OTHER END IS REALLY A PERSON
AT ALL 3YDNEY COMPANY -Y#YBER4WIN WWW
MYCYBERTWINCOM HASBEENPROVIDINGADVANCED
ARTIlCIAL INTELLIGENCE AGENTS TO COMPANIES
INCLUDING 3T 'EORGE "ANK .!" AND .!3! TO
ANSWERQUERIES
#HIEF EXECUTIVE ,IESL #APPER "EILBY SAYS
HER COMPANY HAS BEGUN SEEDING #YBER4WINS
INTOSOCIALMEDIASCENARIOSFORCLIENTSTOENSURE
THATTHEIRSOCIALMEDIAPRESENCEISMAINTAINED
WITHIMPRESSIVERESULTS4HEKEYHOWEVERISIN
MAKING SURE THAT THE PEOPLE WHO ARE CHATTING
KNOW THAT THE RESPONSES ARE NOT COMING FROM
AREALPERSON
ISBN: 9781107665910
Managing your reputation,

and career
There have already been many stories of
people getting reprimanded or even fired over
an inappropriate tweet or Facebook update.
Anyone in the recruitment industry will know,
however, that social media particularly
LinkedIn is an essential tool for both
researching candidates and finding new ones.
Listening in
Customers are out there talking about brands
using social media. Even if you dont want to
join the conversation, it is a good idea to know
whats being said. Sydney-based company
BuzzNumbers
(www.buzznumbershq.com)
provide social media monitoring services to
listen in online and deliver an understanding of
what people are saying.
Chief executive Nick Holmes a Court

describes it as like the new customer research,
but saves actually asking people what they
think. He says companies are increasingly
demanding to know more than just whether
that chatter is positive or negative, and want to
know more about what aspect of the business
is being discussed and what can be done as
a result.
Source: adapted from
www.smartcompany.com.au/internet/the10-next-social-media-trends-2.html
Questions
1 How can social networking tools such as Facebook, blogs and Twitter be used by small businesses
to increase exposure?
2 Why are businesses increasingly looking at ways to use these?
3 Much of the discussion in the article focuses on large organisations. How can a small business use
some of these social networking developments?
4 What are some of the limitations for small businesses attempting to use these?
5 How will these developments influence the way businesses use and manage their ICT
and advertising?
CHAPT E R 11 INFORMATION AND COMMUNICATION TECHNOLOGIES IN SMALL BUSINESS
191
ISBN: 9781107665910
e-commerce
conducting business
electronically
Use of e-commerce Implications of the

E-commerce can be defined as conducting use of available
business electronically. E-commerce describes
how businesses are using information gathered technologies and
electronically to improve their processes and
e-commerce
relationships with suppliers and consumers.
This potentially covers all business areas,
such as design, production, operations,
customer service, as well as buying and selling.
E-commerce strategies include conducting
online sales, marketing, customer service,
electronic payment of bills and operational
efficiencies. E-commerce can also include
activities such as taking on feedback to lead to
better business performance.
Businesses have little choice but to use ICT in

their day-to-day operations. While the majority
of businesses use technology, there are a
number of considerations that must be taken
into account. The costs and benefits involved
in the purchase, use and maintenance of
technology must be weighed up if a business
is going to make efficient use of this resource.
These costs and benefits are varied and may be
categorised under the headings of economic/
financial, legislative and management issues.
The use of ICT within the business also
has implications for employees and customers.
A small business may feel overwhelmed by
the rapid development of technology and
the need to continually update hardware and
software. Continued expenses associated with
buying, leasing and maintaining equipment
and software, and training of employees may
become a drain on the business unless they are
budgeted for. Continually integrating the latest
improvements in technology can become a fulltime job for an owner or manager of a small
business. In some circumstances the owner may
decide to use a consultant or contract a person
with ICT expertise to look after this part of the
business. Although this is expensive, it may
be the only option. Small businesses that fail
to keep up to date with technology may find
that customers are lost and that procedures and
policies within the business become outdated.
Figure 11.7 Staff need to be trained in the use of ICT.
192
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Table 11.1 Costs and benefits to small business of using ICT

Benefits
Costs
Economic/financial
Once technology and equipment is purchased or
leased, it can be used continuously.
A large financial outlay is required if the technology is

purchased.
Investment in technology that is business-related

can be claimed as a tax deduction by the business.
ICT changes at a rapid rate. Many computers and other

equipment become outdated quickly.
If equipment is leased rather than purchased, it

can be upgraded at any time.
There may be ongoing costs involved in the

maintenance of computer hardware and software.
Tasks can usually be completed far more quickly

if the correct hardware and software have been
selected.
The range of computers and different features can

make decisions about purchasing equipment and
software difficult and confusing.
Legislative
The introduction of GST has meant that many
small businesses have to computerise information
in order to collect and pass on GST receipts to the
federal government.
Compliance with taxation laws, for example, means

businesses have had to upgrade their financial
management systems. This is costly in terms of time
and expenditure.
A number of Acts of parliament protect users of

ICT. Legislation covers areas such as privacy and
copyright.
Privacy and copyright legislation must be adhered to.
Management
Procedures can be improved and large amounts
of material and data can be processed quickly and
stored easily.
Employees and managers may be reluctant to change

their work practices to use new ICT.
Employees learn new skills and often become

multiskilled.
Some employees have skills that become obsolete or

outdated. Businesses may need to train their staff to
use new technology.
Procedures and the time taken to complete tasks

can usually be streamlined.
Technology support may be needed on a regular basis.
Equipment choices and upgrades will need to be

monitored and become part of the management role.
The need to protect computer systems from viruses
has become a pressing issue. Businesses must ensure
that they have up-to-date anti-virus software installed
on their systems.
193
ISBN: 9781107665910
Ensuring the security

of technology and
information
While the use of ICT has become part of everyday
life for all businesses and individuals, there are
a number of issues that must be addressed.
Ensuring the security of data and confidential and
sensitive information is vital for all businesses,
regardless of size. Another significant issue is
ensuring privacy of clients and customers.
Computer viruses
computer virus
a computer program
that can copy itself
and infect a computer;
it can also spread to
other computers via a
network or the internet
spam
unsolicited or
junk email
Other than the need to develop and put in place

policies for computer use, businesses also have to
deal with other technological issues. The growing
damage to computer systems due to computer
viruses and spam (unsolicited emails) has been
well documented. While sometimes spam can be
just annoying, the volume is currently growing
and can pose a serious threat to organisations.
Unsolicited emails can slow down a businesss
legitimate emails and can take time to erase.
Organisations have to install firewalls and antivirus and anti-spyware programs to protect their
computer and email systems.
Many viruses have been spread throughout

the world attached to an email or in a file
opened on a computer. Often these viruses can
attack the operating systems of the computer,
copy files and invade computer systems.
Viruses can bring a small businesss computer
systems and therefore the business to a
standstill. It is important that the business has
appropriate anti-virus software and has made
employees aware of the issues.
Privacy
Increasingly sophisticated technologies, such
as digital cameras, iPhones and mobile phones,
have raised a number of privacy issues. It
may be necessary for organisations to have
policies on their use in the workplace. On a
positive note, digital cameras allow many small
businesses to take high-quality photos for use
on their internet sites and in catalogues. The
cost of this technology is dropping, making it
more accessible for small businesses.
The right to use and publish photos of
individuals has become more of an issue due to
increased use of technology. Many individuals
have been bullied or identified on the internet
and images published without their knowledge.
ACTIVITY 11.5
IT security threats to small business

BY.ICK3AVVIDES*UNE
4HE )NTERNET AND )NFORMATION 4ECHNOLOGY HAVE
CHANGED THE WAY PEOPLE BUSINESSES AND THE
GOVERNMENT COMMUNICATE %VEN THE SMALLEST OF
BUSINESSESNOWDEPENDONTHE)NTERNETTOOPERATE
ANDCOMMUNICATEWITHCUSTOMERSANDHAVEACCESS
TO AUTOMATED TOOLS AND TECHNOLOGY THAT WERE
PREVIOUSLYONLYFEASIBLEFORLARGEORGANISATIONS
5NFORTUNATELY WITH THE UPSIDE COMES
A DOWNSIDE )4 SECURITY THREATS )4 SECURITY
194
THREATS ARE ESPECIALLY CHALLENGING FOR SMALL

BUSINESSES THAT DO NOT HAVE A DEDICATED )4
TEAM -ANY SMALL BUSINESS OWNERS MAKE
THE MISTAKE OF THINKING @IT WONT HAPPEN
TOMEOR@WHYWOULDANYONEBEINTERESTEDIN
ATTACKINGMYBUSINESS
7HILE IT IS TRUE THAT LARGE BUSINESSES ARE
HEAVILYTARGETEDBYCRIMINALSSMALLBUSINESSES
AND INDIVIDUALS ARE ATTACKED BECAUSE THE
ISBN: 9781107665910
ATTACKSAREEASIERANDCHEAPERTOCONDUCTAND
OFTENSUCCESSFUL
!TTACKERS WHO EXECUTE FRAUDULENT ACTIVITY
ON SMALL BUSINESSES GENERALLY HAVE THE SAME
GOAL IN MIND TO COMPROMISE ANDOR EXPLOIT
"OTH CAN HAVE SERIOUS CONSEQUENCES FOR A
SMALLBUSINESS)NTHESEINSTANCESTHEGENERAL
METHODOFATTACKISTOGETAPIECEOFMALICIOUS
SOFTWARE MALWARE INSTALLED ON A COMPUTER
4HIS CAN HAPPEN IN AN AUTOMATED FASHION BY
EXPLOITING VULNERABILITIES ON A COMPUTER OR BY
SOCIAL ENGINEERING WHEREBY A USER IS TRICKED
INTOOPENINGAlLEEMAILORVISITINGAMALICIOUS
s "ACKUPlLESREGULARLY5SEEXTERNALDISKSOR
TAPESTOBACKDATA
s 4ESTBACKUPS
s 5SE CAUTION WHEN OPENING EMAIL ATTACHMENTS FROM UNKNOWN OR NEW SOURCES AS
THESEAREANEASYWAYTODISTRIBUTEMALWARE
s $O NOT FOLLOW LINKS IN EMAILS FROM
UNKNOWNORNEWSOURCES,INKSAREOFTENTO
SITES THAT ARE CRAFTED TO INSTALL MALWARE ON
COMPUTERS
s 4AKEADVANTAGEOFFEATURESOFFEREDBYBANKS
ANDOTHERONLINESERVICESSUCHAS/NE 4IME
0ASSWORD /40 TECHNOLOGY WHICH IS A
WEBSITE 7HEN A COMPUTER IS OPEN TO A MALICIOUS SOFTWARE PIECE IT CAN BE CONTROLLED BY
ANOTHER4HISCANCAUSEANUMBEROFPROBLEMS
SUCHASINCREASED)30CHARGESACOMPUTERTHAT
CONTINUALLY CRASHES AND THE LOSS OF IMPORTANT
DATA AND lLES !NOTHER IMPACT CAN BE IDENTITY
FRAUD OR THE THEFT OF PERSONAL DETAILS SUCH AS
BANKACCOUNTSANDLOGINS
3MALLBUSINESSESANDTHEIRSTAFFCANTAKEA
FEWSIMPLESTEPSTOHELPMINIMISETHESETHREATS
s 5SEAlREWALLONYOUR)NTERNETGATEWAY
s %NSUREAUTOMATICUPDATESARETURNEDONFOR
ALL YOUR COMPUTERS OPERATING SYSTEMS AND
APPLICATIONSTHATSUPPORTTHEM
s %NSURE BOTH ANTI VIRUS AND ANTI MALWARE
ANTI SPYWARE ARE ON COMPUTERS AND THAT
AUTOMATICUPDATESAREENABLED
SECOND FACTORAUTHENTICATIONSYSTEM3TRONG
AUTHENTICATION TECHNOLOGY COMBINES SOMETHINGAUSERHASnSUCHASADYNAMICNUMERIC
CODE GENERATED BY A PHYSICAL DEVICE n WITH
SOMETHINGTHEUSERKNOWSnSUCHASA5SER
)$ANDAPASSWORD
s 7HEN USING SITES LOOK FOR VISUAL CUES TO
CHECKAWEBSITEISAUTHENTIC
s 2UNAWARENESSTRAININGFORALLSTAFF)TTAKES
ONLY ONE PERSON IN THE ORGANISATION TO BE
UNAWARE OF THE THREATS AND HOW TO PROTECT
THEMSELVES TO ALLOW MALWARE INTO YOUR
BUSINESS
Source: adapted from www.
openforum.com.au/content/
it-security-threats-small-business
Questions
1 Why is it important for small businesses to protect their computer systems?
2 Explain what is meant by malware.
3 Design a poster or pamphlet outlining advice for small business owners regarding protection of their
computer systems.
195
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ACTIVITY 11.6
-IKE IS AN EMPLOYEE AT ,EVI 3ONS 0ERSONAL

4RAINING WHICH SETS UP TRAINING SESSIONS FOR
EMPLOYEESINORGANISATIONS(EISANAVIDUSER
OF THE BUSINESS COMPUTERS AND USES EMAIL AS
AMEANSOFCOMMUNICATINGWITHCLIENTS-IKE
ALSO MAINTAINS THE COMPANYS WEBSITE WHICH
PROVIDES AN OUTLINE OF SERVICES AND PACKAGES
OFFEREDBY,EVI3ONSTOTHEIRCLIENTS
7HENCHECKINGHISEMAILS-IKEOPENEDONE
SENTTOHIMBYWHATHETHOUGHTWASANEWCLIENT
4HE EMAIL ATTACHMENT INFECTED THE COMPUTER
SYSTEM-IKEWASUNAWAREOFTHEVIRUSWHENHE
DECIDED TO SEND WHAT HE THOUGHT WAS A FUNNY
EMAIL AND PHOTOS OF HIMSELF AT A PARTY ON THE
WEEKEND TO HIS FRIENDS 5NFORTUNATELY HE ALSO
INADVERTENTLYSENTTHISEMAILTOALLOFHISWORK
COLLEAGUES ! NUMBER OF HIS COLLEAGUES WERE
OFFENDEDBYTHEEMAILANDHAVECOMPLAINEDTO
THEMANAGER!LISON-IKEWASGIVENAWARNING
ABOUTHISBEHAVIOUR
)NANOTHERINSTANCETHREECUSTOMERSHAVE
REPORTEDTO!LISONTHATTHEIRCHILDRENHADBEEN
ADDEDTO-IKES&ACEBOOKPAGEANDTHATTHERE
WERE A NUMBER OF PHOTOS SHOWING HIM IN HIS
WORKUNIFORMWITHTHELOGOCLEARLYIDENTIlED
SPRAYING GRAFlTI ON THE TRAIN CARRIAGES AT THE
LOCALSTATION!LISONHASCONFRONTED-IKEAND
THEPOLICEHAVEALSOBEENCONTACTED
Questions
1 Outline some of the issues that the company needs to deal with.
2 Advise Levi & Sons Personal Training as to the types of policies it will need to introduce.

responsible
management of ICT
in small businesses
Small businesses need to develop policies and
procedures to ensure that they are acting in an
ethical and socially responsible manner when
managing ICT in their business. Outlined below
are a number of issues that need to be addressed.
Email and information

technology usage in
the workplace
Email is an efficient way of communicating,
allowing businesses to quickly keep in contact
196
with clients and suppliers. It is important that

businesses of all sizes develop and enforce
policies relating to email use. Policies must
be established and clearly communicated to
all employees. Many argue that the informal
email culture causes problems; the immediacy
of email sometimes means that people do not
think before they send. Often the tone of the
email is difficult for people to pick up on. If an
email is ambiguous, it could lead to confusion
or even offend as the reader is unclear about
its intention. The use or overuse of email for
private communications in work time may
cause problems for the business.
The increased use of the internet at work
has also meant that organisations must have
clear policies on acceptable use. The increased
popularity of Facebook and social networking has
led to many employees spending work time on
ISBN: 9781107665910
the internet rather than their actual work. Some

employees have been dismissed for inappropriate
use of the internet and for sending inappropriate
emails to other employees during work time
and on company computers. A number of
businesses have policies where they will check
emails and internet use. It may be seen as an
invasion of privacy by some employees; however,
organisations and employers argue that it is during
work hours and company time, therefore internet
use should only be work-related.
Identity fraud
As consumers and businesses use technology more
frequently, there is an increased risk of email scams,
internet fraud and fraudulent business practices.
Many small businesses may feel ill-equipped to
deal with these issues and, while it is costly, it is
necessary for businesses to protect their own files
and also those of their customers. One issue that
has become increasingly evident is identity fraud.
At a national crime symposium focusing on identity
theft, experts estimated that in 2010 one in five
Australians had fallen victim to identity theft at a cost
of $3 billion a year and warned that identity fraud
is one of the fastest growing criminal industries.
The most common type of fraud was identity fraud
centred on credit and debit card fraud.
Cyber-bullying
Bullying and harassment have, unfortunately,
often been part of any school or workplace. The
improvements in technology and the ability to
use email, Facebook, SMS and mobile phones
have led to a new type of bullying.
It is important that all businesses make sure
that policies are in place to stop or deal with
cyber-bullying. According to Catherine Twiss, a
journalist for the LinkMe job seeker website (www.
linkme.com.au), cyber-bullying has infiltrated
the workplace and has caused problems.
Cyber-bullying takes place when abuse involves
electronic forms of communication and this may
include email, internet and mobile phone. It can

usually only be detected if the victim is willing
to report it. Otherwise, due to the more personal
nature of the bullying, it may be difficult for a
business to identify and deal with.
A survey by LinkMe noted that there was little
action against this type of bullying in the workplace
and that 53 per cent of employees felt that they
were left to deal with this with little support from
managers. One difficulty is that, while emails can
be easily detected and traced, most employees
resist managers being able to access their emails in
the workplace. The anonymity of the technology
often means that the bullying is more serious and
aggressive as the bully does not have to deal with
the victim face to face.
Organisations, large or small, have to develop
policies and methods to identify and overcome
bullying. Company policies should be developed
and clearly communicated to all employees.
Educating and training employees may also assist
in preventing or reducing this type of harassment.
There is a range of strategies that can be put
in place to ensure that ICT is used ethically and
in a socially responsible manner:
s Purchase computer equipment and software
from an ethical supplier.
s Ensure that all software is licensed and not
a pirated copy.
s Develop and manage clear policies on
acceptable use of the internet and email.
These policies should be reinforced with
communication and training for staff.
s Develop checking mechanisms to ensure
that information is stored safely and with
respect for the privacy of others.
s Develop policies to ensure that monitoring
and prevention of any cyber-bullying occurs.
s Develop practices to ensure identity fraud
does not happen. This will protect the
information of both the business and also its
employees and clients.
s Ensure information on web pages and in
blogs is accurate, not misleading or offensive
to parties likely to access these forms of ICT.
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CHAPTER SUMMARY
U The majority of small and medium

businesses use computers and have access
to the internet.
U There are three areas that need to
be analysed when using technology:
identification of the application needed,
software specification and the system
specification.
U Technology has developed to include a vast
array of hardware and software.
U Some of the benefits of using ICT include:
efficient use of equipment once it is in the
business; investment can be claimed as a tax
deduction; tasks can usually be completed
more quickly; the introduction of the GST
has meant that small businesses have had to
computerise their records; employees learn
more skills and become multiskilled.
U Some of the costs associated with using
technology relate to the following: a large
financial outlay is often required; ICT
changes at a rapid rate and computers
become outdated quickly; decisions can be
difficult due to a large number of choices
and range of equipment; some employees
1 Describe three computer software
CHAPTER SUMMARY
QUESTIONS
applications that can be used in business.

2 How could these applications described in
question 1 be used in a restaurant?

3 Outline the necessary attributes for a
successful website.
4 Explain three benefits associated with using
ICT in business.
5 Outline three ICT issues or implications for
small and medium-sized organisations.

6 The use of email, the internet and social
networking has become part of most

peoples lives. Outline one way that this trend
may have impacted on small businesses.
198
may be reluctant to change the way work

is completed; money needs to be spent
on employee training; equipment can be
expensive and ongoing maintenance is
required.
U The security of technology and information
must be ensured and protected.
U There are a number of implications involved
in the use of ICT, including the following:
Businesses may need new organisational
policies to keep up to date with changing
technology.
Increased use of the internet has
implications for the workplace.
Computer viruses can have a harmful
impact on organisations.
A number of privacy issues have arisen
due to the increased flow of information.
The use of some technologies may create
issues regarding identity fraud and cyberbullying.
U ICT must be managed in an ethical and
socially responsible manner; in particular,
how it relates to email usage, identity fraud
and cyber-bullying.
7 Design a poster outlining the dangers of
identity fraud for individuals.

8 All businesses, regardless of size must invest
in and use ICT if the business is to survive in

the twenty-first century. Businesses that fail
to do so will simply cease to exist. Evaluate
this statement.
9 Outline some of the issues related to the
continued use of technologies and the

internet.
10 Read the scenario and answer the questions
that follow.
ISBN: 9781107665910
-IDWEST )NTERNATIONAL 3CHOOL IS SITUATED

KILOMETRESFROM3WAN(ILLINCOUNTRY6ICTORIA
4HESCHOOLWASESTABLISHEDTHREEYEARSAGO)T
HASACAMPUSCATERINGFORSTUDENTSIN9EARS
TO4HESCHOOLCURRENTLYHASANENROLMENTOF
STUDENTS3IXTYPERCENTCOMEFROMTHELOCAL
AREATHERESTFROMTHE!SIA 0ACIlCAREA
4HE 3CHOOL #OUNCIL APPOINTED A NEW
PRINCIPALATTHESTARTOFTHEYEAR3HEISKEENTO
INCREASEENROLMENTSESPECIALLYOFINTERNATIONAL
STUDENTS4HESCHOOLHASHIREDAN)4CONSULTANT
TO DEVELOP A WEBSITE FOR THE SCHOOL 4HIS WAS
DONE IN CONSULTATION WITH THE PRINCIPAL )N
DAYSTHEWEBSITEWASCOMPLETEDANDLAUNCHED
$URING THE lRST MONTH OF ITS EXISTENCE
ANUMBEROFISSUESHAVEARISEN
s ! NUMBER OF STUDENTS HAVE SEEN THE WEBSITE
AND COMPLAINED THAT THEIR PICTURE WAS USED
WITHOUT THEIR PERMISSION 4HEY DID NOT REALISE
THEPHOTOSHADBEENTAKENANDTHEIRPARENTSDID
NOTSIGNCONSENTFORMS
s 4HE WEBSITE CONTAINS INCORRECT INFORMATION
THE PHONE NUMBER IS NOT RIGHT AND THE LOCAL
PIZZASHOPISCOMPLAININGABOUTTHENUMBER
OFPHONECALLSFORTHESCHOOLITHASRECEIVED
4HE EMAIL ADDRESS IS ALSO INCORRECT AND
PROSPECTIVE PARENTS HAVE NOT BEEN ABLE TO
CONTACTTHESCHOOL
s ! #OMMERCE)4 TEACHER WHO WAS RECENTLY
MADE REDUNDANT WAS UNHAPPY ABOUT THIS
DECISION AND HAS MANAGED TO ACCESS THE
WEBSITEANDCORRUPTITSOPERATION
s 4HE WEBSITE IS DIFlCULT TO USE AND THERE ARE
LONG DELAYS IN ACCESSING INFORMATION ABOUT
THESCHOOL
s !GROUPOFEX 6#%STUDENTSHASSETUPAFAKE
WEBPAGEFORTHESCHOOL-ANYOFTHEPHOTOS
WERETAKENAROUNDTHESCHOOLANDONWEEKENDS 3TUDENTS HAVE ALSO PUT TOGETHER THEIR
OWNPROlLEOFTHESCHOOLANDTHETEACHERS!
NUMBEROFPROSPECTIVESTUDENTSHAVESHOWN
THEIR PARENTS AND THEY HAVE REPORTED IT TO
THESCHOOL
a Describe three issues related to the establishment of the website.

b How could these issues have been overcome?
c The principal has come to you for advice. What steps need to be taken if the website is to
be a success?
1 Access a company website, your schools
EXTENSION
QUESTIONS
website or that of a small business in your

area. Evaluate the website in terms of the
following elements:
a Ease of use
b Presentation of information
c Relevance of the information contained.
2 Redesign the website, making any
necessary changes. This may be done

as a sketch or as an actual website using
a software application.
199
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12
LEGAL REQUIREMENTS
OFFERING GOODS AND
WHATS AHEAD
Ethical management of legal requirements
Legal requirements
Legislation
Commonwealth
Parliament
Victorian
Parliament
Local councils/
governments
Competition and
Consumer Act
Fair Trading Act
Food handling
and safety
Common law
Negligence
Contract law
ISBN: 9781107665910
KEY KNOWLEDGE

an overview of the various levels of government creating the legislation
types of legislation created by federal government, such as the Trade
Practices Act 1974 (federal), that impact on small business
types of legislation created by the state government, such as the
Consumer Affairs Legislation Amendment Act 2010 (state), that impact
on small business
AREA OF STUDY
OF SMALL BUSINESSES
SERVICES
types of legislation created by local government, such as local laws

affecting food handling, that impact on small business
legislation created by common law, such as contract and negligence
ethical and socially responsible management of the legal requirements
of small businesses.
Organisations are operating in an environment

where consumers and other groups are
becoming increasingly willing to take legal
action against businesses and individuals. Small
businesses must ensure that steps are taken to
reduce this possibility.
The main function of legislation is to set
standards of acceptable behaviour, reflect societal
values, and to allow for the peaceful settlement
of disputes. Organisations must adhere to these
laws and rules in all of their business dealings.
Many areas of the law impact on daily business
operations. These have been discussed in

previous chapters and include the following:
s legal requirements when registering a business
s legislation covering employees, such as
occupational health and safety and equal
opportunity legislation
s licensing requirements for small businesses
s taxation laws and obligations
s codes of conduct covering business arrangements, such as franchising requirements.
201
ISBN: 9781107665910
Overview of the
various levels
of government
creating legislation
The Australian legal system has three levels of
law making. Many of these laws impact on small
businesses. Three different areas of authority or
jurisdiction are:
s Commonwealth Parliament
s state parliament
s local government.
The power of the federal parliament is
established in the Australian Constitution.
Section 51 of the Constitution sets out the areas

of responsibility of the Commonwealth (see table
12.1). Other powers are concurrent (shared) by
the Commonwealth and state parliaments, and
state governments have also delegated (given)
the power to make some regulations and laws
to local government.
When parliament wishes to pass a law, it
introduces a Bill (either at the state or federal
level) and this goes through a series of stages.
Once it has been debated and passed, it then
becomes an Act and, once proclaimed, it
becomes a law. Appropriate bodies, such as the
police, tribunals or the courts, can then enforce
these laws. The three levels of government in
Australia have their own powers and jurisdiction.
Table 12.1 The jurisdiction and powers of each level of government

Level of government
Examples of laws made
Commonwealth (federal) Parliament
Laws that affect all of Australia:

Immigration matters
Health
Quarantine
Indigenous peoples policy
Defence
Currency
Foreign policy
Income tax and company tax
Tertiary education
State (Victorian) parliament
State education
Roads
Some taxation, e.g. stamp duty, payroll tax
Health
Emergency services
Public transport
Car registrations
Road traffic laws
Local government (local council)
Pet registrations
Recycling and collection of rubbish
Planning permits
Local road maintenance
202
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ACTIVITY 12.1
Read the following scenario. For each incident or event in bold, list the level of government John has
come into contact with during his day.
John woke up at 7 a.m. to the sound of the

garbage truck collecting the rubbish from
the bins in his street. At 7.30 a.m. the recycling
truck came down the road. He got up at 7.40
a.m. and phoned the Austin Hospital to
check on the progress of his sick aunt.
Using internet banking, he paid his car
registration, which was due that day. At 8.05
a.m. he left the house. His car was caught in a
traffic jam caused by the grader grading the
dirt road.
John went to the local station to catch the
8.30 a.m. train. He purchased a ticket and
paid cash. Once he was on the train, John got
out his laptop and started to read the Tax Pack
Legislation
affecting
small business
There are a number of laws that impact on
small businesses and this can be confusing
for the owner/s. Laws are from all three levels
of government and therefore it is vital that
small business owners understand their legal
obligations. Regular contact with their solicitor
may help prevent many issues and problems
before they arise.
in preparation for his annual tax return. John

got off the train in the city and caught a tram
to Melbourne University where he is studying Commerce/Law. After a day of lectures,
John returned home with his friend Elsa. On
the EastLink tollway, Elsa was pulled over
for a random breath and drug test. When
John returned home, he found his dog Oscar
had escaped from the backyard. He contacted
the ranger, paid a $65 fine and collected his
dog from the pound. Later that night, the
police were called to the house in the next
street as the 18-year-old resident who drove
a Commodore had his car impounded for
hoon driving.
Legislation created by
the Commonwealth
Government that impacts
on small business
Competition and
Consumer Act 2010
One of the main areas of law affecting business is
the Commonwealth Competition and Consumer
Act 2010. The Act is designed to stop and
prohibit certain behaviours by businesses. The
Act covers areas such as entering into a contract
CHAPTER 12 LEGAL REQUIREMENTS OF SMALL BUSINESSES OFFERING GOODS AND SERVICES
203
ISBN: 9781107665910
or advertising that is misleading or deceptive. If a

business misrepresents its products, price, quality
or performance of products, it is likely to be in
breach of the Act. Ultimately, the courts decide
whether a particular advertisement or promotion
is likely to be misleading or deceptive, but a good
test is how the average person would interpret
it. Leaving out information about a product or
claiming it does things the business knows it
cannot is deemed to be misleading.
There are also other practices prohibited by
legislation as these practices can stop consumers
and other businesses from receiving fair and
competitive services and products. Consumer
protection provisions of trade practices law
include the following:
FALSE AND MISLEADING

REPRESENTATIONS
Making false and misleading claims about
products and what they can do is illegal.
Small businesses must ensure that their
advertising follows the Act. Examples of illegal
practices include:
s a half-truth in advertising
s suggesting a product has an association that
it does not have
s stating a product is made in one country

when it is made in another
s using a logo, business name or packaging
that is similar to a well-known brand
s overly optimistic claims about a product
s false or misleading labels or misleading
statements about the characteristics of
a product
s offering gifts and prizes with no intention of
supplying them
s bait advertising, which is advertising a good
when there are only a few available
s referral selling a technique that persuades
consumers to enter into a contract on the
basis that they will gain a benefit, e.g. if they
can convince friends or relatives to take up
the offer.
It is essential that small businesses are aware
of the legislative requirements that affect their
business. Apart from many regulations that are
particular to a specific industry or business,
other legislation covers general areas, such
as negligence, contracts and sale of goods.
A small business owner must keep up to date
with legislation.
Figure 12.1 Parliament House, Canberra
204
ISBN: 9781107665910
ACTIVITY 12.2
Determine whether the consumer has a case
against the business in each of the following
scenarios.
1 Joe purchased an Appell computer. When

he got home, he realised it was not an Apple
computer, but one made in Cuba.
2 Toby paid to have his roof repainted. The
painting company told him that if he could
convince another six neighbours and friends
to have their roof repainted he would receive
a 10 per cent commission.
3 A company selling hamburgers called
itself MacDougalls and offered a Large
Mac meal deal.
4 An appliance store advertised 55-inch
LED colour televisions for $999. It had one
television in stock. The other LED televisions
started at $2400.
5 A breakfast cereal manufacturer claimed
the product had no artificial flavouring or
preservatives, when in fact it did.
6 A company selling leather shoes claimed the
product was Australian made, but the shoes
were manufactured in Indonesia and packed
in Australia.
7 A company claimed that it had sent
magazines to a pensioner (who had not
subscribed) and demanded payment for a
three-year subscription.
8 Juanita bought a new pair of shoes for her
Year 11 Formal. When she got home, she
decided she didnt like them and wanted her
money back.
9 Two builders decided to over-quote so that
a third company would get a contract. The
businesses decided that they would take it
in turns to do this for the next few contracts
that came up.
PRICE FIXING
If two or more businesses decide to work together
to fix a price and therefore stop competition, this
is illegal under the Act. The practice of price
fixing means that consumers are not receiving
the best price possible. These arrangements can
be informal or formal and any arrangements may
be seen as illegal.
WARRANTIES
The Commonwealth Competition and Consumer
Act 2010 also regulates the provision of refunds
and warranties. Consumers are automatically
covered by warranty protection under the
legislation. If statutory warranties are breached
or ignored, consumers are entitled to a refund,
compensation, repair or replacement of the item
they have purchased. Under the law, businesses
cannot tell consumers they are not entitled to
refunds or that their warranty overrides the law.
ANTI-COMPETITIVE PRACTICES
Any businesses that try to make agreements to
lessen competition in their area or industry are in
breach of the legislation. These types of practices
adversely affect consumers and are usually within
markets where substitutable products are sold.
Examples of anti-competitive behaviour include
market sharing (slicing up the market between
businesses) so that there is no real competition,
and bid rigging (collusive tendering). Collusive
tendering occurs when two or three businesses
plan which one will put in the lowest quote or
tender to ensure that jobs or contracts are shared
and there is no real competition. In a recent case,
two supermarkets decided to reduce the price of
bread to ensure that a smaller local independent
supermarket could not compete. The bread was
sold at less than cost price and therefore it was
considered in breach of competition regulations.
A number of petrol station chains were also fined
a substantial amount for colluding to artificially
keep petrol prices high. These petrol stations
were contacting each other to determine the
price charged for petrol.
price fixing
two or more businesses
decide to work
together to fix a price
and therefore stop
competition; this
practice is illegal under
the Competition and
Consumer Act 2010
warranty
legal requirement;
indicates that if the
goods are not fit for
purpose or faulty,
then the consumer is
entitled to have the
product repaired
collusive tendering
occurs when two or
three businesses plan
which one will put in
the lowest quote or
tender to ensure that
jobs or contracts are
shared and there is no
real competition
205
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BOYCOTTS
boycott
an agreement that has
the effect of excluding
a person or class
of persons from a
particular market
If two or more businesses decide to stop

another business from gaining access to goods
or services, the Competition and Consumer Act
2010 may have been breached. Competitors
are prohibited from getting together and
restricting the flow of goods or services
to another person. It is illegal to enter an
agreement (known as a primary boycott) that
has the effect of excluding a person or class of
persons from a particular market.
MISUSE OF MARKET POWER

A business that has a substantial market share
must be careful not to use its position to
damage a business or drive a competitor out
of business. Having a large market share places
that business in a powerful position, which may
lead to consumers being unfairly treated and
paying higher prices than in industries that are
more competitive.
RESALE PRICE MAINTENANCE

A recommended retail price is just that, a
recommendation. Suppliers cannot force a seller
to sell at that particular price. Sellers of CDs and
stationery, such as greeting cards and calendars,
often show a recommended retail price on the
product but may choose to sell the item for less.
The recommended price is not the only price
for which the product can be sold.
The Australian Competition and Consumer
Commission (ACCC) is an independent statutory
206
authority. It was formed in 1995 to administer

the Trade Practices Act 1974 and other Acts.
It promotes competition and fair trade in the
marketplace to benefit consumers, business and
the community. Its primary responsibility is to
ensure that individuals and businesses comply
with the Commonwealths competition, fair
trading and consumer protection laws.
The ACCC has the power to investigate
and prosecute illegal and restrictive practices.
Two recent cases involved unsolicited scam
letters enclosing colourful travel brochures and
scratch cards. The scam involves fake scratch
cards. One of the cards is always a winner
with over $100 000 on offer. Anyone phoning
up to claim their prize is asked to pay for
various fees and charges. It works because the
letters look real and the brochures are professional looking. There is no actual prize and
the scammers collect personal details that they
can use for identity fraud. Some of the main
promotions have included EverMas Tourism
Group, which targeted Western Australia, and
Euphoria Travelling Group, which targeted
the eastern states and territories. In a second
case, the ACCC started proceedings against 6G
Pty Ltd and Global One Mobile Entertainment
Ltd for misleading representations. Advertisements promoted subscription services such as
mobile ringtones and mobile phone games.
The companies promoted these as a one-off
payment when they were actually promoting
access to a subscription service.
ISBN: 9781107665910
ACTIVITY 12.3
Who wins Packers network games?

Last week James Packer spent $250 million
buying shares in the Ten Network. It is the
right time for Packer jnr to get back into freeto-air television. As analysts have pointed out,
Packers 18% stake in Ten makes him the largest
shareholder, entitles him to seats on the board
of directors and gives him the power to overhaul
the network.
The ACCC has said that it will examine
the investment to see if it raises competition
concerns. There are a number of reasons why
it could be involved, including the possible
closure of Tens sporting channel One HD
and its replacement with a free-to-air version
of Sky News, which is part of the pay-TV

network owned by Foxtel (owned by Packer
and Murdochs News Ltd and Telstra). It is also
likely that Tens expensive news and current
affairs programs will be cut and revamped.
The concern is that it might pose restrictions to the real choices available to audiences.
Abolishing One HD and replacing it with an
off-shoot of Foxtel leads to less competition
as it removes a competitor. Cutting news and
current affairs services narrows the flow of
comment and information as many people rely
on free-to-air television for their information.
Source: The Age, 25 October 2010
Questions
1 Write a summary of the main arguments.
2 Discuss the implications that this case may have for television in Australia and competition.
3 Go to the ACCC website (www.accc.gov.au) and examine two recent cases. Why does the ACCC
investigate these types of breaches?
CH A PT E R 12 LEGAL REQUIREMENTS OF SMALL BUSINESSES OFFERING GOODS AND SERVICES
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Penalties for breaches of the

Competition and Consumer
Act 2010 (formerly the Trade
Practices Act 1974)
Breaches of the trade practices provisions
of the Competition and Consumer Act 2010
could result in civil penalties being imposed
on corporations which will be calculated as the
greater of:
s $10 million
s three times the value of the gain obtained
from the breach, or
s if the gain from the breach cannot be
ascertained, 10 per cent of the annual
turnover of the company for the 12-month
period prior to the breach.
Individuals who are found to have breached
the Act may be disqualified from being a director
of a company or from otherwise being involved
in its management.
For consumer protection breaches, the
maximum fines are $1.1 million for a corporation
and $220 000 for an individual. In addition to fines
and penalties, a court can vary contracts, impose
injunctions or damages orders on companies or
individuals, and can order compliance programs
and corrective advertising.
It is important that small businesses are clear
about their obligations and do not undertake
any misleading advertising or illegal practices.
Recent changes made

to consumer law
Resulting from a recommendation from
the Productivity Commissions Review of
Australias Consumer Policy Framework, the
federal government has enacted the Australian
Consumer Law (ACL), a single national
consumer law. The Competition and Consumer
Act 2010 effectively replaces provisions in 20
national, state and territory consumer laws. The
ACL, which commenced on 1 January 2011, is
to be enforced and administered by the ACCC,
each state and territorys consumer agency,
208
and in respect of legal services, the Australian

Securities and Investment Commission (ASIC).
The ACL includes:
s a new national unfair contract terms law
covering standard form contracts
s a new national law guaranteeing consumer
rights when buying goods and services
(replacing existing laws on conditions
and warranties)
s a new national product safety law and
enforcement system
s a new national law for unsolicited consumer
agreements (replacing existing state and
territory laws on door-to-door sales and
other direct marketing)
s simple national rules for lay-by agreements
s new penalties, enforcement powers and
consumer redress.
Any transaction undertaken prior to 1 January
2011 will still be covered by the legislation that
was in force prior to this new Act.
Legislation created
by the Victorian
Government
that impacts on small
business
Fair Trading Act 1999 and
Consumer Affairs Victoria
All state parliaments, including the Victorian
Parliament, pass laws relating to business
behaviour and practices. One area that is
important to small business is the area of
consumer law and the Fair Trading Act 1999.
Consumer Affairs Victoria oversees business
practices and ensures that laws are followed
and that businesses act ethically.
The role of Consumer Affairs Victoria
(www.consumer.vic.gov.au) is to:
s provide information and advice to consumers,
tenants, traders, landlords and the government
on consumer and tenancy issues
ISBN: 9781107665910
s educate consumers and traders on their rights

and responsibilities and changes to the law
s seek to reduce disputes between consumers
and traders and tenants and landlords
s ensure compliance with consumer laws
s promote product safety
s regulate the consumer environment through
licensing and registration.
Requirements for business

under the Fair Trading Act 1999
The Fair Trading Act 1999 has a number
of requirements for business. For example,
businesses must include the name of the
business, the name of the owner/s, the address
of the business (not just a post office box) and
the businesss registration number or business
licence on every business card, letter, receipt
and invoice issued in connection with the
business. Simply putting the companys ABN or
web address is not sufficient.
Small businesses must also adhere to the
following legal rights and obligations under
the Act.
REFUNDS
A customer has a right to ask for a refund in
certain circumstances. A refund would be in
order if the goods are faulty (even when the
fault only becomes obvious after use), are unfit
for their purpose, dont match the description or
sample shown, or come with an extra promise
about refunds. While many businesses will offer
to repair or exchange products, a customer can
insist on a refund. If goods are on sale, they are
still treated in the same manner regarding refunds.
Sometimes a business can refuse to give a
refund. If a customer simply changes their mind,
has found the same item on sale in another shop,
bought goods that they knew were faulty or have
lost a receipt or proof of purchase, the business
is not required to give a refund.
There are different types of refunds that can
be given, including situations where a customer:
s changes their mind or the product is not
suitable. Although a business does not
have to give a refund, in this instance many
businesses will as a way to keep goodwill
with their customers and to enhance their
reputation.
s wants a refund or wishes to exchange or
return gifts they have been given. While
businesses do not have to give such refunds,
they usually do so as a sign of goodwill.
refund
a refund is when a
consumer can receive
their money back after
returning a good;
it may be faulty or
unfit for purpose
Figure 12.2 Parliament House, Victoria
CH A PT E R 12 LEGAL REQUIREMENTS OF SMALL BUSINESSES OFFERING GOODS AND SERVICES
209
ISBN: 9781107665910
ACTIVITY 12.4
Read the following scenarios and decide whether
or not the customer is entitled to a refund. Give
reasons for your answers.
1 Maria bought a new designer jacket from a

high fashion boutique store in Chapel Street,
South Yarra. The jacket cost $450. She wore
it out for dinner and noticed that all of the
threads in the material had started to break
and the fabric stretched. After the third wear,
it was so misshapen that she could no longer
wear it. The store refused to give a refund
because she had worn it. Is she entitled to
a refund?
2 Mrs Walters purchased a dress for her
daughter Sylvie but discovered the next
day that her daughter had also gone to the
sale and purchased an identical one. She
approached the store, only to be told that,
since there was nothing wrong with the dress,
they were not prepared to give her a refund or
credit. Is Mrs Walters entitled to a refund?
3 Sam purchased a pair of shorts at a clearance
sale during his lunch hour. As he was in a
hurry, Sam only read the sizing on the shorts
packaging before purchasing. However,
when he got them home he discovered the
shorts inside were not the same as the size
described on the packaging. The next day,
Sam took the shorts back and asked to
exchange them. On finding the store had run
out of these particular shorts, he demanded
a full refund. The store owner refused, since
they were clearance items. Is Sam entitled
to a refund?
4 Rose and her sister bought some double
bed sheet sets from the factory outlet of a
well-known manufacturer. The sheets had
been drastically reduced from $220 to $45.
Although they were labelled as seconds,
Rose could not see any fault with the sheets.
Rose used them on her bed, but after the
sheets were washed they shrank and would
not even fit a single bed. She was naturally
upset and took them back to the outlet store
as she believed she was entitled to a refund.
210
The outlet refused, pointing out that, as a

factory outlet, they did not offer exchanges or
refunds. Do you think she should be able to
get a refund?
ONLINE BUSINESSES
As more businesses are establishing online
shopping and ordering, it is important for them
to be clear on their duties and obligations to
their customers. Online customers are entitled to
the same levels of legal protection as customers
of other existing forms of business. Guidelines
have been established for e-commerce on the
internet to protect consumers.
The guidelines include the following:
s Customers are entitled to at least the same
level of legal protection as customers of
other existing forms of business.
s A business should clearly display the
identity and location of the business on its
internet site. This includes the registered
business name, Australian Company
Number (ACN), street address and phone/
fax numbers.
s Clear and comprehensive information should
also be included for customers.
s A business must state contract terms in clear,
simple language. Consumers have a right
to a refund under certain circumstances, so
a clear refund or exchange policy needs to
be published.
s Clear consent or approval from customers
should be gained before charging for a
service or product.
s The
website
should
display
clear
information about the types of payments
that will be accepted or the payment
provider (e.g. credit card company). This
includes details about secure payments or
encrypted information.
s Information to customers about affordable
and effective dispute resolution arrangements
should be included.
ISBN: 9781107665910
ACTIVITY 12.5
Visit at least three online sales websites. Choose
one and determine whether it has covered the
points discussed above.
WARRANTIES AND GUARANTEES

If a business provides a guarantee policy,
it can be seen as a powerful marketing tool.
Guarantees can be either written or verbal and
send a message that the business is confident
about what it sells.
There are obligations that businesses must
meet when setting out warranties and guarantees.
This means that the business must ensure that
its products and services are suitable, are not
faulty and will perform satisfactorily, are fit for
the purpose for which they are sold and are of
a quality that means they can be used. While
the focus of warranties and guarantees is on
retailers of goods and services, manufacturers
also need to ensure that the products they
supply and design are suitable for use.
Figure 12.3 Local governments regulate how food is

handled and prepared.
Legislation created
by local government
that impacts on
small business
Local governments (municipal councils and
shires) are responsible for a number of laws and
regulations relating to small businesses. These
include areas such as:
s food handling and safety
s advertising, e.g. billboards
s planning and building permits
s hours of operation
s land and business zoning.
Food handling and regulations

According to the Victorian Health Department
(www.health.vic.gov.au), all food business
owners are legally responsible under the
Food Act 1984 to ensure that the food sold to
customers is safe to eat. Victorian food laws also
require the business to comply with the Food
Standards Code. This means that the business
owner/proprietor is responsible for food safety
in the business, and also needs to ensure that all
staff who prepare food are fully trained in safe
food handling.
While these laws are state legislation, local
councils enforce the regulations and inspect
premises.
Changes came into force in 2011. Local
councils will continue to monitor food
businesses. Councils will also have the authority
to focus enforcement efforts on food premises
that pose a greater risk to public health because
of non-compliance with the Food Act 1984.
When there has been repeated non-compliance
by a food premises, councils may choose to
charge the premises additional fees for follow-up
inspections, in order to recover the increased
costs councils incur in repeatedly attending the
same premises. Councils will be able to issue
on-the-spot fines for certain food safety or
hygiene offences. This includes a range of less
serious infringements.
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Health regulations for food handling and safety

Store and display food safely
s Keep raw foods and ready-to-eat foods separate to avoid cross-contamination.
s Store food in clean, non-toxic, food storage
containers; dont store food in opened cans.
s Make sure food storage containers have not
been used to store things other than food.
Wash and sanitise them before use.
s Cover food with tight-fitting lids, foil or
plastic film, to protect from dust, insects
and cross-contamination. Make sure food
displayed on counters is wrapped or covered.
s Store food in areas specially designed for
food storage, such as refrigerators, cool
rooms, pantries and food storerooms.
s Never store food in areas containing
chemicals, cleaning equipment, clothing or
personal belongings.
s Remove and avoid using foods past their

use-by dates, spoiled foods or foods in
damaged containers or packaging.
s Make sure food is thoroughly cooked and
the centre of the cooked food has reached
75C before being stored in a fridge, freezer
or bain-marie.
s Avoid keeping high-risk food in the temperature danger zone. Keep chilled foods cold at
5C or colder, and hot food hot at 60C or
hotter.
s Follow the business Food Safety Program.
s Follow the advice given by the Food Safety
Supervisor.
s Be trained in safe food handling.
Source: Safe food storage and
display in food businesses,
Department of Human Services
ACTIVITY 12.6
1 Using the information above, prepare a
brochure outlining the responsibilities of
small food businesses.
2 Read the following scenarios and determine
which breaches of food handling and safety
you believe have occurred.
a Susie has long hair and forgot to bring a
hair tie before going to work at the pizza
shop.
b Breanna had acrylic nails put on during her
lunch break from the sandwich shop.
c Brittany had three flesh-coloured bandaids
on after her dog scratched her. She is
working in the kitchen at the local hotel.
Figure 12.4 More people are now willing to sue
businesses for damages or compensation.
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Legislative
requirements
created by
common law
The main purpose of the courts is to settle
disputes. There are times, however, when the
courts make decisions that establish a legal
principle. These decisions are then binding on
similar future cases that come before the courts.
In this way, when making decisions on a case
before them, courts are actually making laws.
This is known as common law, precedent
or court-made law. There are three parts to
precedent law:
s the decision or judgment. The decision made
by the court is recorded in the law report.
s the ratio decidendi (reasons for the
decision). This is the binding part of the
decision; it sets out the reasons for the
decision. This is then regarded as a statement
of law that can be used in future cases.
s the obiter dictum (things said by the way).

In the judgment given at the end of the case,
the judge sometimes makes a statement that
is not part of the decision but is still a matter
that was considered and may influence
future decisions.
An example of precedent can be found
in school rules. These may include rules for
attendance, submission of work and uniform. If
there was a case where a student was given a
detention for continually chewing gum in class,
then it would be expected that all other students
who did the same thing would also be given a
detention. In this case, the original decision for
punishment established a precedent. As part of
the decision a teacher may state that a student
who chews gum and receives a detention three
times will be given an extra punishment, such
as cleaning the desks after school. This would
be the obiter dictum or a statement used in
future decisions about the punishment for
chewing gum.
Competition and
Consumer Act
(Federal)
Courts
precedent
court-made decision
that is binding on
similar cases
ratio decidendi
the binding part of
the decision; sets
out the reasons for
the decision; this is
then regarded as a
statement of law
that can be used
in future cases
obiter dictum
Latin for things said
by the way; in the
judgment given at
the end of the case,
the judge sometimes
makes a statement
that is not part of
the decision
Business organisations
Sale of Goods
Act (Victorian)
Civil Claims List

(Victorian)
Figure 12.5 Laws and institutions affecting businesses offering goods and services
213
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ACTIVITY 12.7
Tom was late to school for the twelfth day in a

row. His coordinator, Mrs Franklin, gave him
a lunchtime detention. Tom did not attend the
detention. The next day he was called up to the
office and given an after-school detention. Tom
did not attend this, as he had to go to work that
night. He did not let anyone at school know.
Mrs Franklin then decided to suspend Tom
for one day and organised a meeting with his
parents. Tom completed the suspension.
The whole year level was told about the

consequences of lateness and failure to follow
instructions. Mrs Franklin stated a school
cannot function without a recognised set of
clear rules. Punctuality ensures the smooth
working of the school for students and teachers. She warned all students about the consequences for lateness to school and the failure
to attend a detention.
Questions
1 Outline the decisions made by Mrs Franklin.
2 Describe the ratio decidendi of the decision to suspend Tom.
3 What is the obiter dictum related to this decision?
4 Applying the precedent, what would the decision be in the following cases?
a Erin is late to school five days in a row.
b Patrick was given an after-school detention by Mrs Franklin.
c Amy failed to attend the detention she was given.
contract
a legally binding
agreement that
incorporates the
following elements:
offer, acceptance,
the intention to enter
into legal relations,
consideration, the
capacity to contract,
legality of purpose,
consent and certainty
of terms
contract law
the law relating to
contracts, which are
legally enforceable
agreements made
between two or more
people who have full
legal capacity
214
Contract law
A contract is a legally binding agreement between
two or more individuals or organisations.
In contract law, for a contract to be legally
binding, a number of elements must be satisfied:
s offer made
s acceptance of the offer
s consideration given
s legality of purpose (is the activity legal?)
s capacity to enter into a contract
s intention to create legal relation.
Offer and acceptance

The owner and manager of Body, Mind and Soul,
Jake Campbell, operates a health food store in the
inner suburbs of Melbourne. His displays are an
invitation to treat; that is, people are invited into
the shop to view the products for sale. An offer will

occur when a person selects an item and brings
it to the counter for payment. When the item is
taken and processed on the cash register, the
retailer has accepted the offer. Actual payment of
the item will constitute consideration. This means
the customer has received a gain or benefit (i.e. in
exchange for cash) and the customer retains the
product. If there is a clear intention to create legal
relations, both parties are bound by the contract.
The courts have developed principles that
explain whether a contract is legally binding
and enforceable. An offer is the starting point
of a contract. A person making an offer must
be clear about the actual offer and be bound
by that offer. For the contract to be binding,
there must be an acceptance of the offer by the
person to whom the offer is made.
ISBN: 9781107665910
If a person sees a DVD player for sale for

$249 and makes an offer to buy it for $225 in
cash, the retailer could:
s accept the offer of $225
s not accept the offer (the transaction and
therefore the contract does not take place)
Legality of purpose
If the contract was for an illegal activity, it is not
a legally binding contract and as such cannot
be enforced through the courts. Money paid to
a person to assault another person, for example,
is not a legally binding contract.
s say that the consumer can purchase the DVD

player for $235.
If the consumer agrees to pay the $235 for
the DVD player and hands over the cash and it
is accepted by the retailer, the contract is valid
and binding.
Contacting a retailer for a brochure or
catalogue is not an offer; it is an invitation to
treat. When buying an item at an auction, the
offer is accepted when the auctioneers hammer
has fallen.
Consideration
Consideration is something of value or benefit
that passes between the purchaser and the person
accepting the offer (the seller). Usually money is
the consideration, e.g. cash is exchanged for an
item or a service. However, the consideration
might be in the form of a promise or an exchange
of another item or service.
Intention
There must be an intention to enter into a contract.
ACTIVITY 12.8
Determine whether the following actions
constitute legal contracts. Give reasons for
your answers.
1 Sarah, aged 16, started a hairdressing

apprenticeship. After three weeks, she
decided she didnt like the long hours.
2 Sam, 19, purchased a car for $5400. He
promised to pay for the car on delivery.
3 Andy gave Archie his new mobile phone
because Archie had threatened to send his
friends around to Andys house to assault him
that night.
4 Ella sold a stolen television set to Greg, who
later refused to pay.
5 Edward, a 17-year-old IT student at TAFE,
purchased a computer package. He changed
his mind a week later.
6 A computer software company sent Freda
three software packages in the mail. Freda
did not order them. The computer company is
now threatening legal action.
If a person does not have the mental capacity

to enter into a contract, it would be considered
RIGHTS UNDER A CONTRACT
invalid. Tricking or bullying a person does not
The law of contract has derived from the courts

and there are some rights given to a person if the
seller was engaged in certain types of conduct
such as fraud. There are additional rights under
the Victorian Goods Act 1958, and the Sale of
Goods (Vienna Convention) Act 1987.
constitute a legal contract.

A person under the age of 18 (a minor) is
not bound by a contract unless it is considered
to be for a necessity such as food and clothing.
Contracts can also be binding for education or
employment arrangements. An apprenticeship,
for example, is a legally binding contract as it
EXEMPTION CLAUSES
benefits the young person in the apprenticeship.
Some contracts also have exemption clauses,

which are clauses exempting the parties from
liability in certain circumstances. Dry cleaners, for
example, have clauses in their contracts exempting
them from liability for loss or damage to clothes.
If a minor enters into a contract for the

purchase of shares or land, the contract
can be broken because these items are not
considered necessities.
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Similarly, car park proprietors take no liability for

any loss or damage caused to cars while parked in
their car parks. Notices setting out these conditions
must be prominently displayed.
tort
civil wrong
tort of negligence
a tort is a civil wrong
where the act or
omission of one party
affects the rights
of another party;
negligence is carelessly
causing reasonably
foreseeable injury or
loss to other people and
their property; damages
are usually awarded to
the injured party
ACTIVITY 12.9
1 Jane parked her car in a city car park. Her
ticket set out all of the conditions and stated
that the car park took no responsibility for loss
and damage. When she came back two hours
later, she found that her car had been broken
into and her GPS stolen. Is the car park liable?
2 In a contract for house insurance there is a
clause that exempts the insurance company
from covering flood damage. If a customer
has signed the contract but has not read the
clause, is the insurance company liable for
flood damage?
3 Sue picked up her new suede jacket from the
dry cleaners. She noticed a large red stain on
the elbow. She took the jacket back. The dry
cleaner offered to dry clean it again, but would
not pay for a new jacket. Is the dry cleaner
liable under contract law?
Tort of negligence
A tort is a civil wrong. One area of law
that has become more prominent is the tort
of negligence. Until the famous British
Donoghue v. Stevenson case of 1932, the
concept of modern negligence had not been
developed. Prior to this, the courts had seen
issues such as manufacturers liability as a
contractual issue. This placed the consumer in
a difficult position if he or she wanted to sue a
manufacturer because of the issues involved in
mass production.
In recent times, the concept of negligence
has been extended to many forms of damage
and includes more than manufacturers and
suppliers of goods. Torts develop through the
decisions of the courts.
Negligence consists of three elements:
s duty of care was there a duty of care
involved in the case?
s breach of duty
s did damage or injury occur as a result of the
action or actions?
Figure 12.6 Donoghue v. Stevenson (1932) and Grant v. Australian Knitting Mills (1936) are cases that established
the law of negligence.
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Duty of care
The plaintiff (the person/s bringing the action)
must establish that the defendant (the person
defending the action) owed a duty of care. The
general formula of a duty of care has developed
very slowly over time and a number of decisions
led to the formation of these principles.
In the British case Langridge v. Levy (1837),
a father bought a gun for himself and his
three sons. The seller told him that a famous
gun-maker made the gun and guaranteed its
safety. When one of the sons used the gun it
exploded, mutilating his arm. The son was not
a party to the original contract and could not
make a claim under contract law. However,
the court decided that the seller should pay
damages for the injury, as there had been a
type of fraud when the seller sold a gun that he
knew was faulty.
In the British case George v. Skivington
(1869), a man bought hair wash from a seller/
manufacturer for his wife. His wife used it and
suffered a scalp disorder and some of her hair
fell out. She received damages, as the court
decided that the seller knew that the product
was negligently made.
In the well-known case of Donoghue v.
Stevenson (1932), a young woman drank a
bottle of ginger beer purchased by a friend. The
bottle was made of opaque glass, so she was
unable to see the contents. When she tipped
the last of the ginger beer into a glass she
noticed the decomposed remains of a snail. The
young woman became ill and suffered shock.
She sued the manufacturer of the ginger beer,
alleging they were careless in the manufacturing
process. The question arose as to whether the
manufacturer owed a duty of care. The court
decided the manufacturer owed a duty of care

to the consumer and the woman was awarded
damages (monetary compensation).
The 1936 case of Grant v. Australian
Knitting Mills established the law of negligence
in Australia. Grant suffered from a rash and
dermatitis after wearing underwear he had
purchased. The manufacturer of the underwear
had left a chemical, sulphite, in the material.
Grant sued the manufacturer for negligence.
The court looked at the case of Donoghue v.
Stevenson and decided that the manufacturer
was negligent. The tort of negligence has
expanded further to cover advice as well
as products.
plaintiff
a person who begins
civil law action against
another, e.g. breach of
contract or negligence
defendant
a person who has
been taken to court by
another; the defendant
is defending or
challenging the
legal action
ACTIVITY 12.10
Determine whether the manufacturer would
be liable for damages in each of the following
scenarios. Use the precedent cases discussed in
this chapter. Relevant cases may include Grant v.
Australian Knitting Mills, Donoghue v. Stevenson
and George v. Skivington.
1 Josie purchased a moisturiser from a chemist.

The jar contained traces of bleach. Josies
face broke out in a rash. She sued the
manufacturer of the moisturiser for damages.
2 Harold, a builder, had a hot tip on a new
company just listed on the stock exchange.
On Harolds advice, Tony purchased $5000
in shares. The company went bankrupt six
months later. Tony sued Harold for negligence.
3 Yoon Ah was a Year 9 student. She was in a
classroom on Friday afternoon with the rest
of her class. Her teacher left the room for 15
minutes. Yoon Ah and another student were
throwing pens at the ceiling fan. The pen broke
and a fragment hit Eun Ju in the eye, causing
permanent damage. She sued the school.
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Breach of duty
Damages
If it is established that a duty of care is owed,

then it is up to the court to establish whether
the conduct of the defendant breaches that
duty. The case is usually decided on a basis of
common sense and foreseeability. That is, the
court determines what a reasonable person
would do in the circumstances and whether the
injury was foreseeable.
In the case of Paris v. Stepney Borough
Council (1951) the plaintiff, a fitter and turner,
only had one good eye. While using a hammer,
a splinter flew into his good eye, leaving him
blind. Safety goggles were not provided. The
court found that the council should have realised
that, while there was only a slight chance of
injury, any injury to the plaintiffs eye would be
devastating. Consequently, the employer was
found to be negligent.
In another case, Bolton v. Stone (1951),
a person was struck by a cricket ball while
walking past a cricket ground. The ball had
travelled nearly 70 metres before going over a
fence and then another 20 metres before hitting
the plaintiff. The court found that the managers
at the cricket ground could not foresee a person
outside the ground being hit.
In order to be successful, the plaintiff must

show that he or she suffered some damage as
a result of a breach of duty. It is necessary to
determine the extent of the damages and how
the person suffered physically, emotionally
or financially.
ACTIVITY 12.11
Is a duty of care owed in the following
circumstances?
1 A person was hit by a football while riding their

bike on the road near the local football ground.
2 A visitor to an art gallery was hit by a painting
that fell off the wall.
3 A car was smashed by earth-moving
equipment when it was parked in a
suburban street.
4 A cabinet-making business did not provide
safety equipment. Smithy was hit in the face
by a piece of timber that came off a lathe.
218

responsible
management of the
legal requirements
Small businesses have a number of ethical
responsibilities as well as legal obligations.
These ethical and moral obligations cover a
range of areas and include the following:
s Ensure that goods and services provided
are fit for the purpose they are sold for.
Knowingly selling faulty items is unethical.
s Legislation from all levels of government
must be adhered to. While there are legal
penalties, there is also a moral obligation to
ensure that all business practices are ethical.
s Deliberately misleading customers, not
supplying full details and trying to avoid legal
responsibilities by not providing warranties
and refunds is also unethical.
s Attempting to manipulate the market to
block out competition is illegal. Some
practices adopted to reduce competition can
be unethical.
s Being socially responsible in terms of
providing goods and services may mean that
a business looks carefully at the sources of
its products and the type of information it
provides to customers about the goods and
services it sells.
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CHAPTER SUMMARY
U There are three main levels of government

in Australia: federal (Commonwealth), state
and local.
U Each of these levels has its own jurisdiction and
law-making powers.
U There are three main law-making bodies in
Australia; the parliaments, the courts and
subordinate authorities (delegated legislation).
U Federal legislation relating to businesses
includes laws such as the Competition and
Consumer Act 2010, which covers unfair and
unlawful behaviour.
U State laws relating to businesses include those
relating to consumer law. Issues covered in this
area of law include consumer rights, refunds,
warranties and guarantees.
U Local councils and local governments deal with
areas such as permits, food handling and safety.
U The Australian Consumer Law came into force on
1 January 2011, creating a national enforcement
regime giving the same rights and protections to
consumers wherever they live in Australia.
U There are three parts to a decision by the courts:

the judgment (the decision reached)
the ratio decidendi (the reasons for
the decision)
the obiter dictum (things said by the way
or in addition to the judgment).
U Legal contracts consist of a number of the
following components:
offer made
acceptance of the offer
consideration given
egality of purpose (is the activity legal?)
capacity to enter into a contract
intention to create legal relation.
U The tort of negligence is designed to protect
people from harm or injury by another party.
U To prove a successful case under the tort of
negligence, three factors must be present:
duty of care
breach of duty
damage or injury as a result of the action
or actions.
CHAPTER SUMMARY
QUESTIONS
U The courts can make law through precedent or

common law, as decisions made in court cases
establish legal principles for future cases.
1 Outline the three levels of government.

2 Why was the Trade Practices Act 1974
established?
3 Outline why governments expect businesses to
provide returns policies and warranties.

4 Define the following concepts:
a The decision
b The ratio decidendi
6 Is a contract with a 16-year-old person legal?
Justify your answer.

7 Explain the rights consumers have under
a contract.
8 How has the tort of negligence developed since
the case of Donoghue v. Stevenson?

9 Why has the tort of negligence expanded to
cover advice as well as physical injury?
c The obiter dictum.

5 Give an example of the jurisdiction of each level
of government.
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EXTENSION
QUESTION
Design a concept map outlining the main legal

obligations of a small business in one of the
following areas:
U Contract law
U Tort of negligence
U Product liability.
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13
COMMUNICATION IN
BUSINESS
WHATS AHEAD
Message is
transmitted by
the sender
Receiver
decodes
the message
Feedback given
by receiver to
sender to show
message is understood
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KEY KNOWLEDGE
Students learn the following about communication in business:

communication and its relationship to business objectives and strategy
type and purpose of information that needs to be communicated
communication methods, including verbal (written and oral) and
non-verbal (body language, visual, technology-based)
types of audiences, such as employees, suppliers and customers
appropriate methods of communication for different management
situations.
AREA OF STUDY
COMMUNICATION IN BUSINESS
Effective communication channels and skills are essential in small business. Many of the problems
that arise result from poor and/or inappropriate communication. By its very nature, business
involves human interaction, and for successful results to come from this, effective communication
channels and methods must be in place.
Good business practice has at its core strong and effective communication channels, processes,
strategies and skills.
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Communication and
its relationship to
business objectives
and strategy
A small business must have clearly specified
objectives. For these to become a reality,
they must be clearly communicated to the
business stakeholders.
Internal stakeholders, such as staff
and management, need to know what the
objectives of the business are so they can
participate effectively in the development and
enactment of strategy that will achieve them.
Awareness of business objectives is necessary
to motivate and win the cooperation of internal
stakeholders. The business operator needs
to effectively communicate reasons behind
strategies and have staff working as a team
implementing these.
External stakeholders, such as suppliers,
customers and the general public, make
judgements about a business based on
its vision, mission and objectives. The
functions of marketing and public relations
are both centred on assisting organisations
and individuals to communicate a positive
message of themselves and their products to
external stakeholders.
communication
a process of creating
and exchanging
information between
people that produces
the required response
or understanding
decode
understand a
message
one-way
communication
information is passed
by the sender
to receiver with
no feedback
224
The communication
process
Communication is essentially a sender
conveying messages to a receiver in a form
that the receiver can understand and therefore
act on in the desired manner. It can be broken
down into three steps:
1 An individual or group (sender) sends or
transmits a message to another (receiver) in
an encoded form, such as words, actions or
a facial expression (transmission).
2 The receiver is exposed to the message
in its encoded form and decodes it, i.e.

understands its meaning (message received).
3 The receiver gives feedback to the sender
to show that they have received and

understood the message in the manner
intended by the sender (feedback).
Effective communication occurs when the
intended receiver of a message obtains and
interprets the message in the manner intended by
the sender. Ineffective or poor communication
is when a message is either not received or is
incorrectly decoded (an inaccurate message is
conveyed). One-way communication occurs
when information is passed by the sender to the
receiver with no feedback.
ACTIVITY 13.1
For each of the following scenarios, identify why
the communication was ineffective. Then suggest
how both the sender and receiver could have
improved the process.
1 James was asked by Claire to go out and buy

two pizzas. He came home with two peaches.
2 All the employees of a chemical company
were given a brochure explaining what to do if
a fire broke out. Darko could not read this as
he cannot read English. When a small fire did
break out, he did not know what to do.
3 A client phoned with a large and complex
order. The wrong quantities and stock were
dispatched.
4 Dot sent Joe a note asking him to finish a
report before he went home that night. The
note got lost in his overfull in-tray, which he
had not emptied, and was never read by him.
The report was not finished and both Dot and
Joe lost their jobs as a result.
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Effective communication
An effective communicator:
s builds trust and positive relationships
s recognises that communication is an interactive process that involves listening as well as
transmission
s works out the exact message they intend
to send
s assesses the audience/receiver and frames
the method and style of communication to
be accessible to the receiver
s chooses the most effective method of
communication for the receiver, situation
and intended message
s ensures the message is clear, unambiguous
and easily understood
s waits for feedback from the receiver to assess

if the message has been decoded accurately
s rephrases or changes the method of communication if the message was not received
accurately
s listens to the receiver
s is alert to signs that a message was
misunderstood
s is aware that messages might be communicated unintentionally through mediums such
as body language.
Effective communication is usually two-way
communication. Many people recommend
the KISS principle: Keep It Short and Simple.
two-way
communication
communication that is
open and encourages
discussion and
feedback
Figure 13.1 An effective communicator must also be a good listener.
ACTIVITY 13.2
Consider the following text found on a public sign.
NO RUBBISH DUMPING OFFENDERS WILL BE PROSECUTED.
Explain why it is an example of poor communication. How do you suggest the message could be
made more effective? (Hint: look up the word ambiguous in a dictionary.)
CH A P TER 1 3 COMMUNICATION IN BUSINESS
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Table 13.1 Effective communication processes

Step 1
s Clear definition of the purpose of the message
Produce the message
s Identification of expected response
Step 2
s Written?
Put the message into the most appropriate form to

achieve the desired result
s Oral?
Step 3
s Same message may have different meanings for

different people
Send the message to the receiver, who then decodes

it; how it is decoded will depend on the context of the
message
s Method of communication?
s Decoding is affected by context factors such as

age, education, attitudes, culture and mood of
receiver
s Decoding is affected by accompanying non-verbal
factors such as body language and dress colour
Step 4
Feedback is given to confirm intended meaning of
how the message has been received
Factors that affect how a

message is decoded
How a message is decoded can and will vary
from person to person. The same message
may have an entirely different meaning to two
people. Factors such as age, education levels,
cultural background and even short-term
factors, such as moods, can affect the decoding
of a message.
s May take the form of facial expressions, gestures,

questions and other verbal or written responses
of the message. Different people will have

different interpretations of the same message
according to their personal perception. For
instance, in Pakistan it is not considered rude
to stare at someone, whereas in most Western
cultures it is. This is because of the different
cultural perceptions and backgrounds of the
people involved. Similarly, a thumbs up gesture
implies good to a Westerner, one to an Italian
person, five to a Japanese person and is a rude
gesture to a Greek person.
Cultural differences
All communication that we receive is filtered
through our personal cultural assumptions and
experiences before we construct a mental image
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Table 13.2 Cultural differences in decoding

Gesture/action
Touching others
Different interpretations
Hindus do not touch with their left hand
Asian and Afro-American people consider it insulting to touch someone on
the head
Islamic cultures forbid touching the opposite gender in public
Speaking in a loud voice
Shows strength in Arabic cultures

Indicates confidence and authority to a German person
Is impolite in Thailand
Shows loss of control to a Japanese person
Beckoning someone using your

index finger
Is obscene in the Middle East, Far East, Portugal, Spain, Latin America,
Indonesia or Hong Kong (use your whole hand)
To point at someone using your

index finger
Is very rude in the Middle East and Far East cultures
To make a V sign using fingers
Is extremely rude in several cultures

Japanese people smile when confused or angry
Smiling
Asian people often smile when embarrassed

Other cultures reserve smiles for close friends or family
Is obscene in Brazil and Germany
To form a circle using fingers
Means money in Japan

Means zero or worthless in France
Is acceptable in Australia
Passing an item with one hand
Is rude and disrespectful in many Asian cultures (use two hands)
Bowing
Shows respect for rank in Japan
Body language
The body language that accompanies a
message also affects message interpretation.
As explained later in this chapter, the body
language accompanying a message can change
its meaning entirely.
Mood and state of mind of

the receiver
A message, no matter how well and concisely it
is delivered, can be ignored or confused if the
receiver is not in a receptive mood or state of
mind or doesnt want to listen.
Environment in which a message

is delivered
Messages can also be confused, lost or ignored
if delivered in an environment that is not
favourable to listening. For example, very
important information might be missed or
misunderstood if the message is delivered in a
noisy or crowded environment.
Language used and its

accessibility to the receiver
The language used to deliver the message
should be appropriate to the listener in tone,
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sentence structure and complexity. For example,

if English is not the first language of the listener
the communication might need to be in short,
simple sentences. Physiological barriers such as
hearing or sight disability may also affect the
capacity to communicate effectively.
ACTIVITY 13.3
1 List four different types of communication that
your teacher has used during this lesson. In
each case, note:
internal business
communication
forms of
communication used
within a business, e.g.
memos, emails
a the message that they were attempting to

convey to you
b how effective this message was in your view.
2 List six different incidents where you have

received communications from a business in
the past week. Which of these were effective?
Give reasons for your answer.
3 List and describe five different ways that you
could send each of the following messages.
a Im hungry.
b I dont understand.
c I dont agree.
Type and purpose

of information to be
communicated
Every business must communicate to a variety
of groups and people in different ways. It is vital
to continually review both internal and external
communication processes and channels.
Internal business
communication
Interaction and therefore internal business
communication will occur within a business
between the following internal stakeholder groups:
s employees
s management
s owners/shareholders
s local trade union representatives.
Internal communication
channels and patterns
A communication channel is the means
by which a message is sent. Internal business
communications usually take one of three patterns.
Downward communication
This flows from a higher to a lower level in
an organisation. Most commonly, it involves a
superior (boss) giving instructions to employees
(subordinates) under their control. In businesses
with a hierarchical structure, this is a common
type of information flow. It includes informing
and counselling of employees, delegation of
tasks, providing feedback about performance
and dissemination of information.
Figure 13.2 Internal business communication occurs

between employees
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Upward communication
This occurs within a business when information
flows from a lower to higher level in the
organisational hierarchy, such as:
s employees participating in democratic
decision making
s employees participating in performance
appraisals
s suggestion boxes
s information sharing and feedback
s staff meetings.
Lateral communication
Lateral communication involves interaction
between people at the same level of the
organisation, such as a work group in an
organisation. It is a particularly important type
of communication when people are working in
groups or teams. Examples include:
s informal staff chats over coffee
s emails between staff
s phone calls
s sharing of information between departmental
heads and/or work colleagues.
Business-to-business
communications
These communications encompass day-to-day
interactions with other businesses, such as:
s suppliers involving activities such as
ordering of materials and components
s business customers demonstrating and
selling products
s professional advisers for example, when
assisting the business accountant in preparing
a tax return or interacting with marketing or
public relations advisers
s contractors when detailing tasks to be
completed and negotiating contract conditions
s government departments such as the
Australian Taxation Office
s wholesalers when negotiating prices
for products
s retailers when negotiating and placing
an order.
lateral
communication
communication
between people or
departments on the
same level within an
organisation
external business
communication
external business
communication
includes businessto-business
communication and
also business-to-thewider-community
communication
External business
communication
External business communication can fall
into two categories:
1 Business-to-business communications (B2B)
2 Business-to-the-wider-community
communications (B2WC).
Communication with external stakeholders
is important, for example, when dealing with
suppliers, customers and government agencies
such as taxation authorities. It is also vital
when marketing the business and its products
and developing a positive public image for
the business with the general community
(public relations).
Figure 13.3 A successful business operator

communicates effectively with their external environment.
Business communication to the

wider community
This is a vital area of communication. Businesses
must deal effectively with a wide variety of
external groups and individuals, such as:
s customers/clients
s lobby groups
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formal
communication
messages sent
using official
communication
channels
semi-formal
communication
communication using
a formal setting but
not controlled by the
organisation
informal
communication
messages sent through
informal channels
rather than formal
networks; referred to
as the grapevine
grapevine
informal
communication
channels; often
referred to as the
rumour mill or office
gossip; management
has no control over
these channels
s media
s the community in general.
Not only is it important to communicate
effectively with paying customers and clients
while doing actual business transactions, it is
also important for any business to communicate
a positive image to the community in general.
The purpose of business communication
may be to:
s pass on information, usually to help with
decision making
s persuade
s motivate
s entertain/amuse
s control others through instructions and
guidelines, or through selectively giving
out information
s negotiate
s give emotional satisfaction, such as praise
for a job well done
s seek/gain information
s monitor and evaluate
s learn/instruct
s reflect
s influence.
ACTIVITY 13.4
Briefly explain the purpose of each of the
following instances of business communication.
1 Sam rings a supplier to enquire about the

price of equipment. He then tries to get the
supplier to reduce the price.
2 Voula stops her employee, Chris, in the
corridor and praises him for a job well done.
Other employees see this.
3 Mick sends an email to Nick containing
information about a recent market research
survey. He asks that Nick read this before the
next staff meeting.
4 Bob and Bill discuss the weekends football
result over a coffee.
5 Claire puts up a sign outside her shop saying
20% off Everything. Today Only!
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Formal and informal

channels of business
communication
Business communication can be further
categorised into formal, semi-formal, and
informal communication channels.
Formal channels
Formal channels are the official channels used
by a business to send important messages.
Examples include reports, minutes of meetings,
invoices,
memorandums,
announcements
on noticeboards, receipts, financial records,
brochures, signage and logos. Formal
communication is usually expressed in writing
and approved by a person with authority.
Management has total control over its formal
communication system.
Semi-formal channels
These usually involve messages being sent
in a formal setting but not entirely under
management control. Many are later converted
to written form, such as formal minutes taken
at a meeting, and become a part of the formal
channels.
Semi-formal communication
occurs during meetings or seminars where
opinions and ideas are sought and discussion
takes place. They are often used in business for
problem solving, making plans or developing
new ideas.
Informal channels
Informal communication occurs through
unintentionally established channels and is
the unofficial communication occurring both
within an organisation, as well as between it
and its external environment. Often it is referred
to as the grapevine, or simply office gossip
or the rumour mill. The grapevine bypasses
formal communications channels but spreads
information in random and uncontrollable ways.
While the grapevine is very effective in reaching
ISBN: 9781107665910
people, it can also be wildly inaccurate and

potentially destructive. Much of the information
passed via the grapevine is unverified.
Management has no control over informal
channels. If formal communication channels
are not effective, people will fill the gaps in
their information via unofficial channels. If left
unchecked, these channels can cause problems
as people can become obsessed with the
rumours circulating in their workplace and lose
focus on the job at hand. In order to reduce
the negative effect of the grapevine, it is best to
keep people up to date with clear, unambiguous
and accurate information.
Figure 13.4 Management has little to no control over

informal communication channels.
ACTIVITY 13.5
How to deal with rumours on the grapevine

by Kim Harrison
If managers and supervisors dont attend to the
communication needs of their staff, there is a
vacuum of information. Instead, the informal
avenue of rumours grows, frequently putting a
destructive slant on organisational happenings
when employees are uncertain. Some people
say that up to 70% of the information employees
receive is via the grapevine. Information via the
grapevine invariably moves much faster than
through formal communication channels. This is
its greatest attribute. Emails have now joined the
grapevine communication channels, making it
even faster. The grapevine is the informal communication network found in every organisation.
The term can be traced back to the United States
Civil War in the 1860s. Since battlefronts moved
frequently, army telegraph wires were strung
loosely from tree to tree across battlefields,
somewhat like wires used to support grapevines.
The wires were used to carry telegraph messages

created in Morse code (the electronic alphabet,
invented in 1844) because the telephone wasnt
invented until 1876. Since the lines often were
strung hastily during battle, and messages were
composed in a hurry, the resulting communication tended to be garbled and confusing. Soon,
any rumour was said to have been heard on the
grapevine. There are four types of grapevine rumours:
s Wish fulfilment identifying the wishes and
hopes of employees.
s Bogey rumours exaggerating employees
fears and concerns.
s Wedge-drivers aggressive, unfriendly and
damaging. They split groups and dissolve
allegiances.
s Home-stretchers anticipating final decisions or announcements.
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They tend to fill the gap during times of

ambiguity. Research shows that grapevine
information tends to be about 80% accurate.
Since many rumours start from someones
account of an actual event, there are strong
elements of truth in many rumours. However,
grapevine information often contains big errors
as people put their own interpretation onto an
event or information they have seen, and then
pass it on in a process of partial or selective
recall. It is rare to find people at different
levels discussing rumours or gossiping with
each other. When two people share a rumour
or gossip, it has the effect of putting them on
a relatively equal footing. The grapevine can

play an important part in the management by
walking around approach. When managers
move around the office without a particular
objective, they can pick up relevant rumours.
This information would not have become available if the manager had stayed in their office
all day. Managers can sometimes purposely
send messages through the grapevine to test
the likely reaction to a possible management
decision. This can allow feedback to take place
and adjustments made before final decisions
are made. Thus the grapevine can contribute
to a more inclusive workplace.
How to minimise destructive rumours

Although not always harmful, rumours can
reduce employee productivity, tarnish personal
reputations and interfere with organisational
communication. Rumours obviously abound
during restructuring and retrenchment processes when employees are nervous about
their jobs they waste time talking about the
rumours and their work rate falls. External rumours are known to have hit sales, damaged
corporate reputations and caused share prices to
fall. Plans can be activated to prevent and reduce
rumours, although rumours are relatively difficult to grapple with. The important thing is to
maintain a good communication flow using several alternative avenues to convey the same message. It is helpful even to say that information is
incomplete or discussions are in progress, and
staff will be informed as soon as there is progress
information available Preventative measures
should include keeping staff regularly, fully and
honestly informed of planned changes through
a range of tailored formal and informal communication avenues such as emails and face-to-face
232
meetings at various levels. Sometimes external

stakeholders also need to receive timely messages to prevent a harmful rumour from spreading
outside the organisation. PR staff could prepare
messages on the issues for management and supervisors to communicate in response. The messages should be tailored to specific audiences
and need to be couched in the everyday language
of the workplace, not in management-speak.
The appropriate manager should confirm true
rumours or true parts of rumours to staff as soon
as possible. Management should avoid playing
word games with the truth or parts of the truth in
order to minimise bad news. Their credibility will
suffer massively if they try this. False rumours
should be refuted by an authoritative source.
US research showed that a reasonably effective
approach to minimising rumours is to provide
structuring to uncertainty or merely to ignore the
rumour and allow it to be overtaken by events.
Source: www.cuttingedgepr.com
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Questions
1 What percentage of workplace information is estimated to be conveyed via unofficial channels?
What percentage of this is estimated to be accurate?
2 Explain the origins of the term grapevine.
3 Identify and briefly explain the four different categories of grapevine information.
4 Explain why rumours become less accurate as time goes on.
5 Why do managers rarely hear rumours directly from their employees?
6 Explain how a manager can use the office grapevine to their advantage.
7 Discuss the strategies that can be used to reduce the number of office rumours and to minimise
their negative effects in the workplace.
Methods of communication
An effective business operator not only needs to
possess strong communication skills, they must
be able to select which method of communication
is appropriate in a given situation.
Each method has inherent strengths and

weaknesses. A business owner must recognise
this and be able to implement the method
that is likely to be the most effective in any
given situation.
Communication
Non-verbal
communication
Body
language
Visual
imagery
Verbal
communication
Oral
Written
Figure 13.5 Communication method classifications
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Verbal communication
verbal communication
use of language
(oral or written) to
communicate
memo
a form of formal
communication; a brief
note sent within an
organisation, usually to
employees
This is communication that involves the use of

language or actual words. The two categories of
verbal communication are written and oral.
Written communication
Written communication involves the use of written
language and is usually accessed visually. It creates
a permanent record of exactly what information
is exchanged, and is easily disseminated and
tracked. However, written communication is timeconsuming to prepare and receive feedback on.
It can also be inflexible and not easily adapted
to suit an individual situation or receiver. Written
communication includes letters, memos, invoices,
emails, notices, manuals, brochures, media
releases and documents.
Written business communication methods

can take many forms, both formal and informal.
A business letter is a type of formal
business communication, exchanged either
between two or more businesses, or a business
and an individual. Its purpose can be:
s to provoke action
s to complain
s to enquire
s to gain agreement
s a public relations exercise
s a business promotion
s to offer thanks or sympathy
s to confirm an agreement.
A business letter should follow a commonly
accepted format.
ACTIVITY 13.6
Using an appropriate business letter format,
construct a business letter for two of the following
scenarios.
1 A letter from a catering business promoting

the business to potential clients
2 A letter from a retail business to one of
its wholesalers to persuade them to offer
a discount
3 A letter from a childcare centre to the local
council enquiring about health regulations
4 A letter to a client who has made a
complaint.
A memo (short for memorandum) is a form

of formal communication. It is a brief note sent
within an organisation, usually to employees,
and is a quick and easy way of disseminating
information directly to the people who need
to be informed or provoked into action. It can
be formal or informal and may be handwritten,
typed or electronically sent.
Figure 13.6 A standard business letter format
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Figure 13.7 Memo format
ACTIVITY 13.7
Using the suggested memo format outlined above,
construct two memos from the following options.
1 A business owner requesting a meeting with

a staff member
2 An employee requesting information about
an account from the business manager
3 An instruction to all staff reminding them to
wear uniform
4 A reminder to staff of an extraordinary staff
meeting
s a section for comments

s the senders phone and fax numbers (in case
a response is required or there is an error
in transmission).
Email (electronic mail) has evolved to
become one of the most prevalent forms of
written business communication. Formal and
informal communication in most organisations
is largely conducted by email. Email has the
advantage of being instant and has the ability to
reach a large number of people simultaneously.
It also saves paper! Additionally, the sender is
5 A note to make staff aware of a change in

trading hours.
Faxes (facsimile messages) are commonly

used to send written information electronically.
Most businesses have access to a fax machine.
It also allows quick transmission of documents
that require a signature. Most businesses have a
branded cover sheet that is sent with the fax. A
fax cover sheet should contain:
s the business logo and letterhead at the top
s the name of the intended receiver and
their position
s the fax number of the receiver
s the date
s the number of pages contained (coversheet
plus attachments)
Figure 13.8 Fax machines are used to send written and visual information.
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email policy
guidelines regulating
the use of email within
the business
able to receive notification when a message has

been read.
It is important that an email policy is
established in order to regulate the use of email
within the business. An email policy should
contain the following:
s a commercial objective in order to ensure
that all emails are composed in an effective
and professional manner that is good for the
business image. Included should be directions
in terms of style and format, etiquette rules
for the use of email, specifications about time
limits for responses as well as procedures for
dealing with emails.
s a productivity objective that aims to improve

productivity by avoiding misunderstandings
and time wasting caused by use of the email
system. This should include restrictions on
the use of emails, guidelines for personal
emailing and what can and cannot be
forwarded (e.g. jokes).
s a legal objective that protects you as an
employer from legal action as a result of
employee use of the email. This should
include a list of email risks and disclaimers.
It should also specify whether staff emails
will be monitored or not.
Ten examples of good email etiquette

1 Be clear and concise.
2 Quick responses within four hours.
3 Answer all questions to avoid multiple
emails on a single topic.
4 Limit abbreviations, emoticons and
capitals.
5 Do not contribute to corporate spam by
using the cc field extensively.
6 Only use Reply to all when the information
is relevant to all.
7 Do not overuse urgent and important

flags.
8 Do not request read or delivery receipts.
9 Never discuss confidential information
by email.
10 Write subject headings that are relevant.
Source: www.emailmanagement.com.au
Figure 13.9 Email policy regulates the use of email within a business
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ACTIVITY 13.8
Email etiquette key to workplace harmony

by Darren Osborne / AAP
Stop, consider and then deliver if you want to
prevent embarrassing yourself at work with
email. Thats the message from etiquette expert
and author Patsy Rowe, after the release of a
new report that found two-thirds of Australian
workers admit to being trigger-happy emailers.
The report found almost half of all workers
rely on email as their primary method for business communications, with women 11 per cent
more likely to use it than men. Email is brilliant;
it is an amazing communication tool. But is it
the best way to respond to a query? Ms Rowe
said.
More than half of those surveyed for the
report admitted to sending an email that
was misunderstood. Ms Rowe believes poor
grammar and haste is the main cause of
misinterpreted emails. When you write in
full sentences it is very difficult to be misunderstood, but if you start writing in staccato
sentences without punctuation The report
revealed men (48 per cent) were more likely to
misread the meaning of an email than women
(38 per cent).
Another email faux pas is copying people

into email conversations that include information not intended for a wider audience. Sometimes there is a new person added into an
email, and I may not have wanted that person
to see the history of the email, Ms Rowe said.
The report also reveals that 40 per cent of
workers have sent or received an email that
appeared to be offhand, cynical or rude, and
38 per cent have sent or received an email that
conveyed anger or was emotional in nature.
Ms Rowe believes workers can avoid email
mishaps by taking the time to craft their reply
and not relying on email as their sole method of
communication. Avoid depending on it as your
primary method of communication. Stop and
select the best method of communication (for
the situation), Ms Rowe said.
Source: www.news.com.au/business/
business-smarts/email-etiquette-vital-foroffice/story-e6frfma0-1111114872737
2007 AAP
Questions
1 What is meant by the opening words Stop, consider and then deliver?
2 What is a trigger-happy emailer?
3 What does Patsy Rowe believe is the main cause of misinterpreted emails?
4 Which gender is more likely to misinterpret an email and why?
5 Explain the danger of including new people in an email conversation.
6 List and explain the tips given by Patsy Rowe in regard to the use of emails.
Extension:
Obtain a copy of your school email policy. (Your school planner would be a good place to start
looking.) Explain the conditions that are placed on your use of email at school.
237
ISBN: 9781107665910
media release
an item of news
prepared for and
distributed to the media
Manuals are publications that provide

information on the policies and procedures
of the business. Media releases are used by
businesses to disseminate information via the
media. Other forms of written communication
include:
s newsletters
s minutes and agendas of meetings
s notices
s receipts and invoices
s tenders and submissions.
Oral communication
Oral communication involves the use of the
spoken word. Its advantages are that it allows
instant feedback and can be easily adapted
for different receivers. The problem with
reliance on oral communication is that it leaves
no permanent record of what was actually
discussed, unless it is recorded in some form.
Meetings are held in every workplace.
While a large component of a meeting is
oral, communication associated with it can be
written, such as inviting people to the meeting,
communicating the venue and time of the
meeting. An agenda must be prepared and
distributed outlining the matters to be dealt
with at the meeting. Minutes of the meeting
will be taken and distributed to each attendee
for clarification that the minutes are a true and
accurate record of the discussions.
Interviews are face-to-face meetings
between two individuals or an individual and
a panel. They are usually held for a specific
purpose, such as:
s to select the best candidate for a job
s a performance appraisal
s disciplinary reasons
s counselling.
Other oral communication methods include:
s lectures
s phone calls
s telemarketing
s speeches.
238
Customer service is increasingly important to

businesses in Australia and communication
skills are integral to good customer relations.
As a consequence, many businesses train staff
in customer service techniques that teach them
to communicate in a manner beneficial to the
organisation. Important skills extend to knowing
how to answer a telephone well, greeting a
client/customer, listening to and assessing
their needs. In addition, negotiation skills are
essential to a small business operator as they
must negotiate with employees over wages and
conditions, with customers on price, suppliers
over price of materials, and so on.
Figure 13.10 Interviews are face-to-face meetings

between two or more people, held for a specific purpose.
Figure 13.11 Communication skills are vital for effective

customer service.
ISBN: 9781107665910
Tips for effective oral communication

s Always establish eye contact with the audience. This gives you credibility.
s Try to remember the names of the people
being spoken to, and use names in
conversation.
s Do not use jargon, slang or other inappropriate forms of language. Not everyone will
understand these.
s Try to vary and modulate the tone and
volume of the voice. A person speaking
monotonously in the same tone distracts the
listener from the message.
s Modify the level of language according to the
audience. Listeners must be able to link the
content and relevance of a message to their
Non-verbal
communication
Non-verbal communication is any form of
communication that does not rely on words to
convey a message. Usually it involves the use of
visuals. Non-verbal communication comprises
signals or messages via body language, colour,
graphics and logos, dress and appearance,
pictures and displays.
The trouble with non-verbal communication
methods is that people often have very little
control over the message being conveyed.
People are often unaware that non-verbal
communication is taking place.
Most communication is non-verbal. We
believe what we see rather than what we hear
and read. It is estimated that the impact we
make on others depends on what we say (7 per
cent), how we say it (38 per cent) and our body
language (55 per cent).
Body language
How do we know when a person is happy? We
do not wait for them to say so; we ascertain it from
their smile and other gestures. The first movies
existing knowledge base. For instance, dont

use complex terminology when communicating to primary school children.
s Know your material. A speaker must know
what they are talking about, as this builds
essential credibility.
s Be a good listener and show interest in what
others have to say.
s Never display boredom by doing things such
as looking at a watch, drumming fingers or
yawning.
s Take care with seating arrangements so that
everyone is included.
s Try to make your message interesting.
were all silent films in which actors conveyed

messages entirely via hand gestures and other
body signals. Body and facial gestures are the
closest thing to a universal language humans can
have. In all cultures, a nod of the head means yes
and a shake means no. A shrug of the shoulder
almost always means I dont know/understand.
Other gestures have an entirely different meaning
in different cultures. The thumbs-up signal means
yes in some cultures, but it is an extremely
offensive gesture in others. It is therefore vital to
be aware of your body language when dealing
with others, so that your body language supports
the message being conveyed.
The tone of voice used should support rather
than undermine the words you are speaking.
For example, saying something like Great!
has a totally different meaning when said in a
sarcastic tone rather than in an enthusiastic one.
Facial expression can also completely alter a
message or even send one in itself. Expression
must match the words and tone used. Gestures
communicate a great deal. For instance, crossing
of the arms is seen as a defensive gesture. Open
palms are said to invite sharing and confiding.
non-verbal
communication
any form of
communication that
does not rely on words
(spoken or written) to
convey a message
body language
a form of non-verbal
communication that
includes messages
and communication
conveyed by facial
expressions and
other gestures
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ACTIVITY 13.9
ACTIVITY 13.10
1 Explain what each of the following gestures

signals to you.
a Raised eyebrows
b To turn your back on someone
c Rolling of the eyes
d Refusal to make eye contact
e A raised middle finger
f A smile
g A forced smile.
2 Identify how each of the following messages
might be conveyed using body language.
a Hurry up!
b I am pleased to meet you.
c That was excellent!
d Go over there now.
e I really value your business.
f I want a better deal.
3 Working in pairs, attempt to convey using
body language the messages in question 2.
1 Working in pairs, devise and perform a role

play of the following situations.
a A customer who is unable to speak
English comes into a shop and wants to
make a purchase.
b A sales assistant who really wants to leave
to meet someone within the next five
minutes is serving a customer.
c A client comes into a business to make a
complaint.
d An employee is being reprimanded
by their employer for inappropriate
behaviour.
e A customer with really bad body odour
comes into a shop.
2 Assess how the body language of these people
demonstrated what they were actually feeling,
as opposed to the words they actually spoke.
Personal space
How far we want to be from someone depends

on zones of personal space.
Personal space is vital. Humans have a need for

personal space; we stake out territory and guard
our space. This is an important consideration
when engaging in sales.
The distance that we like to keep from
others in a given situation is very important.
Dress
How we dress also plays a role in determining
messages sent to others. Inappropriate dress
can lead other people to form opinions about
us that are extremely difficult to alter.
Table 13.3 Zones of personal space

Zone
Distance
Reasons
Public zone
3 or more metres
We try to keep this distance from strangers in order to

feel safe
Social zone
1.5 to 3 metres
Within this zone, we start to feel a connection with people

and are able to converse
Personal zone
0.5 to 1.5 metres
A good distance for a direct personal conversation with

someone else
Intimate zone
Less than 0.5 metres
Can touch someone in an intimate way and easily

monitor their body language
Entry into this zone can be used in order to threaten or
intimidate (an invasion of personal space)
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Symbols
Symbols are an important communication tool
of business. Graphics such as letterheads and
logos communicate much about the business
they represent.
ACTIVITY 13.12
Figure 13.12 For better

or worse, people make
judgements about the way
others appear.
1 From your memory, draw the logos of the

a ANZ Bank
b Nike
c Rip Curl
d Australia Post
e McDonalds
f Qantas
g Bakers Delight
h Toyota
i Target
j Channels Ten, Nine and Seven
k The Australian Broadcasting Corporation.
2 Comment on what it might mean that you can
or cannot recall all the logos.
letterhead
stationery printed or
engraved, usually with
the name and address
of an organisation
logo
graphical
representation
signifying a business
ACTIVITY 13.11
1 Working in small groups, look at the
photographs above.
2 Discuss and come to group conclusions about
each of the following questions. Each group is
to report their findings back to the class.
a Who would make the most reliable
employee? Why?
b Who would be the hardest working? Why?
c Who would be the friendliest? Why?
3 Of the people in the photographs, who would
be most likely to succeed at a job interview for
the following positions? Give reasons for your
answers.
a A teacher
b An accountant
c A delivery driver
d A police officer
e A customer service officer.
Figure 13.13 Examples of well-recognised symbols
C H A P T ER 1 3 COMMUNICATION IN BUSINESS
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Combination
communication
business card
small card distributed
to clients in order to
promote the business;
includes information
such as name of
business and person,
address, phone number
and email address
Several forms of business communication

contain both verbal and graphical features.
s Brochures, pamphlets and signage are
forms of external communication that utilise
both language and symbol communications,
such as text, pictures, colour and design.
s Stationery and letterheads also convey a
message about the business, both in the
form of a symbol or logo and in the actual
written content.
s Business cards are small cards distributed
to clients in order to promote the business.
They contain the following information:
name of the business and business type
name, position held, qualifications and
contact details of a person within that
business
business address
hours of operation
a logo and graphic design
web address and email address.
Figure 13.14 Business signage is one example of

combination communication.
Tips for business card design

s Select good quality paper not so thin it
looks cheap, but not too thick either.
s Select colours and design appropriate to the
type of business and the image it wants to
project. (For example, an undertakers business card should not use bright colours or
have an ultra-modern feel!)
s Select a font size and type that is easy to
read.
s Make sure the information is accurate. Keep
contact details (telephone, fax, mobile,
email, names and addresses) up to date.
242
s Do not go overboard; this may send a

message that your business is wasteful, or
even that you overcharge!
s Make them a practical size so they can slip
into a wallet (90 mm x 50 mm is standard).
s You want your business card to stand out,
but not for the wrong reasons.
ISBN: 9781107665910
ACTIVITY 13.14
1 Collect five different business cards and
complete the following for each one.
a Name the business and business type.
b Discuss the image projected of that
business by the card. (Take into account
colour, design, graphics and type of
language used.)
c Rank the five cards from best to worst. Give
reasons for your opinions.
2 Redesign one of the business cards to improve
its effectiveness.
ACTIVITY 13.15
Figure 13.15 Business cards are distributed to clients in

order to promote the business.
ACTIVITY 13.13
Using the design tips and content suggestions
above, design an appropriate business card for
two of the following small businesses. When
planning the design, use of colour, font and
graphics for each card, take into account the
image the business would wish to project.
1 A ballet school named Hoofers

2 A used car dealership named Enzos
3 A catering firm specialising in Middle Eastern
foods called Zafer Delights
4 A lawyer who specialises in criminal cases
5 A graphic design business named Cool Looks
6 A gourmet ice-cream manufacturer named
Phils Delights
7 A nightclub manager
8 A catering firm that specialises in vegetarian
foods.
Suggest why each of the following communication

methods was inappropriate and likely to be
ineffective. Then suggest a more effective method
for each.
1 Van reprimands Sally for poor work
performance by publishing an article in the
company newsletter.
2 Cheyne gives Jack a complicated list of
instructions over the phone.
3 Stacey emails all of her employees, telling them
that there is a staff meeting in 15 minutes.
4 Aiden leaves a complaint about poor service
on Frankies answering machine.
5 Anthony emails his staff, telling them to read
their emails.
6 A childcare centre announces a fee increase by
telling the children to inform their parents when
they get home.
C H A P T ER 1 3 COMMUNICATION IN BUSINESS
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CHAPTER SUMMARY
U Success in business is dependent on effective

communication. Many problems arising in small
business are the result of poor communication.
Internal communication among internal

stakeholders, can be upwards, lateral or
downward
U Business objectives and strategies must be

clearly communicated to stakeholders.
External communication businessto-business or business-to-the-widercommunity communication
Internal stakeholders such as employees and

management must be aware of the objectives
if they are to work towards their achievement.
External stakeholders such as the general
public and customers make judgements
about a business based on its objectives.
U The communication process involves three steps:
1 The sender gives out the message to a
receiver in an encoded form.
2 The receiver is exposed to the message and
decodes it.
3 The receiver gives feedback.
U Factors affecting how a message is decoded by

the receiver:
Body language accompanying the message
The mood and state of mind of the receiver
The environment in which the message is
delivered
The language used.
CHAPTER SUMMARY
QUESTIONS
U Types/purpose and audiences of business

communication:
1 Define the following terms in relation to business

communication.
Semi-formal channels communication

in a formal setting but not under direct
management control, e.g. discussion at
a seminar
Informal channels unofficial (the grapevine)
where management has no control.
U Methods of communication:
Verbal involving use of words:
Written letters, memos, fax, email, and
so on
Oral (spoken) meetings, interviews, and
so on
Non-verbal body language, gestures, and
so on
Combination involves both verbal and
non-verbal, e.g. brochures, pamphlets,
signs, business cards.
U A business manager must be able to select the
most appropriate methods of communication
to suit the circumstances they face.
2 Suggest an effective method of

communication for each of the following:
b Decoding
a Training staff to use a new piece of

technology
c The KISS principle
b Dealing with a customer enquiry
d Communication channels
c Reprimanding a staff member for

rudeness to clients
a Non-verbal communication
e Body language
f
Logo
g External business communication

h Media release
244
Formal channels of communication official

channels under control of management
Memo
Interview
Invasion of space
Oral communication.
d Dealing with an irate customer.

3 Distinguish between verbal and non-verbal
communication. Use examples to illustrate
your answer.
4 Discuss the importance of good communication
skills and processes for small business.
5 Classify each of the following situations as:
formal/semi-formal/informal
ii
lateral/downwards/upwards
ISBN: 9781107665910
iii
verbal/non-verbal.
For example, a staff newsletter is formal,

downward and verbal.
6 Discuss the most appropriate means of

communication for each of the following.
Justify your opinion.
a An employer issues a new policy to

employees in written form
a Announcing a new product
b A client is greeted by the receptionist
c Explaining to an employee why they did

not get a promotion
c Mick sends Nick an email asking if he

wants to have coffee at 11 a.m.
d Kaz orders some stationery over the
phone
e Carlo attends a job interview at a new
company
f
Hung and Riza discuss the football results

at the water dispenser
g A staff meeting
h A parentteacher evening at your school
i
A newspaper advertisement
A customer rings to make a complaint
A customer writes a letter of complaint.
b Warning of a slippery floor
d Announcing redundancies
e Projecting an image of luxury
f
Ordering a complex list of supplies quickly.
7 Explain the image projected by your school

to an outsider. Consider the following when
preparing your answer:
U the school uniform

U the front office reception area
U the dress code
U the use of graphics, such as logo and
letterhead
U colour.
1 Classify each communication task as either
internal or external business communication.
EXTENSION
QUESTION
Read the scenario and answer the questions

that follow.
2 Suggest the best methods Coco could

Coco Groves is the owner of a small
accountancy firm named Groves
Accounts operating in the suburb of
Snorbins. In recent days, Coco has
had to perform each of the following
communication tasks:
s communicate the results of performance appraisals to three of her staff
s order a new computer for her office
s complete 14 tax returns for clients
s design a new business card
s negotiate a new lease agreement with
the landlord
s discipline a staff member who is
continually late
s conduct interviews for a new receptionist
s inform staff about a new dress code.
use in order to complete each of these

communication tasks. Justify your responses.
3 Could the new lease agreement be negotiated
over the telephone, in your opinion? Why or

why not? (Hint: think about the importance of
body language when engaging in negotiation.)
4 Design a dress code that would be appropriate
for the staff of this business. Explain how you

would communicate this new dress code to
the staff. Provide reasons for your response.
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14
EFFECTIVENESS
OF COMMUNICATION
WHATS AHEAD
Filtering
Interruptions
and noise
Physical
environment
Selective
perception
Barriers to effective
communication
Cultural
differences
Emotions
Language
Incorrect choice
of medium
ISBN: 9781107665910
KEY KNOWLEDGE
Students will learn the following about the effectiveness of communication

in business:
effectiveness of methods of communication, including consideration
of barriers/actions that limit and/or enhance communication
communication behaviours that are considered unethical or illegal.
Activities that involve communication with

others take up a large part of a managers
day. Much time is spent engaging in active
communication with co-managers, employees,
suppliers, customers and other stakeholders. It
is important that this is carried out effectively in
order to keep the business running efficiently,
effectively, and therefore successfully. Effective
communication must occur if business plans
are to come to fruition and objectives are to be
achieved.
A manager will be involved in both:
s interpersonal communication, involving
sharing information and understanding
between two people or a small group
s organisational communication, where

systems are used to share information and
understanding with large groups of people.
Miscommunication is often the cause
of business difficulties. This can occur if a
communicator sends an incorrect message or
uses an incorrect medium. It can also occur
if the receiver fails to decode or receive the
message.
The manager who is able to both
anticipate and recognise barriers to effective
communication and who actively takes
steps to eliminate them is well on the way to
communicating effectively.
AREA OF STUDY
COMMUNICATION IN BUSINESS
interpersonal
communication
sharing information and
understanding between
two people or a small
group
organisational
communication
use of systems to
share information and
understanding with
large groups of people
barriers to effective
communication
the reasons why
communication fails,
or why messages are
not correctly received
or understood by
the receiver
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Figure 14.1 Interpersonal communication
Figure 14.2 Organisational communication
Barriers to effective
communication
Anything that interrupts or interferes with
effective communication taking place is a barrier
to communication. A barrier can:
s totally prevent communication occurring
s filter all or part of the message
s distort the message.
Filtering
Filtering is the deliberate manipulation of a
message to make it appear more favourable
to the receiver by deleting undesirable pieces
of information. For example, a student tells a
teacher what they feel the teacher would want to
hear, or gives their parents an answer they know
will be accepted. This may involve leaving out
the parts that may not be well received. Filtering
often occurs during upward communication.
Messages received by a manager are often
filtered, especially if they are received via an
intermediary, such as a personal assistant.
How much filtering occurs in an organisation
can depend on how strongly it upholds and
248
Figure 14.3 Non-verbal communication
adheres to the corporate cultural values of

honesty and openness. The complexity of the
organisational structure within a business can
also play a part, with the information continuing
to be filtered as it passes through various levels.
Selective perception
This occurs when the receiver sees and hears
communications selectively, depending on their
needs, motivations, experience, background
and other personal characteristics.
The receiver also projects their interests and
perspective when decoding a message. We all
have an individual filter system that affects how
we perceive information. This affects what we
view as important in a message. Therefore the
important aspects of a message to a sender may
differ entirely from that of the receiver. They
will both decode the same message in different
ways. For example, if two people are at a
football match supporting opposing teams, they
will most probably view an umpiring decision
in very different ways!
ISBN: 9781107665910
ACTIVITY 14.1
Nick places an order via email. Wayne receives

the email, but accidentally sends it to his trash
folder before reading it. Two weeks later,
Wayne comes across the email and reads
it. He immediately fills and dispatches the
order. In the meantime, Nick has phoned the
business owner/manager, Kate, and made an
official complaint about the length of time it
took for his order to be sent. When Wayne is

asked about this, he responds that he filled and
dispatched the order within an hour of reading
the relevant email. Kate then rings Nick and
tells him that there must have been a glitch in
the email system at his end.
Questions
1 What information has Wayne decided to omit here?
2 Describe why he has decided to omit this information.
3 How might this situation have played out differently if he had not omitted this information?
4 In your view, was it worth filtering this information? Give reasons for your answer.
5 Describe an instance where you have filtered information you gave to an employer, your parents
or a teacher.
Emotions
Figure 14.4 Different perception moderate confusion
How a receiver is feeling at the time of receiving

a message will influence how it will be
interpreted. A persons response to a message
will differ according to their mood or state of
mind. Emotions such as anger, hostility, fear
or even joy can all cloud our perception of a
message and impede our ability to hear it. For
example, you often wait to catch someone at
the right moment before telling or asking for
something. In effect, what you are doing is
waiting until they are in the best mood to give
the most favourable response.
Our view or opinion of the sender of a
message will also affect how we receive it (e.g.
if we dislike or fear the sender). For instance, a
message from someone that you respect will be
treated more seriously.
C H A P TER 1 4 EFFECTIVENESS OF COMMUNICATION
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Technological breakdown Interruptions and noise

Society is increasingly dependent on various
forms of technology, such as telephones,
mobile phones, fax machines, photocopiers,
printers and the internet. Our dependence is so
great that if a breakdown occurs with one of
these forms, it is difficult to complete everyday
business tasks. For instance, a breakdown may
occur because not all pages of a fax print out,
the mobile phone drops out of range, the printer
jams, or the internet connection goes down and
there is no access to email. Some people, often
older workers, actually suffer from a fear of
technology (technophobia). These people can
become resistant to both the introduction and
the use of technology in the workplace.
These may hinder a message being received or

passed on. Work environments such as openplan offices or noisy factories can make it difficult
to conduct conversations, particularly if they are
confidential in nature. A simple telephone call
during a meeting can interrupt and hinder the
message that was being communicated.
Physical environment
This can extend to how welcoming or uninviting
the design of the working environment may be.
For instance, the use of security screens in banks,
while there to protect the banks employees, is
felt by many (customers and bank staff) to create
a barrier to open communication and interaction.
The use of colour in a workplace has been
shown to affect communication, as certain colour
schemes send a distinct message in themselves.
Figure 14.5 Effective communication channels are vital to business success.
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Table 14.1 Colours and what they communicate

Colour
Associated with
Red
Energy
Danger
Power
Passion
Determination
Action
Confidence
Increased metabolism, respiration and blood pressure
Highly visible
Prosperity and joy
War
Pink
Femininity
Tranquillity
Calming
Romance and love
Orange
Joy
Sunshine
Enthusiasm
Encouragement
Stimulation
Heat
Yellow
Warming
Demanding attention
Encourages socialisation
Cheerfulness
Vitality
Hunger
Stimulation
Can be disturbing if overused
Light-hearted
Superficial
Spontaneity
Brown
Solid
Reliable
Conventional
Approachability
continued next page
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Colour
Associated with
Green
Nature
Growth
Fertility
Restful
Harmony
Calming
Safety, money
Healing, health
Blue
Depth
Inspiration
Stability
Trust, truth
Loyalty
Wisdom
Confidence
Intelligence
Slows metabolism and depresses appetite
Masculinity
Purple
Royalty
Wealth
Power
Nobility
Luxury
Magic and mystery
Uplifting
White
Light
Goodness
Purity
Virginity
Cleanliness
Reverence
Peace
Innocence
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Colour
Associated with
Black
Power
Elegance
Formality
Death
Evil
Fear
Strength
Authority
Wealth
Mystery
ACTIVITY 14.2
1 Referring to table 14.1, suggest reasons for the following uses of colour.
a Use of red and yellow in the stores, staff uniforms and packaging of fast-food chains such as
McDonalds, Hungry Jacks and KFC
b Medical staff wearing white
c Corporate suits are predominantly black, grey or navy blue
d It is suggested that blue be worn to a job interview
e The use of the colour green in stores such as The Body Shop
f
Undertakers never wear yellow
g Very few schools have red uniforms

h Classrooms are often painted blue or green
i
Prisons are often painted pink
Asian brides often wear red.
2 What colours would be best to use in the following situations and why?
a On packaging for environmentally friendly products
b When trying to create an impression of wealth and luxury
c When designing uniforms for a childcare agency
d When designing the colour scheme for a new hospital.
3 What would be wrong with the message conveyed by each of the following?
a A nurse wearing a black uniform
b A fast-food employees uniform that is blue
c A politician in a bright yellow or orange suit
d A store detective dressed in red
e A psychologists office painted in black.
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Incorrect choice
of medium
Communication is often hindered by incorrect
choice of medium. For example, to send a
message containing detailed information,
such as technical descriptions and figures,
using a telephone would be inappropriate.
This type of message needs to be contained
in a formal verbal (written) communication,
such as a letter, presentation or report. Oral
instructions are not appropriate when detail
is required.
ACTIVITY 14.3
Suggest what is wrong with each of the following.
Then provide a better alternative method of
communication for each.
1 Conducting a job interview by email

2 Sending confidential material via the office
fax machine
3 Commiserating with a colleague about
his failure to gain a promotion during a
PowerPoint presentation at a staff meeting
4 Reprimanding a staff member for poor
performance while she is dealing with a client
5 Negotiating a deal with a supplier over
the phone.
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Language
Words can mean different things to different
people. Age, education and cultural background
are common variables that influence the
language people use and their definition of
words. The following are some common
problems with use of language.
s Unnecessary words usually occurs with
written communication where the person
preparing a document believes that to write a
large quantity of words indicates knowledge.
A fog index is used to measure the brevity
and clarity of communication. A document
should be written in a concise manner and in
a style appropriate to the reader. Wordiness is
not only irritating to a receiver, it is confusing
and the message gets lost.
s Pompous language language is always
growing. Be careful not to use words that
are outdated and not currently understood.
For example, trams and trains in Melbourne
used to have a sign warning Expectorating
prohibited,
which
in
fact
means
Spitting prohibited.
s Jargon using technical language is
common in communication. It is important
to always consider the audience/reader
to determine whether the use of jargon is
appropriate.
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ACTIVITY 14.4
1 Rewrite each of the following terms as a
single word. The first is done for you.
a a majority of most
b it is probable that
c six in number
d in a timely manner
e to the fullest extent possible
f
subsequent to
g in close proximity to
h in the event that
i
an adequate number of
along the lines of
k at such time as
l
required to fill out the form overleaf by

using a black pen. This will occur prior to
the return of this documentation to our
office by way of the envelope provided.
c High-quality learning environments are a

necessary precondition for the facilitation
and enhancement of the learning process
in teenage children.
d It is hoped that within this learning
environment structure we will be able to
facilitate an efficient learning knowledge
transfer via electronic means.
e The new internet access solution
will provisionally offer a more
streamlined browsing, downloading
and communicating experience for all
organisational stakeholders.
at this point in time.
2 Rewrite each of the following in plain English.

a If there are any aspects pertaining to
previous or current discussions on which
you require further clarification or if there
are further particulars that you require to
be furnished, we shall be glad to furnish
such additional detail as may be required
by means of the telephone.
b It is important that you read the relevant
literature and glean the appropriate
information. Subsequent to which you are
s Tautology means expressing an idea or

message twice using different words. For
example, to say that a particular nail polish
dries fast and very quickly is to express a
tautology. It is sometimes used as a way of
padding a written document to gain length.
For example, this tautology was noticed in a
public bar:
Figure 14.6 An example of a tautologly
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ACTIVITY 14.5
ACTIVITY 14.6
Outline why each of the following statements is a

tautology. Then rewrite each as a non-tautology.
Rewrite each of the following statements so that

its meaning is plain.
1 The dress cost me $100 dollars.
1 Prostitutes appeal to Pope

(a newspaper headline)
2 In my opinion, I think that

3 What is your PIN number (the acronym stands
for personal identification number)?
2 Kids can make nutritious snacks
4 Please RSVP (the acronym stands for the

French Rpondez, sil vous plat, or, Respond,
please).
4 Stolen painting found by tree
5 Close proximity.
6 They decided to return again for a second
time to that old ancient house.
7 2 a.m. in the morning (as opposed to 2 a.m. in
the afternoon?)
8 Necessary requirement.
9 The vote was completely and totally
unanimous.
10 She herself had written her autobiography of
her own life in just two weeks.
11 Forward planning.
12 Very unique.
13 To reiterate again.
14 The reason is because ...
3 Miners refuse to work after death

5 Queen Mary has bottom scraped
6 I saw her duck
7 Police help dog bite victim
8 Student tells teacher an unbelievable story.
s Ambiguity occurs when a sentence

has more than one meaning through
inappropriate placement of a word or phrase.
Aim to write or speak in a clear and concise
manner. For example, the ambiguous sign
shown below was displayed in a laundromat.
s Active or passive voice can both be used
for effective communication. Active voice
tells the reader that something has happened.
s Tone of communication must be
considered. Either a formal or informal manner
will be required, depending on the message.
Figure 14.7 An example of ambiguity
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ACTIVITY 14.7
Rewrite each of the following statements so its
meaning is plain.
1 Toilet out of order please use floor below.

2 We exchange anything bring your wife along
and get a bargain.
3 Ladies are requested not to have children in
the bar.
d Customers who purchase our products

may ask to request a money-back
guarantee to ensure recompense should
their purchase be found to be faulty or
in a non-operating condition. Should you
be aggrieved at a lack of service, please
be assured that we will both say sorry and
offer our most sincere apologies.
2 Rewrite the following email using clearer
language.
4 Please do not feed the animals. If you have

any suitable foods give it to the zoo keeper.
5 On a repair shop door: We can repair
anything. (Please knock hard on the door
the bell doesnt work)
ACTIVITY 14.8
1 Each of the following sentences contains
words that are unnecessary. Rewrite each in
simpler and clearer form.
a It has been decided that you will be
compensated in the amount of $220
dollars for the period of time that you
were wrongly incarcerated.
b The students intend to engage in
preparation with reference to the
coming examinations.
c Pursuant to your request, it has been
decided to give advance warning about
the yearly annual review.
Figure 14.8 A formal letter that uses unnecessary language
Table 14.2 Checklists for preparing and writing a written document

Checklist for preparing a written document
Checklist for writing the document (Does it

contain ?)
s Purpose is it clear?
s Unnecessary words
s Audience has it been identified?
s Vague, indefinite words
s Document what type has been selected?
s Outdated language
s What information do I need?
s Jargon
s Tautology
s Ambiguity
s Appropriate voice (active/passive)
s Appropriate tone
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closed questions
questions that require
a simple answer, e.g.
Yes/No, True/False
open-ended questions
questions that allow the
respondent to provide a
descriptive answer
Communication has become more problematic

as businesses have become more global in
their operations. It is important that businesses
have an awareness of other cultures manners,
languages, customs and values, and incorporate
this into how they communicate in a global
business environment. It is important to be able
to communicate both verbally and non-verbally.
Incorrect use of body language and gestures
often innocently causes offence to both parties
(sender and receiver), whereas when used
in the right context they can be powerful
communication tools.
Something that illustrates cultural difference
is the smile. In Australia, a smile is seen as a
form of acknowledgement and is widely used,
whereas in Germany it is usually reserved
for friends. In other countries, such as Japan,
a smile is often used to hide embarrassment,
displeasure, sadness or even anger.
Overcoming
and reducing
communication
barriers
Overcoming and reducing communication
barriers is crucial to the success of a business.
Unless staff and managers can communicate
effectively with their peers and between the
levels of an organisation as well (lateral, upward
and downward communication), business
objectives are unlikely to be achieved.
Methods of reducing
communication barriers
Being an effective communicator is an important
skill in helping to ensure the success of a
business. A key factor in good communication
is to pay attention to what others have to say.
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s Use feedback. As many communication

problems arise due to misunderstandings
and inaccuracies, the use of feedback in the
communication process helps to overcome
this. By asking a simple question, Did you
understand what I said?, the response given is
feedback. It needs to be no more than yes or
no or a non-verbal cue of a nod of the head as
an acknowledgement. However, asking closed
questions that only require a simple yes or
no response may not help clarify whether
a person has understood the message. The
use of open-ended questions that require a
person to make a more significant response
may be more useful to gain feedback as to
whether the message has been understood.
Use feedback to alter a message if required so
it is understood by the receiver. A message has
not been communicated unless it is correctly
decoded by its receiver.
s Become an active listener. Listen with
purpose. It is estimated that the average
person speaks at about 150 words per
minute, whereas capacity to listen is rated at
nearly 1000 words per minute. Therefore not
being fully engaged allows the opportunity
for a persons mind to wander. A receiver
making eye contact, giving affirmative nods
and appropriate facial expressions helps
to focus attention. It is important to avoid
making distracting actions or gestures.
s Be sensitive to the receivers values, needs,
attitudes and expectations. Being empathetic
makes it easier when communicating.
s Do not let status interfere with effective
communication. It is important to be a
person not a position.
s Be aware of the context in which a
message is delivered. Observe and consider
the non-verbal elements of the message,
such as tone of voice, body language, eyes,
and accompanying emotions. Not doing this
will mean that a message may be taken out
of context.
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s Ensure that physical conditions are

appropriate for messages to be heard
or received.
s Constrain
emotions.
Communication
should be discontinued until both sender and
receiver are composed.
s Watch non-verbal cues. Actions are known
to speak louder than words. Make sure that
the non-verbal actions reinforce the words
accompanying them. The wearing of uniforms
in businesses is used to portray a professional
environment. The choice of colour and style
needs to fit with the image the organisation is
wishing to create.
s Simplify language. Choose clear words
and structure the message so that it is easily
understood by the receiver. For instance,

teachers need to modify the way they
communicate with different year levels in
a school. Imagine how differently a
teacher would have to speak with a Year 1
student compared to a VCE student when
asking them to complete a classroom or
homework exercise.
s Use a professional to communicate a
message to consumers and the public. Actors
are often used as the voice-over or media
front for an organisation in its advertising.
They are judged to be able to put the correct
tone to the message.
ACTIVITY 14.9
Hosties hate new Air NZ uniforms

by Sydney Morning Herald
Thunderbirds are out and drag queen Barbie
is in.
Air New Zealand revealed last night its
new concept uniform design complete with
a candyfloss pink colour scheme created by
Kiwi fashion designer Trelise Cooper.
The uniform will be introduced in 2011 to
coincide with the introduction of a new fleet
of 777-300 aircraft. Cooper was chosen over 25
other New Zealand designers to come up with
the new designs.
Airline spokesman Ed Sims said the uniform,
to be worn by more than 5000 staff, was contemporary, based on New Zealand themes that still
allowed individual choice by addressing body
type and personality preference.
We have also been working closely with

Trelise to ensure the uniform colour palette
works in harmony with our soon to be unveiled
new aircraft interiors, he said.
A flight attendant who spoke to The Dominion Post but who did not want to be named,
said the uniform resembled the look sported
on the airlines annual themed flight to Sydneys
Mardi Gras festival. The flight attendants
look like drag queens off the Air New Zealand
pink flight.
The male flight attendants uniform and
ground staff uniform was very professional,
but she said the female cabin crew uniform
was let down by its colour. I havent worn that
colour since I was five.
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Jack Yan, publisher of fashion magazine

Lucire, said the patterns fitted with the heritage of Air New Zealand, but questioned the
colour choice. I know airlines find differentiation very important today, but Ive some doubts
on whether pink conveys any national values.
Source: Sydney Morning Herald,
12 January 2010
Questions
1 Explain what the article is reporting in regard to Air New Zealand.
2 Explain the role a staff uniform plays in promoting and communicating an image for a company
such as Air New Zealand.
3 Describe the new uniform adopted by Air New Zealand for use in 2011. Explain the rationale for the
colours chosen as given by the company.
4 When was pink used previously in Air New Zealand uniforms?
5 Explain how the new uniforms are controversial. What image is being projected by them, according
to the flight attendant interviewed?
6 Using what you have learnt in this chapter about the use of colour, explain the message that is
conveyed, in your opinion, by the use of pink in these uniforms (see table 14.1). Describe the
type of client (market segment) that is likely to be attracted to an airline using the colour pink in
its uniforms.
7 Discuss how important you believe colour is in promoting the image of a business. Include in
your discussion examples of the uniforms used by other businesses and their effect on the image
created by the business.
8 Using the internet, locate the uniform designs for each of the following airlines. What do these
designs tell you about the image the airline wishes to create and the types of clients each wishes
to attract?
a Qantas
b Emirates Airlines
c Virgin Australia
d Jetstar.
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The ethics of business

communication
Small businesses are under increasing pressure to
adopt ethical and socially responsible behaviour
and to be seen to be accountable to all stakeholder
groups. While in the past most business operators
were primarily concerned with meeting the
expectations of their owners, this is no longer
the case. The community now expects that
because a business makes profits through its use
of resources such as labour and raw materials,
there is a responsibility for the business to act in
the interests of all, rather than simply focusing
on the generation of profits for owners. Socially
responsible and ethical behaviour is fast becoming
an expectation.
If a business gains a reputation for unethical
behaviour, it stands to lose customers and will
find it difficult to attract and retain good staff.
It will also alienate other businesses, such as
suppliers, who are increasingly choosing to
favour businesses that adopt ethical and socially
responsible behaviours.
It is important that a business communicates:
s standards of ethical behaviour expected of
those employed in the business
s ethical and socially responsible activities that

it engages in within the external environment.
Expected standards of behaviour are
communicated to staff via policies and
guidelines, and through management modelling
those behaviours. Public statements and written
disclosures are also important in publicising the
ethical expectations held in an organisation.
A business that is seen to be open and honest
in its communications with all stakeholder
groups within both its internal and external
environments will enjoy a significant advantage in
attracting both customers and employees. Illegal
and/or unethical business communications
will have a significant adverse effect on the
reputation, and therefore competitiveness, of a
business. It is important that a small business
scrutinises all of its communications with a view
to eliminating those that may:
s offend community standards by exhibiting
sexism or racism
s exclude members of the community, such
as those who do not understand the
language used
s be culturally inappropriate to potential
customers/clients.
ACTIVITY 14.10
Our statement of business ethics

Commissioners foreword
This statement provides guidance for the
private sector when doing business with the
Independent Commission Against Corruption
(ICAC). It outlines the ICACs ethical standards
and our expectation that goods and service
providers and contractors will comply with
these standards in all their dealings with us.
The statement also outlines what goods and
service providers and contractors can expect of

the ICAC. The protection of the public interest
and the prevention of breaches of public trust
are among the ICACs primary concerns. We
aim to promote integrity, ethical conduct and
accountability throughout the NSW public
sector and in all areas of public administration.
Irene Moss AO Commissioner
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Our key business principles
What we ask of you
The principle of best value for money is at the

core of all the ICACs business relationships
with private sector suppliers of goods
and services. Best value for money does
not automatically mean the lowest price.
Rather, the ICAC will balance all relevant
factors including initial cost, whole-of-life
costs, quality, reliability, and timeliness in
determining true value for money.
Part of obtaining best value for money also
includes ensuring all our business relationships are honest, ethical, fair and consistent.
Our business dealings will be transparent and
open to public scrutiny wherever possible
We require all private sector providers of

goods and services to observe the following
principles when doing business with the ICAC:
s Comply with the ICACs procurement policies and procedures
s Provide accurate and reliable advice and
information when required
s Declare actual or perceived conflicts of
interest as soon as you become aware of the
conflict
s Act ethically, fairly and honestly in all dealings with the Commission
s Take
all
reasonable
measures
to
prevent the disclosure of confidential ICAC
information
s Refrain from engaging in any form of
collusive practice, including offering
ICAC employees inducements or incentives designed to improperly influence the
conduct of their duties
s Refrain from discussing ICAC business or
information in the media
s Assist the ICAC to prevent unethical practices in our business relationships.
What you can expect from us

ICAC will ensure that all its policies,
procedures and practices related to tendering,
contracting and the purchase of goods or
services are consistent with best practice and
the highest standards of ethical conduct. Our
staff is bound by the ICACs comprehensive
Code of Conduct and Ethics when doing
business with the private sector. In addition,
all ICAC procurement activities are guided by
the following core business principles:
s All potential suppliers will be treated with
impartiality and fairness and given equal
access to information and opportunities to
submit bids
s All procurement activities and decisions will
be fully and clearly documented to provide
an effective audit trail and to allow for effective performance review of contracts
s Energy efficient equipment, products containing recycled materials and environmentally
friendly products will be purchased wherever
reasonably possible
s Tenders will not be called unless ICAC has a
firm intention to proceed to contract
s The ICAC will not disclose confidential or
proprietary information.
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Why is compliance important?

By complying with our statement of business
ethics, you will be able to advance your
business objectives and interests in a fair and
ethical manner. As all ICAC suppliers of goods
and services are required to comply with this
statement, compliance will not disadvantage
you in any way.
Demonstrated corrupt or unethical conduct
could lead to:
s Termination of contracts
s Loss of future work
s Loss of reputation
s Investigation for corruption
s Matters being referred for criminal
investigation.
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Guidance notes
Incentives, gifts, benefits
In general, the ICAC expects its staff to decline
gifts, benefits, travel or hospitality offered
during the course of their work. You should
refrain from offering any such incentives to
ICAC staff all such offers will be formally
reported.
Contracting employees
All contracted and sub-contracted employees
are expected to comply with the ICAC
statement of business ethics. If you employ
sub-contractors in your work for the ICAC you
must make them aware of this statement.
Source: Independent Commission Against
Corruption (ICAC), www.icac.nsw.gov.au
Conflicts of interest
All ICAC staff are required to disclose any
potential conflicts of interest. The ICAC
extends this requirement to all our business
partners, contractors and suppliers.
Confidentiality
All ICAC information should be treated as
confidential unless otherwise indicated.
Questions
1 Explain the purpose of the ICAC publishing
this statement. Who is it aimed at?
2 What is this policy statement trying to achieve:
a within the ICAC?
b within outside organisations who are
trying to win contracts with the ICAC?
3 Explain the basic commitments being made in
this document by the ICAC in regard to:
a who they choose to do business with
b their own behaviour and ethical standards.
4 Imagine that you are an IT consultant
attempting to win a contract at the ICAC.
a What basic standards of ethical behaviour
would you have to demonstrate to be
considered for the contract?
b What are the possible consequences of
not meeting those standards?
Figure 14.9 A business must communicate and

demonstrate its standards of ethical behaviour
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CHAPTER SUMMARY
U It is important that business communication is

effective. Business communication involves:
interpersonal communication between two
people or a small group
organisational communication with a
large group.
U Miscommunication is the cause of many difficulties
within a business.
U Barriers to effective communication are anything
that interrupts effective communication, such as:
filtering when the sender manipulates a
message so it appears more favourable to
the receiver
selective perception when the receiver sees
and hears communication selectively based
on their own needs, motivations, expertise
and background
emotions the current emotional state of
the sender or the receiver affects if and how
a message is decoded
technological breakdown
interruptions and noise
inappropriate physical environment
incorrect choice of medium
1 Why would people in organisations deliberately
language used
cultural differences.
U Methods to overcome and reduce communication
barriers are:
use of feedback
awareness of the receivers values, needs
and attitudes
awareness of message context, e.g. body
language accompanying the message
minimising potential physical distractions
constraining emotions
simplifying language.
U Ethics of communication small businesses are
under increasing pressure to be ethical and socially
responsible. They must communicate how they will
achieve this to:
internal stakeholders, so they can understand
the reasoning behind actions and decisions and
work towards achievement of business goals
external stakeholders, as they tend to make
judgements about a business and its reputation
based on how they perceive the business to be
acting in this regard. This will then affect the
reputation and success of the business.
d Staff uniforms that are dowdy and out
CHAPTER SUMMARY
QUESTIONS
withhold information from each other?

2 Describe five important barriers to
of fashion
e Reading a list of complex instructions in
communication. Provide an example of each.
English to a group of workers with poor

command of that language.
3 What can the sender do to ensure that
communication will be both received and

understood as intended?
4 Why does filtering of information often occur in
upward communication?
5 Explain what is wrong with the following
communications.
a Submitting a tender for work on a scrap
of paper
b A business plan full of spelling and
grammatical errors
c Negotiating a contract over the telephone
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6 Outline a situation where communication has
not been effective due to the following reasons.

a Technological breakdown
b Noise
c Physical environment
d Incorrect choice of medium
e Use of language pompous, full of jargon,
tautology or ambiguity
f
Tone
g Cultural differences.
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7 Explain the possible consequences of
a business failing to act ethically in its

communications with staff.
8 Discuss the possible consequences for a
small business of each of the following

failures to act ethically.
a Staff are not informed that asbestos has
been found in the office building.

b A staff member has been caught stealing
and it is hushed up.

c Personal information about staff is
posted on the company website.
To be able to communicate effectively is said to

be one of the most important skills that a person
can possess. Poor communication can become a
barrier to success in business.
Discuss whether you believe this statement to
be correct. Use examples to support your point
of view. (The following sample plan may provide
you with some ideas on how to handle this task.)
Body
What types of communication are needed
in business?
How do they relate to business success?
For example, if communicating with customers
is poorly conducted, customers will not return to
your business. If communication with suppliers is
poorly handled, incorrect deliveries may be made.
Sample plan
Introduction
Define the key terms/ideas: communication,
skills, business success.
EXTENSION
QUESTION
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15
MANAGING THE
MARKETING FUNCTION
WHATS AHEAD
Function of marketing
Product orientation
Marketing-oriented
approach
Marketing process
Research
Marketing
strategies
Market mix
Evaluation
Pareto Principle
Target markets
Marketing concept
Positioning strategy
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KEY KNOWLEDGE
Students will learn the following about managing the marketing function:
the marketing function and its relationship to business objectives
and strategy
market attributes, including market dimensions, segments, consumer
trends and behaviour.
A normal school day may start by waking in

the morning to the sound of the radio playing
an advertisement for a new teenage magazine.
Then comes a shower and deciding what type
of shampoo to use: an expensive specialty
brand or the generic brand bought by Mum.
Breakfast is the next big decision: will it be
healthy muesli provided by Uncle Tobys or
Carmans and hopefully made of all-Australian
products, or maybe a couple of pieces of Helgas
bread spread with Vegemite or peanut butter?
Alternatively, the decision might be to purchase
AREA OF STUDY
MANAGING THE
MARKETING FUNCTION
breakfast on the way to school at McDonalds,

Subway or the school canteen, which is offering
a special today on egg and bacon rolls.
In that short time there have been many
examples of marketing. In fact, from the day
we are born, we are bombarded with thousands
of marketing messages. Anytime we use the
internet, we are also exposed to marketing
advertisements flash up on the screen or provide
links to other websites. We are surviving in a
world where everyone wants our attention
or money. As a result, we as consumers are
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becoming increasingly savvy and often see

through traditional marketing messages that are
pushed onto us. We are finding many marketing
campaigns to be transparent and shallow.
Marketers now need to find other ways of
reaching the consumer.
Both obvious and subtle marketing influence
most aspects of our lives. It is important
for organisations to re-establish contact
and influence consumers if they want to be
successful in marketing their product or service.
To do this they will need to anticipate and judge
emotional and behavioural triggers, improve
communication methods, and better understand
the various life stages we as consumers will pass
through. Hopefully, this will lead to consumer
loyalty to particular brands.
ACTIVITY 15.1
1 Identify three advertisements you dont like.
2 Describe the elements of the advertisements
that cause your reaction.
3 Pick one of these advertisements and
describe what changes you would make.
What is marketing?
marketing
process that provides
the link between
producers or providers
of goods and services,
and consumers
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Marketing is a process that provides the link

between producers or providers of goods
and services and consumers. It involves the
relationship whereby producers/providers and
consumers create, offer and freely exchange
products and services of value with each other.
Marketing extends to:
s goods tangible items such as food,
commodities, clothing and housing
s services provided by airlines, hotels, car
rental businesses, hairdressers, accountants,
doctors, solicitors, engineers, management
consultants
s experiences a visit to Sea World, Universal

Studios, a museum, art gallery
s events attending the Olympic Games, an
AFL Grand Final, the Spring Racing Carnival,
Melbourne Grand Prix or rock concerts
s personalities such as Kylie Minogue,
Nigella Lawson and Jamie Oliver have their
own marketing team who work to create
their image and brand
s places cities, states, regions and whole
countries can compete to attract tourists,
factories, company headquarters and new
residents
s property real estate agencies work for
property owners or prospective purchasers
wanting to sell or buy residential or
commercial
properties.
Investment
companies and banks are involved with
marketing securities to institutional or
individual investors.
s organisations corporate identity can
be created to gain a better image, such
as The Body Shop and its involvement in
social causes. Other organisations owe
their visibility to a dramatic leader, such as
Richard Branson and Virgin Blue Airlines, or
Janine Allis and Boost Juices.
s information and knowledge produced
and marketed as a product by schools and
universities. It is produced and distributed,
often at a price, to parents, students and
communities. For instance, the University of
Melbournes Dream Large campaign was
designed to market the Melbourne Model of
university education.
s ideas involves determining the basic idea
at the core of the product or service.
ISBN: 9781107665910
Figure 15.1 Business

marketing involves
communicating different types
of message to a large audience.
ACTIVITY 15.2
Classify the images above into the forms of marketing area they represent. For example, the flying
kangaroo of Qantas represents a service business.
Marketing practices
Marketing is very important to the success of
any organisation, whether it is a small, medium,
large, not-for-profit or profit-oriented business.
Marketing practices and approaches have evolved
through the following four stages:
1 Production orientation if we can make
it, it will sell. This approach commenced
at the time of the Industrial Revolution
and continued until the 1930s. The focus
was on internal production issues, such as
labour costs and efficient use of production
capacity, with little attention to external
factors, such as what customers need or
want. This orientation is based on the belief
that consumers would prefer products that
are widely available and inexpensive, often
resulting from mass production.
2 Sales orientation (1930s to 1960s). This
approach focused on persuading existing

and potential customers to purchase the
goods or services currently produced by
the organisation. This leads to marketing
departments being very aggressive in their
advertising and selling of products. It is often
used with products that buyers do not usually
think of buying, such as insurance and
encyclopaedias. Not-for-profit organisations

and political parties will also use this
approach to raise funds. For instance, during
an election, a political party sells the virtue of
its candidate and its political platform.
3 Marketing department orientation
(1970s to 1990s) occurs when all marketing

activities are brought under the control of one
department to achieve the short-term plans
and goals of the business.
4 Market-oriented approach (1990s to
present) occurs when all of the organisations

efforts are aimed in a coordinated and
integrated manner towards simultaneously
satisfying its customers and achieving its
own corporate objectives. They are directed
in their approach by the marketing concept.
Many well-managed organisations have
replaced production-, product- and salesoriented marketing with the implementation
of the marketing company orientation.
Most businesses these days would like to think
they focus on consumer needs and wants,
devoting production and marketing resources to
satisfying them. This requires market research
and market analysis to indicate the present and
future consumer demand. (See chapter 16 for
more information on market research.)
C H A P TER 1 5 MANAGING THE MARKETING FUNCTION
sales orientation
the business focuses
on persuading
customers to purchase
its goods and services
market-oriented
approach
a business strategy
that focuses on the
needs and wants
of consumers and
develops products to
meet them
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Why use the marketoriented approach?
Figure 15.2 Example of an Australian company that

adopts the market-oriented approach
An Australian company that adopted the

market-oriented approach is Casella Wines,
owner of the [yellow tail] brand. It has become
the most successful Australian wine exporter
to the United States of America. The company
undertook market research which revealed that
American customers wanted to know the type
of grape from which the wine was made and
a simple label written in English. The wine
manufacturer also changed its product to be
sweeter to meet the palate of the Americans and
ensured that the kangaroo featured prominently
on the label to identify it as being Australian.
Many companies use the market-oriented

approach because:
s it recognises the importance of all functional
areas (e.g. marketing, finance, production) of
an organisation working towards achievement
of business objectives
s it lowers the risk of a newly developed
product or service failing in the market by
virtue of effective market research having
been undertaken prior to the manufacture of
the product or provision of the service
s it is customer-oriented as the product or
service is viewed from the customers
perspective. Consumers needs are being met
with products or services they have indicated
are appropriate. This should lead to a longer
product life and ultimately greater profits for
the manufacturer or service provider.
s ongoing consumer research and feedback
will provide valuable information to the
manufacturer or service provider as to
whether the product or service needs to be
updated, extended or removed from their
product or service range.
ACTIVITY 15.3
Read the case study and answer the question that follows.
Case study
The Model T Ford motor car was first
manufactured in 1908 and its low price allowed
everyone earning a good salary to buy a car.
This strategy proved very successful, with
over 15 million Model T Fords being produced
during the period 190827. Fords belief was
based on the if we can make it, it will sell
production-based philosophy of marketing. It
is a common misconception that Model Ts were
only available in black. In fact green, red and

blue had also been available up until 1915 but
were removed from the range due to the longer
drying times required for these pigmented
paints. These colours were reintroduced
in the late 1920s when better, faster-drying
paints came out and production times would
therefore not be negatively impacted.
Question
Identify another product (past or present) that has been manufactured and then sold, not based on the
need for the product, but on a manufacturers desire to sell the product and convince the public they
need it (e.g. video mobile phone).
270
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The marketing
concept
The marketing concept developed when the
focus changed from selling a product or service
to satisfying the needs of customers. It is based on
the belief that the best results are achieved through
using an integrated approach to marketing.
This approach is based on four factors:
1 Customer satisfaction is important.
2 A total or integrated effort is required by the
organisation.
3 Objectives are set.
4 Key Performance Indicators that indicate
whether objectives, such as increased sales

revenue, market share and profits/surplus
have been achieved.
If businesses are to be fully committed to
the marketing concept approach, they must
focus on the customer and adopt the philosophy
the customer comes first. To be successful,

the business must understand their customers
and align their organisations performance,
evaluation and reward systems so that corporate
objectives are met. For a small business owner,
the importance of their customers and the repeat
business brought through the development of
this customer service and satisfaction relationship
become very powerful marketing tools. It is also
cost-effective to the business, as it does not
require an expensive marketing campaign to get
customers into the business.
Organisations that are larger and more
complex in their organisational structure, policies and procedures will often design their
organisational charts to represent the importance of the customer to their business. The
diagrams, on page 272 illustrate the traditional
organisational chart and the organisational chart
of a customer-oriented business.
marketing concept
the business focuses
on satisfying the needs
of the customer rather
than on selling a
product or service
corporate objectives
the long-term
objectives of the
organisation, which
provide focus and
direction for the
organisation; they
form the foundation for
strategic planning
Total organisation
commitment
Customer
satisfaction
***INSERT AW 1507***
Marketing concept
Objectives
Key Performance
Indicators
Figure 15.3 Marketing concept and its four essential elements
271
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Senior
management
Middle management
Frontline management
Customers
Figure 15.4 A traditional organisational chart
Customers
Frontline management
Middle management
Senior management
Figure 15.5 An organisational chart based

on the customer-oriented approach
272
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How does
marketing relate to
business objectives?
departmental objectives and, finally, an individual

employees targets. Marketing as a functional
area (department) within that business needs to
establish its objectives to fit in with the overall
aims and mission of the business.
Small businesses also need to establish their
business objectives. It is recommended that all
businesses should prepare a business plan. This
plan involves not only the setting of overall
business objectives but also the objectives and
plans to be executed by the functional areas of
marketing, finance and operations.
For an organisation to operative effectively as a

cohesive business, it needs to have established
its mission statement, aims, objectives, plans and
strategies. In medium and larger organisations,
a hierarchy of objectives is then established:
corporate
objectives,
divisional
objectives,
hierarchy of
objectives
the aims and objectives
of an organisation are
placed in descending
order of strategic
importance
6
1
Mission statement central purpose of the business
Aims what does the business aim to achieve?
Corporate objectives e.g. maximise profits, grow the business, increase market share, consideration
for social, ethical and environmental issues, employer of choice
Divisional objectives within a particular region to maximise profits, grow the business, increase
market share, consider social, ethical and environmental issues, employer choice
Departmental objectives marketing increase market shares by xx%, increase profit by xx%
Individual targets marketing manager and subordinates introduce more customers to the
business, convert introductions into sales revenue, increase % sales per customer
Figure 15.6 Hierarchy of objectives
273
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What does
the marketing
process involve?
marketing process
continuous study of the
market by a business
to ensure it is always
meeting the needs of
its customers
marketing strategy
a set of ideas and
actions that outline and
guide decisions on how
to create, distribute,
promote, and price
a product or service;
activities undertaken
to ensure all marketing
efforts of the business
will be coordinated
and consistent
marketing mix
the variables that are
used when undertaking
marketing strategies:
product, price, place
and promotion
marketing mix
the variables that are
used when undertaking
product, price, place
and promotion
market
group of potential
customers with similar
needs who are willing
to exchange something
of value with sellers
offering various needsatisfying goods
or services
274
The marketing process is a continuous study

of the market by a business to ensure that it
is always meeting the needs of its customers.
While there are four steps identified as forming
the process, a business must constantly review
each step due to the dynamic and changing
environment in which it operates.
1 Market research helps the business
to identify its potential customers and
defines their needs and wants. It also
helps it to assess its ability to meet
those needs. (See chapter 16 for more
information on market research.)
2 A marketing strategy is developed to
enable the business to identify how it will

make its mark in the market. A longterm marketing strategy will ensure that all
marketing efforts of the business will be
coordinated and consistent. (See chapter 18
for more information on marketing strategies.)
3 The marketing mix is the tools at the
disposal of the business. Decisions need to

be made as to what products/services the
business will offer, what pricing policies
will be adopted, how the product will be
distributed, and the kind of advertising
and promotion that will be used. As
part of this mix, a business must never
overlook the people who will sell the
product and provide the vital ingredient of
customer service. (See chapter 18 for more
information on the marketing mix.)
4 Evaluation is then carried out to judge
how well the first three steps of the

process worked for the business. Can
any improvements be made to ensure
the business better meets the needs of
customers? (See chapter 17 for more
information on evaluation.)
Strategies are seen as the means to an end and
involve the long-term plans that are needed to
reach set targets. When devising a marketing
strategy, there are four factors that need to be
considered:
s Overall strength of the business what is
the core activity of the business and what is
it good at?
s Resources available does the business
have sufficient money, people and facilities?
s Competition what are the competitors doing?
s Objectives what does the business want
to achieve from this (e.g. an increased
market share)?
If a business has decided to increase its market
share, it indicates that the business already has
a product or service in that market and wants
to increase the percentage it holds, reducing the
percentage being held by its competitors.
What is a market
and what are its
attributes?
A market is a group of potential customers
with similar needs who are willing to exchange
something of value with sellers offering various
need-satisfying goods or services.
Four basic types of markets are recognised:
s Consumers involves businesses selling
mass consumer goods, e.g. soft drinks, food
and household products to consumers
s Businesses where the purchasers are
other business personnel who are often
well-trained and well-informed professional
buyers
s Global businesses that decide to export
their product
s Not-for-profit and government markets
organisations that are formed to provide
assistance to or infrastructure for, society.
ISBN: 9781107665910
Price will be a consideration for these groups

and many of these organisations actually buy
using the tender process.
There are many characteristics that belong
to or can be attributed to a market. Some
of these characteristics are outlined in the
following sections.
Market segmentation
As it is rare to be able to satisfy the needs and
wants of everyone, market segmentation is
carried out in an effort to improve a businesss
precision marketing. Not everyone likes the
same drink, food, clothes, hotels and movies.
Marketers try to identify and profile distinct
groups of buyers who might prefer or require
varying products and marketing mix. A market
segment should ultimately be a relatively
similar (homogeneous) group of customers
who are likely to respond in similar ways.
Segmentation then allows management to
concentrate its efforts on allocating its scarce
resources more effectively in order to achieve
financial objectives.
market segmentation
an approach that
is midway between
mass marketing and
individual marketing
Figure 15.7 Discussing and carrying out market

segmentation can help a business to succeed.
Segmentation is an approach that is midway

between mass marketing and individual
marketing. Consumer markets are typically
segmented by the following four bases or
dimensions.
market segment
relatively similar
(homogeneous) group
of customers who are
likely to respond in
similar ways
Table 15.1 Forms of segmentation and their variables

Geographic
Demographic
Where the customers live Where the market is

divided according to:
or work:
s Region world or
country
s Age
s Size of city, i.e.

number of residents
s Income level
s Suburban or rural
s Climate hot, cold or
temperate
s Gender
s Education level
s Family size
s Family life cycle
s Occupation
s Nationality/race
Psychographic
Behavioural
Where the market is

Where the market is

s Social class upper,

middle, lower middle
s Needs economic,
functional,
physiological,
psychological or social
s Personality
compulsive,
gregarious, ambitious,
aggressive,
extroverted,
introverted
s Lifestyle achievers,
socially aware,
conservative, optimist
s Benefits sought
quality, service,
economy, speed
s Loyalty status
s Kind of shopping
convenience,
comparison, specialty
s Purchasing frequency
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ISBN: 9781107665910
Developing a
customer profile
customer profile
range of variables
that can be identified
when defining a market
to best suit a
particular customer
Pareto Principle
referred to as the 80/20
rule (approximately
80 per cent of business
is generated by
approximately
20 per cent of the
customer base)
The greater the number of variables that can be

identified when defining a market, the closer a
business comes to developing the profile of its
customers. For example, the Australian chocolate
manufacturer Koko Black is a family-based
company that commenced operations in 2003.
Its aim is to be the Australian leader in premium
chocolate. It has identified its customer profile
as people who like chocolate of premium taste
and quality either for themselves to eat or to
give as gifts. Koko Black believes its customers
are willing to pay a higher price and are looking
for something different. The chocolate used as
the base of its range of chocolates is sourced
from Belgium and is produced at its own
factory in Melbourne. It is currently being sold
in its nine salons in the Melbourne metropolitan
area and its online store. Presentation and
packaging of the chocolates is seen as an
important consideration to ensure the appeal of
its chocolates.
ACTIVITY 15.4
Provide a customer profile for three of the
following products/businesses. For example,
Dulux sees its customers as people who:
U >iL`}>ii]i>}
ìV>}
U >Vi>Vi}>i>Li>`
i`L>`
U >i}>>iViv>
>`V
U >i}v>i>ì>L
V>}i>`wiii
1 Bunnings
2 The Age newspaper
3 The Herald Sun newspaper
4 Subway
5 Toyota Prius motor car
6 ABC1 television channel
7 Boost Juice
8 David Jones.
The Pareto Principle
Figure 15.8 Even chocolate makers must think about the

profile of their customers when marketing their products.
276
The Pareto Principle is often referred to

as the 80/20 rule. Studies have found that
approximately 80 per cent of business is actually
generated by approximately 20 per cent of the
customer base. For a small business, such as
a fruit and vegetable shop or a butcher in a
local strip shopping centre, this would mean
that approximately 20 per cent of their regular
customers provide 80 per cent of their sales for
the week.
It is therefore very important that businesses
recognise this fact and make sure they work to
acknowledge and reward customers loyalty.
Many businesses do this by offering discounts,
or by developing mailing lists and then
offering listed customers the opportunity to
pre-purchase new stock lines. This technique is
particularly relevant to fashion-related business
(clothing stores).
ISBN: 9781107665910
ACTIVITY 15.5
The price of loyalty

The premise of loyalty programs is simple
They pool statistics that a greater propor-
offer an enticement to either acquire new
tion of people are buying cigarettes in a certain
customers or to retain existing buyers. But
area or that this postcode likes organic food,
quantifying the effectiveness of these schemes
she says.
for the faithful consumer is questionable.
Just cites a number of concerns about the
Airlines use them for flights or the odd
structure of loyalty programs from the market-
upgrade to business class. The coffee shop
ing focusing solely on the reward as opposed
down the road promises a freebie after the
to the required spend, expiry dates for redeem-
10th token is stamped. The local supermarket
ing reward points and flight restrictions on
entices shoppers through the door with the
frequent flyer programs.
promise of a handful of points for every $500

spent.
These programs are a ubiquitous part of
retailing behavior, but research conducted by
You can now get shopping vouchers

with loyalty cards, she says. Spend $11 000
at Woolworths and $15 000 in Coles to earn
enough points for a $50 voucher.
consumer group Choice shows that across the
Youd save so much more buying cheaper
scope of loyalty schemes on offer, people save
brands or going to another store than (spend-
on average $1 for every $100 spent over the
ing in return for a) $50 voucher they need to
counter. Another set of data from Roy Morgan
allow the individual to have choice and know
reveals a shopper spends $156 a week in super-
what the return is for their spend.
markets and based on the points awarded for
Supermarket-centric
loyalty
programs,
that weekly shop, it would take seven years to
such as FlyBuys, are of greatest concern to
accumulate enough points for a return Sydney
Choice as they discourage flexibility in shop-
to Melbourne flight.
ping around. FlyBuys general manager Phil
Choice spokesperson Ingrid Just says the
Hawkins dismisses comments made about the
statistics reflect a mechanism that offers poor
restrictions of the program as totally mislead-
rewards. its in the name its acquiring them
ing. He says that while its fair to say accruing
but making sure they dont shop around, she
points at Coles is one of the more popular
says. We advocate choice and loyalty cards are
ways to use the loyalty card, the premise of the
one way where marketers develop purchasing
scheme is that points can be collected from 17
habits with one outlet, irrespective of whether
different retailers.
they provide the best choice for the consumer.
The offer from FlyBuys is simple just by
The benefit to the provider of the programs
undertaking your everyday shopping activity,
however, is invaluable. They gain critical infor-
whether it be groceries, fuel, use of credit card,
mation about shopping habits of customers and
youll be rewarded, he says.
use the data to build consumer profiles before

executing targeting marketing campaigns.
While it takes 12 500 points to earn a $100

gift card, Hawkins says many households
277
ISBN: 9781107665910
are able to get a $20 card within two to three

months.
But its not only the business-to-consumer
market where incentives are proffered in
exchange for repeat business. A recent legal
case resulted in generic drug manufacturers
forfeiting the ability to keep loyalty programs
with pharmacists secret. The Australian
Competition and Consumer Commission has
made disclosure of the schemes and their

associated value a condition of authorisation
for an industry code of conduct.
Source: Business Review Weekly, 18
November8 December 2010, p. 43
Questions
1 Describe the concept of a loyalty program.
2 What benefits does the provider gain by offering a loyalty program to its customers?
3 What types of benefits does the customer gain? Do you believe that the benefits gained
by the customer equal those of the provider? Justify your opinion.
4 Identify the types of concerns consumer advocate group Choice has in relation to
loyalty programs.
5 The Australian Competition and Consumer Commission (ACCC) expressed concerns about loyalty
schemes in the pharmaceutical industry. Identify another industry where you believe
the ACCC may feel a greater level of disclosure is needed.
target market
the market at which a
product or service is
primarily aimed
generic market
a market where broadly
similar needs of
customers are met by
sellers offering a variety
and often diverse range
of products
Determining your
target market
Businesses, once they have reviewed the forms
of segmentation and their variables, need
to select which market segment they wish to
pursue. This requires the identification of their
actual target market. To identify a specific
product market
when a consumer is
looking for a particular
item, e.g. a particular
type of drink, such as a
sports drink
target market requires a narrowing-down
niche market
narrow segment
that aims to provide
products to buyers
with specific desires
and preferences
being part of the generic marketplace.
278
process from a broad or generic market to

focus on the specific type of customer. For
example, the entire drink market is seen as
satisfying peoples thirst; it is therefore seen as
It is when the consumer is specifically looking
for a particular type of drink (e.g. sports drink)
that it changes to the product market. Similarly,
the entire car market is seen as satisfying a
potential customers need for private transport.

It is when that potential customer narrows down
their choice to an expensive car that Mercedes,
BMW or Lexus may enter as players in a specific
product market (i.e. expensive cars). The
current desire by consumers for smaller cars
that are more fuel-efficient, particularly in times
of increasing fuel costs, has produced another
specific product market.
Niche marketing
A niche market is a more narrowly defined
group that is typically identified as not having
its current needs met. It is generally determined
by dividing market segments into sub-segments
or by defining a group seeking a distinctive
mix of benefits. The ideal niche market has the
following attributes.
ISBN: 9781107665910
Positioning strategy
Figure 15.9 Customers at a resort like this are often part

of a niche market.
s The customers have a distinct set of needs.

s The customers will often pay a premium to
the company that satisfies these needs.
s The company usually has no competitors.
s The niche market permits a degree of
specialisation in the product or service
required.
s The niche market is generally one that will
allow for profit and market growth.
Small and medium-sized businesses are well
placed to meet the needs of a niche market,
and therefore dont need to survive in the mass
market dominated by larger businesses. If this
niche market is free from competitors, it can
offer the small to medium business operator
the chance to sell at higher prices and to gain
higher profits. Consumers in this market are
often willing to pay a slightly higher price for an
exclusive product. One major problem of only
operating in a niche market with one product
is that if consumer preferences change, the
business will experience a rapid decline in sales
and, ultimately, profit.
ACTIVITY 15.6
Imagine that it is your ambition to operate a
small business. As part of your initial planning,
think about the business concept or idea you
wish to pursue. From your planning, identify four
areas where you believe there is an opening for
a niche product.
This involves a business differentiating its

product or service from that of its competitors
within that market segment. The business should
choose a market positioning strategy that is
aligned to its strengths and core competencies
so that it can gain a competitive advantage. For
example, in the broad market for chocolate,
Chocolatier Australia has positioned itself in
the premium mass-produced chocolate market
and as such sees its competitors as Lindt and
Ferrero Rocher, but not Cadbury or Whittakers.
By determining its market position, a business
can then focus its marketing strategies on that
segment of the market rather than the broad
(generic) market.
market positioning
a product is placed
within a market with
regard to its image,
price and age of target
market
ACTIVITY 15.7
In the following consumer marketplaces, identify
businesses or products that have positioned
themselves to gain a competitive advantage
within that large market.
1 Bread
2 Soft drinks
3 Cars
4 Newspapers (print media)
5 Television (electronic media).
Factors that influence

consumer behaviour
Businesses must know about their customers
behaviour when trying to establish the
relationship between their marketing and
how the customer will respond. It is therefore
important to understand influences on customer
purchasing decisions.
If customers are individuals or household
members, it is recognised that the following five
factors will influence their behaviour:
279
ISBN: 9781107665910
s Cultural factors inherent values and

beliefs are developed through parental and
environmental influences, such as nationality,
religion or racial background or even the
social grouping to which people belong.
s Social factors people are influenced in their
actions and beliefs by those with whom they
associate. Associates may come from family,
peers, sporting, church or other community
groups.
s Personal factors these are differences
due to our age, stage of life (single, newly
married, married with dependent children,
single parent, divorced with dependent
children, widowed), occupation, economic
situation, lifestyle and personality.
s Psychological factors this incorporates
the notion of what is motivating a consumer
to purchase this particular product or service.
Trying to work out what is in a consumers
mind before, during and after purchasing a
product is a very difficult exercise.
s Situational factors it is important to know
when, where and how consumers make
their purchases.
When: Is there a particular time of day,

week or season? For instance, we are
increasingly seeing seasonal products
such as Easter eggs and Christmasrelated products entering our stores
earlier and earlier in an attempt to
extend the buying season. Studies
have shown that family food purchases
are made towards the end of the
week; accordingly, food advertising
and specials are often provided
earlier in the week to try to improve
sales in the earlier days of the week.
Many customers are perceived to be
time-poor or have time constraints
imposed upon them. The introduction
of telephone and internet banking has
extended trading hours and assisted
consumers to save time.
ACTIVITY 15.8
1 Identify two products you recently purchased
that were influenced by:
a V>v>V
b V>v>V
2 Think about the last purchase you made for an
outlay of more than $100. It might have been
new clothes, jewellery or a piece of electronic
equipment.
a
ìi}Vi>
i`V>iìv>
v>VyiVi`ìV]i}
V>v>L>V}`]V>V>]
i>]>ì>ìv>}i
ii}
b
ì>ìiV>i
ìviìVi]
iiv`>ii>ìi
V>i]i`v>i"ii
v>V>LiiiyiVi`
ìV>}
3 Copy and complete the following table relating
to personal factors that influence consumer
behaviour by inserting the relevant stage of life
against the characteristics of that particular
stage of life.
a ,ii`>`ì`
b "ìViìiìVì
c >i`>V>}iVì
d
280
Where: This relates to where the actual

buying decision is made and where
the actual purchase occurs. Has the
purchase been planned or is it one that
occurred as a result of an impulsive
decision based on various marketing
techniques used to influence the
decision, such as music, lighting and
placement of products.
How: This relates to behavioural issues
such as the consumers preference to
buy the product as a single item or in
multiple packs, e.g. yoghurt, food and
snack items, socks and underwear.
i>i`Vi
ISBN: 9781107665910
Stage of life
Characteristics
e.g. Single and living at home
e.g. Minimal financial outgoings, fashion-oriented

High disposable income, highest purchase rate, buy cars, holidays
and furniture
Financial position improving, probably two incomes, resistant to
advertising, high average purchase of durables, holidays, boats
and furniture
Low disposable income, renting or home purchasing, buying
televisions, toys and educational items
Substantial cut in income, may require special assistance, both
medical and domestic
Consumer trends
services that will ultimately save them time
Keeping up with current consumer trends is

important to the financial success of a business. It
is important that the marketing function therefore
supports the business by understanding the
current and changing consumer trends. Some
examples of these trends include the following:
s One-stop shopping has increased in
popularity. This trend has encouraged
retailers to add related and unrelated items
of merchandise to their core products. For
instance, banks now offer insurance and
many retail businesses now include a coffee
shop within their store, capitalising on our
trend of being a caf society.
s Consumers have embraced e-commerce.
Many consumers have changed their
preferred method of payment for goods and
services. Cheques have become less popular
and are being replaced by online payment
or payment by phone. Credit cards and use
of EFTPOS have become acceptable as a
replacement for cash.
s Consumers have now become 24/7 in their
purchasing. They look for retailers who can
provide fast and convenient service at any
time on any day, particularly of goods and
increase in internet purchasing where the
in their busy lives. This has also led to an

consumer orders online with the goods
being delivered to their designated address.
Consumers are also using online services to
book airline tickets or holidays.
s Many consumers are now looking to be
treated as individuals in their purchasing
decisions. They are tired of the mass
marketing approach and want to be listened
to and be treated as special.
s Consumers now are more health conscious,
nutritionally
informed,
environmentally
aware and socially concerned. They engage

in consumption behaviour that will support
their diet, fitness and ideal lifestyle.
s The nostalgia factor is evident in consumers
of different ages. Older consumers are
reaching back towards long-gone simpler
days to replace their growing anxiety about
ageing and our stressful society, while young
consumers are adopting and updating or
reinventing products from the past.
s The emergence of a new consumer group
known as tweens no longer little kids, but
not quite teenagers has formed a new market.
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CHAPTER SUMMARY
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ISBN: 9781107665910
16
MARKET RESEARCH
WHATS AHEAD
Market research
WHY
HOW
s Reduce level of risk

s Assess current
situation
s Predict future
trends/changes
Use a systematic
approach:
s Identify problem
s Determine
objectives
s Design research
s Identify types/
source of
information
s Determine data
design collection
s Collect and analyse
data
s Report on findings
ISBN: 9781107665910
KEY KNOWLEDGE
Students will learn the following about market research:

why market research is needed
what can be discovered through market research
market research processes
information needs
data-collection tools and techniques
analysis and interpretation.
AREA OF STUDY
MANAGING THE
MARKETING FUNCTION
Market research is a systematic procedure used to develop and analyse new and existing information.
This analysis helps businesses make decisions relating to the marketplace and satisfy the needs of both
potential and existing customers.
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Why is market
research needed?
market research
systematic approach
used to assist in
making decisions about
consumers and the
marketplace
marketing consultant
a professional
(specialist) who
provides advice
on marketing
-related issues
286
Market research is needed to:

s reduce the level of risk or uncertainty
attached to introducing a new product
or service
s assess the current products, advertisements
and forms of packaging, and determine
whether changes need to be made
s predict future changes or trends in a product
or service.
Should it be decided that there is an
inadequate amount of current information
available for a good decision to be made, it may
be necessary to arrange for additional market
research to be undertaken. In small businesses,
funds for market research are normally limited.
It is therefore very important to determine
whether the benefit gained from research will
outweigh the cost involved in conducting the
research. It is possible to find informal, low-cost
alternatives of information gathering, such as
customer feedback surveys, keeping an eye
on the competition and industry trends, and
making sure internal record keeping is accurate.
Any business that does undertake market
research must ensure that the information
gained is used in an ethical manner and does
not infringe on the privacy of the person giving
the information. It is unethical for a company
to contact consumers under the pretence of
undertaking research when the real purpose is
to actually sell something. A code of ethics has
been adopted by the Market Research Society
of Australia to protect research credibility in the
eyes of the public.
What can be
discovered through
market research?
Market research can be used to find answers
to questions about:
s market size
s consumer likes and dislikes
s product positives and negatives
s promotion effectiveness
s packaging effectiveness
s degree of threat from competitors
s distribution how customers like to get
the product.
From the days of opening its first Australian
store at Yagoona in New South Wales in December
1971 to present times, McDonalds Australia has
placed great emphasis on market research. In
line with its vision to be the best quick service
restaurant in the world, it has always undertaken
and responded to information gained from
its market research. On a daily basis, it gains
feedback by speaking with customers to find out
their impressions and expectations relating to key
customer areas such as quality, service, cleanliness
and value. For strategic planning purposes, it also
carries out specific market research using formal
quantitative and qualitative research methods. In
past times, it has responded to customer needs by
changing the menu it has on offer and extending
its range of products and services to include the
successful addition of McCaf and adopting the
use of fair trade supplies.
A systematic and objective approach must be
adopted to undertake effective market research.
Objectivity means that the research must be
conducted in an impartial and unbiased manner,
often by a professional marketing consultant.
Systematic means the adoption of a formal method
or approach, such as using a process similar to the
following steps.
ISBN: 9781107665910
1 Define the problem and

establish the objectives
Systematic
approach to
market research
A systematic approach to market research
constitutes the following six steps.
2 Determine the
research design
3 Identify and assess

information types
and sources
4 Design data collection

approaches, forms and
sample size
5 Collect and
analyse data
6 Prepare and present

final report
Figure 16.1 A systematic approach to market research
Step 1: Define the

problem and establish
the research objectives
Problem definition is possibly the most important
step of the process. By accurately defining
the problem and establishing the objectives,
a business is then able to gather the relevant
information to assist with decision making. The
information needed is dependent on the type
of business being operated. Generally, market
research objectives relate to the potential
demand for a product or service, the marketing
environment or a businesss competition.
Step 2: Determine the

research design
There are three basic types of research design.
s Exploratory research involves collecting
information in an unstructured and informal
manner. This could mean reading a magazine
or article, using a particular product or
service, and gaining an impression and
feeling about the product or service.
s Descriptive research incorporates such
things as consumers attitudes, intentions and
behaviour. It can be related to the image
of the product or service being researched.
Information can be gathered through
observation of consumers behaviour.
s Causal research aims to find the cause and
effect of certain actions. One variable, such
as price of a product, could be changed to
study what impact this has on the volume of
product sales.
C H A P TER 1 6 MARKET RESEARCH
exploratory research
collecting information
in an unstructured and
informal manner
descriptive research
research that
incorporates
consumers attitudes,
intentions and
behaviour
causal research
research that involves
finding the cause and
effect of certain actions
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Step 3: Identify and

assess information types
and sources
primary data
information
gathered first-hand
by the business
secondary data
information
that has been
previously collected
There are two basic types of information

available: primary and secondary data.
s Primary data refers to information that has
been gathered by the business owners or
market researchers themselves, specifically
to service the current research objectives.
s Secondary data refers to information that has
been previously collected. This information
can come from internal records of the
business or sources external to the business.
ACTIVITY 16.1
1 Explain the basic difference between primary
and secondary classification of data.
2 Classify the following forms of data as being
either primary or secondary.
a Questionnaire
b Focus group
c Internet search
d Electoral roll
e Textbook
f
Exit poll.
Table 16.1 Primary and secondary data sources

Primary data sources
Secondary data sources
s 3URVEYSQUESTIONNAIRESnBOTHTELEPHONEANDMAIL
s #OMPANYRECORDS
s )NTERVIEWSnDOOR TO DOORORSHOPPINGCENTRE
s &INANCIALSTATEMENTS
s $IRECTOBSERVATIONnPERSONALORELECTRONIC
s !NNUALREPORTS
s 3MALLGROUPDISCUSSIONSEGFOCUSGROUPS
s 0ERIODICALS
s %XPERIMENTSnLABORATORYTESTSlELDTESTS
s #OMPUTERISEDDATABASES
s )NDEXSERVICES
s ,IBRARIES
s !DVERTISINGAGENCIES
s .EWSPAPERS
s -AGAZINES
s 9ELLOWPAGESAND7HITEPAGES
s 4RADEASSOCIATIONS
s 'OVERNMENTAGENCIES"OTHTHEFEDERALANDSTATE
GOVERNMENTSPUBLISHDATAONMANYSUBJECTS&OR
EXAMPLETHE!USTRALIAN"UREAUOF3TATISTICS!"3
PROVIDESPERIODICSTATISTICSRELATINGTO!USTRALIAS
POPULATION
s 0RIVATEMARKETRESEARCHlRMSEG!#.IELSEN2OY
-ORGAN2ESEARCH#ENTRE
s 2ADIOANDTELEVISIONSTATIONS
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Step 4: Design datacollection approaches,

forms and sample size
For a market researcher to collect information
first-hand from the entire population would be
an impossible task. It is therefore necessary to
study a sample, being a small proportion of
the population of interest or target market. The
group may be randomly selected to provide a
broad range of opinions or interests.
There are several methods of conducting
primary research, such as questionnaires,
observations and focus groups.
s A questionnaire is the standard form of
survey used to gather data. A structured
questionnaire lists questions and provides
pre-described answers (similar to a multiple

choice format). It is regarded as a form of
quantitative research. Answers are given
by ticking or placing an X in a box. Some
questions will require rating the answer by
indicating a number in a predetermined
range, e.g. 1 to 10. Unstructured questionnaires have open-ended questions. While a
questionnaire looks simple to create, care
must be taken in its design to gain objective information from the respondent. It is
important not to provide any ambiguous or
leading questions. It is also important to trial
the use of a questionnaire to make sure that
it actually gets the information required to
meet previously determined objectives.
sample
a proportion or subset
of the total population
being studied
population
entire group under
study as defined by the
research objectives
questionnaire
form of survey where
questions are asked
of respondents
quantitative research
market research based
on structured, closed
questions that aim to
gather responses that
can be summarised
in figures
Figure 16.2 Various types of survey questions
289
ISBN: 9781107665910
focus group
between six and 12
participants gather
together in an informal
setting to give their
opinion on a product
or service
qualitative research
research based on
in-depth, open-ended
responses that focus
on emotional or
motivational aspects of
consumer behaviour
s Observation is a process that recognises

and takes note of peoples actions and
behaviour, rather than directly asking
them for information. The introduction of
electronic scanning of product codes at
supermarkets or using other codes, such
as postcodes, has assisted enormously in
determining consumer demographics and
shopping habits. Businesses also use video
cameras to record shopper numbers, time
spent in the store, the areas of the store that
attracted foot traffic and interaction between
customers and salespeople.
s Focus groups are a popular way of collecting qualitative research and consumerrelated information. The group size is
usually between six and 12 participants
and is conducted in an informal setting.

A facilitator, often an experienced market
researcher or even a psychologist, aims to
generate group interaction in order to stimulate immediate thinking on a topic. A session
may last between one and two hours, with
the participants usually being paid a small
fee. It is often videotaped for later review,
or observed through a glass partition by
interested parties.
s Experiments can be conducted in the field
or in a laboratory. This method involves
removing all variables except for the one
being tested. For instance, blind taste tests
remove variables such as brand, packaging
and price, and leave only the taste to
be tested.
ACTIVITY 16.2
Read the case study and answer the questions that follow.
Case study
Third Step: The Peoplemeters
Neilsen Television Audience Measurement
The peoplemeter measurement technology
surpasses
all
previous
measurement
methods and dominates TAM methodologies
worldwide.
Measuring TV audiences requires state-ofthe-art technology to ensure that precise and
accurate data is collected easily and effectively
from the TAM panel homes.
Increasing numbers of channels, multiple
broadcasting platforms, increased number of
TV sets and remote controls per household
has led to a more complex TV environment.
Viewers are now faced with the possibility of
using the TV screen as a medium for VCRs and
DVDs, playing video games, watching TimeShifted Viewing, for accessing teletext, or as
290
a personal computer offering on-line services

and even more recently, for personal viewing
using products such as TiVO, Video on Demand
or Replay TV.
Within
this
dynamic
environment,
peoplemeters have proved themselves capable
of measuring audiences with a degree of
accuracy and detail which surpasses previous
alternative measurement systems.
Any peoplemeter proposed by Nielsen
to their clients represents state-of-the-art
hardware and software solutions based on
reliable, flexible and non intrusive design
and development guidelines. This is the only
way for Nielsen to guarantee clients that they
have invested in an advanced, future-proof
ISBN: 9781107665910
electronic device capable to continue

measuring TV audiences for decades to come.
The Nielsen peoplemeters are in constant
development based on many years of
experience gained in a diverse range of local
situations and meeting the challenges faced
by ever changing and dynamic television
environments around the globe. Three Nielsen
Corporate Support Centre divisions are
dedicated to the development, production and
maintenance of Nielsen proprietary metering
technology.
Nielsen peoplemeters are installed on

every TV set in the panel home. Each meter is
capable of accurately monitoring and storing
individual panel member viewing on each TV
set every second, 24 hours a day, 365 days a
year. One meter in each home is then enabled
to transmit all the stored data to a production
centre by means of the households telephone
line or a dedicated cellular (analogue and
GSM) telephone line.
Source: www.agbnielsen.net/system/
peoplemeters.asp
Figure 16.3 Measuring what audiences watch on TV is a form of market research
Questions
1 What service is Nielsen providing to its clients?
2 Identify the type of information that would be provided by the peoplemeters.
3 Identify ways in which the following groups could use this data.
a Television stations
b Advertising agencies
c Consumer goods manufacturers
d Community groups
e Government agencies.
4 Has your family ever had a peoplemeter installed? If so, comment on how you found
this experience.
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Figure 16.4 A variety of market research methods
Step 5: Collect and

analyse data
Often the data is collected by trained
interviewers working for a market research
company asking a series of questions, or leaving
a questionnaire for a person to complete in their
own time. Many interviews are now conducted
over the telephone with the interviewer reading
set questions from the computer screen and
entering responses directly into the computer.
Television viewing habits are electronically
collected through attaching black monitoring
boxes (peoplemeters) to televisions that track
not only the programs being watched, but also
which member or members of the family are
viewing the programs.
Once collected, the raw data needs to
be tabulated, tested and analysed to form
meaningful information. Computer software,
such as Statistical Package for Social Sciences
292
(SPSS), is used to tabulate and perform statistical

tests, which include means, frequencies,
correlations and trend analysis.
Step 6: Prepare and

present final report
The last step in the market research process is to
prepare and present the findings. These findings
must be communicated to the business owner.
The standard style of report format is used, with
the necessary inclusion of the methodology used
to collect the data. To enhance the information
visually, computer graphics are usually added.
Graphs and charts, such as bar or line graphs
and pie charts, are invaluable communication
tools to show patterns or trends at a glance.
Market research companies will often make an
oral and visual presentation, generally using a
computer software presentation package.
ISBN: 9781107665910
ACTIVITY 16.3
Choose one of the following scenarios and answer the questions that follow.
Scenario 1
Recently there has been a series of complaints
about a particular school canteen. The
complaints range from choice of food on offer
and how long it takes to be served, to the hours
of operation and pricing. In addition to gaining
data on the complaints, the canteen would like
to collect additional information about the
average amount of money students are willing
to spend and whether they need to meet any
particular dietary requirements, and if so,
which ones.
Scenario 2
A food manufacturer is interested in gaining
information about potato chips. In particular,
they are interested in what type of chips
people buy, what size packets they prefer,
and if there are any flavours not already being

manufactured that the customer would be
interested in buying.
Scenario 3
A drink manufacturer has asked you to gain
information about the soft drink preferences
of Year 11 students. In particular, they want
to know if students have a preference for
tea, coffee, milk (plain and flavoured), fizzy
drinks, fruit juice, water or sports drinks.
They would also like to know how often they
purchase soft drinks, the price they are willing
to pay for certain drinks and where they most
often purchase the drinks. In addition, the
manufacturer would like to find out if there
is any particular new soft drink that students
think would be popular with their age group.
Questions
1 Working in groups of three to four, prepare a questionnaire (using a variety of question styles) to
gain the data required in the scenario.
2 Using your class as the sample group, conduct the survey and present your findings to the class.
3 If the findings of the groups within your class differ, discuss why this may have occurred.
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CHAPTER SUMMARY
U Market research is undertaken to help

businesses make informed decisions.
Yellow Pages and White Pages, government

agencies and trade associations.
U Market research needs to be undertaken in a

systematic manner, with consideration given
to minimising any form of bias in the datagathering process.
U The research process involves a number of steps,

with problem definition being one of the most
difficult steps. Systematic approach steps include
the following:
U Information can be obtained from two main

sources: primary and secondary.
Define the problem and establish research

objectives.
Determine the research design.
Identify and assess information types and
sources.
Design data-collection approaches, forms
and sample size.
Collect and analyse data.
Prepare and present the final report.
U Market research aids the success of businesses,
but it does not guarantee it.
U Primary data research, while expensive, is

effective in discovering up-to-date information
for use by management.
U Common methods of obtaining primary data are
telephone surveys, mail surveys, door-to-door
personal interviews, shopping centre interviews,
direct observation and small group discussions
and experiments.
U Secondary research is useful in establishing
market size and trends, but is not as useful for
providing specific data about individual business
products.
U Common methods of obtaining secondary data
are company records, periodicals, computerised
databases, libraries, newspapers, magazines,
CHAPTER SUMMARY
QUESTIONS
U Market researchers should strive to provide

unbiased and honest results.
U The presentation of research findings using
graphical representation aids both interpretation
and analysis.
4 Identify three advantages primary data has over
secondary data.
a Primary data
5 Why is sampling necessary for consumer surveys?
b Focus group
6 Explain three features of effective
c Secondary data
questionnaire design.
d Closed questions
e Quantitative research
f
Population
g Sampling
h Information.
2 Identify three ways a caf could use
market research.
3 Why is it important to use secondary data, if
available, before spending money on expensive

primary market research?
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EXTENSION
QUESTION
Market research is a waste of time and money.

We have clearly designed the best product on
the market and consumers will be certain to
buy it. Richard Surrey, CEO of ACE Television
Company.
1 Comment on whether you agree with this
statement.
2 Explain the likely impact on ACE Television if
the CEO continues with his current approach

to the running of his business.
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17
THE MARKETING PLAN

OF PERFORMANCE
WHATS AHEAD
Marketing plan
Vital consideration
s present situation
s future direction
s how to get there?
s achievement
(yes/no)
Components
Effectiveness
of marketing
process
Expansion strategies
s exporting
s innovation
s diversification
s research and
development
ISBN: 9781107665910
MANAGING THE MARKETING FUNCTION

KEY KNOWLEDGE
Students will learn the following about the marketing plan and the
evaluation of performance:
the key elements of a marketing plan
establishing objectives
market description
marketing mix (product, price, place and promotion)
expansion strategies such as exporting and diversifying
relevant performance indicators to evaluate effective
marketing strategies.
TO PLAN IS
FAILING
PLANNING TO FAIL
BENJAMIN FRANKLIN
AREA OF STUDY
AND EVALUATION
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Elements of the
marketing plan
A marketing plan is a written document that can
stand alone as an individual plan or form part
of the overall corporate business plan. It can be
written on an annual basis for a well-established
product or to launch a brand-new product range.
Regardless of the type of plan, there are essential
elements or questions that should be included in
the plan. Consideration needs to be given to the
s What is our present situation?
s Where do we want to go?
s How do we get there from here?
s Have we achieved what we set out to do?
What is our
present situation?
This requires the business to undertake the
following situation analysis:
1 Consult its mission statement. This statement
indicates why the business currently exists
and should continue to exist. The mission

statement should include a marketing focus,
with possibly a business priority being to
focus on the customer.
2 Conduct a SWOT (strengths, weaknesses,
opportunities and threats) analysis. Strengths

and weaknesses are internal to the business;
opportunities and threats are recognised as
being external to the business.
s Strengths will represent all the marketing
aspects a business does better than its
competition.
s Weaknesses represent those things that
are not done well by a business.
s Opportunities may present themselves
at any time and in a variety of different
ways. Businesses should always be on the
lookout for these.
s Threats are those things that may damage
a business.
Set out in table 17.1 is a list of possible
areas that could be considered when
conducting a SWOT analysis. While this list
is not exhaustive, it provides an idea of areas
that a business may wish to appraise.
Table 17.1 SWOT analysis chart
298
Business area strengths/weaknesses
Business area opportunities/threats
s #USTOMERBASE
s #OMPETITIONnLOCAL
s -ARKETSHARE
s #OMPETITIONnIMPORTER
s 2EPEATBUSINESS
s 4ECHNOLOGYnNEW
s 0RICING
s 4ECHNOLOGYnOBSOLETE
s $ISTRIBUTIONCHANNELS
s #REDITAVAILABILITY
s ,OCATION
s )NTERESTRATESnINCREASE
s 0ROMOTION
s )NTERESTRATESnDECREASE
s 0RODUCTRANGE
s 3UPPLIERSMERGINGORCLOSINGDOWN
s 0RODUCTIONMETHODS
s 3UPPLIERSPRICESINCREASING
s 3TAFFATTITUDES
s 3UPPLIERSDISTRIBUTION
s #USTOMERSERVICE
s 3UPPLIERSnNEWCOMPETITION
s !DVERTISING
s #HANGESTOCUSTOMERPREFERENCES
s &AMILYBUSINESSNETWORK
s $EMOGRAPHICCHANGESEGAGEINGPOPULATION
s 1UALITYCONTROL
s 'OVERNMENTPOLICYEGTAXATIONREMOVALOF

TARIFFSLEGISLATION
ISBN: 9781107665910
For example, an Australian shoe

manufacturer who conducts a SWOT analysis
(remembering that strengths and weaknesses
relate to factors within the internal operations
of the business, while opportunities and threats
relate to factors external to the business) may
discover the following findings. This shoe
manufacturer who currently has a substantial
market share has found that a newly arrived
competitor, who manufactures its shoes in
China, poses a threat to their business because
the cost of manufacturing would be lower in
China. However, the existing business would
have an established, loyal customer base
and effective channels for distributing their
products to shoe retailers.
3 Gain information on competitors strengths
and weaknesses, their price levels and
performance. A business must aim its
marketing strategies at combating its
competitors strengths and taking advantage
of their weaknesses.
4 Determine what customers want and who
they are.
5 Check if there are any gaps in the market
(market niche) not currently being met.
Where do we want
to go?
A decision needs to be made as to the overall
direction that is the most important to your
business or brand. This involves setting your
marketing objectives short-term, mediumterm and long-term. These could relate to either
one or a combination of the following:
s Attraction to attract new customers that
have similar characteristics to your existing
profitable customers and keep them loyal
s Retention to maximise existing customer
relationships
through
up-selling
or
cross-selling.
For example, a short-term business objective
might include a business obtaining a market
share of 30 per cent during 2012, and/or spending
7 per cent of sales revenue on marketing. The

first objective relates to attraction; the second
objective relates to retention.
How do we get there

from here?
Establishment of the marketing plan and strategy
is based upon the objectives set for the business.
Market research has been undertaken, and the
business is now ready to put the plan into action.
This part of the plan incorporates identifying
the target market, the positioning strategy
and the marketing mix, which will involve
specific tactical action plans for the product, its
pricing, place (distribution) and promotion. For
example, growth strategies related to products
are product development, product extension
and developing brand recognition. For pricing,
your attraction strategy might be to offer valueadded pricing on selected services to attract
new customers. Aiming to attract new customers
may require you to expand your store locations.
Have we achieved what

we set out to do?
Budgets, evaluation methods and controls must
be included in a marketing plan. During the
period of a specific marketing campaign or
a financial year, comparisons will need to be
made to assess the progress of the marketing
strategies against the marketing plan. This will
assist in measuring how effectively the product
is meeting the demands of the marketplace,
the pricing strategy adopted, the distribution
channels and the promotional activities chosen.
For example, if an objective were to increase
market share in 2012 to 30 per cent (from a base
of 20 per cent in 2011), it would be important
to check periodically to ensure an increase
of at least 1 per cent per month on a regular
basis to feel confident that this target would be
achieved. Relevant performance indicators and
tools need to be used to measure whether the
previously set objectives have been achieved.
CHA P T E R 17 THE MARKETING PLAN AND EVALUATION OF PERFORMANCE
marketing objectives
the objectives set
by the marketing
department to
meet the overall
business objectives
up-selling
trying to entice current
customers to buy
additional or more
expensive items
cross-selling
where customers are
offered and encouraged
to purchase
complementary items
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ACTIVITY 17.1
The Penguin Parade magical, wild and unique!

The Penguin Parade is Australias most popular
wildlife attraction and home to the largest
Little Penguin colony in the world. Every
sunset, hundreds to over a thousand wild Little
Penguins emerge from the sea and march across
the beach to their sand dune burrows. Tiered
seating provides 180 degree viewing of the Little
Penguins as they emerge from the sea.
The Little Penguin is the worlds smallest
(and cutest) penguin and the Penguin Parade
is the best place to experience this completely
natural phenomenon. As Australias top
advanced ecotourism provider, we are committed to socially, economically and environmentally sustainable practices. All revenue generated from the Penguin Parade is re-invested into
research, environment and education projects
to protect the Little Penguins.
A range of advanced eco accredited viewing
options are also available. These include
personalised one-on-one tours where you
have little penguins all to yourself on a private,
secluded beach or front row seating at the
Penguin Parade with your own ranger providing
detailed explanations about their march from
the sea and their burrowing.
Figure 17.1 The penguin parade

Source: www.penguins.org.au/index.
php?option=com_content&view=article&i
d=9&Itemid=34&mytabsmenu=1
Questions
1 Undertake a SWOT analysis of the Penguin Parade, identifying its internal strengths and
weaknesses and its external opportunities and threats.
2 Identify who you believe is the target market for this attraction.
3 Describe what you believe is the impact of this popular attraction on the tourist industry of
Phillip Island.
4 In 2010, Oprah visited the Penguin Parade as part of her visit to Australia. Comment on whether
you believe this form of celebrity promotion will result in increased visitor numbers, both
domestically and from overseas.
5 Suggest two financial and two non-financial indicators that could be used to measure the success
of the marketing strategies undertaken by Phillip Island Nature Parks.
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Set out below is an example of the format

of a marketing plan. To assist a business in the
preparation of this important plan, the Australian
Government has provided a marketing plan
template on its business assistance website

(www.business.vic.gov.au). The template can
then be adapted by the business to suit its
particular requirements.
1 Executive summary one-page summary of the main points of the plan
2 Introduction and situation analysis details the background of the

business, its relevant environments and competition, current distribution
methods, and the results of any existing market research
3 Target market and segments describes what the business sees as its
target market (based on demographics), e.g. age, gender, and any other
important characteristics
4 Objectives outlines the businesss marketing objectives for

the coming year or planning period
5 Strategies and tactics this section will be the longest and most
detailed part of the plan. It involves describing how each objective will be
put into action using marketing mix strategies (e.g. product, price, place
and promotion)
6 Budget itemises the cost associated with all strategic and operational
decisions within the planning period, as well as a schedule of when this
expenditure will occur
7 Audit and control procedures involves describing the evaluation

program that will be used during and after the planning period
Figure 17.2 Example of marketing plan format
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Evaluation was
the marketing
process effective?
It is now time to evaluate how well the marketing
process was managed. This is the final stage of
the four steps of the marketing process: market
research, marketing strategies, marketing mix
and evaluation. (See chapters 15, 16 and 18 for
more information on the marketing process.)
Evaluation allows management to judge how
well the first three parts of the process worked
for the business. It also allows for an opportunity
to reflect on what improvements can be made
to better meet the needs of customers.
Management should conduct an evaluation
of the business on a monthly, six-monthly or
annual basis, to ensure that sales targets have
been achieved and expenses are kept under
control. Hopefully, profit will result from these
activities. The business must also check that
other goals established in both its business and
marketing plans are achieved. This form of
control is called Management by Objectives.
Managers will use a range of indicators to
evaluate how well they have performed, as
discussed here.
Performance indicators
Sales analysis
Sales analysis involves comparing actual sales
with sales objectives set at the commencement
of the planning period. Comparisons could also
be made with overall sales revenue from different
planning periods. Further analysis can also be
conducted into which products/services sold best,
at which locations, by which salespeople, and
which customers bought the largest quantities.
It is important that both for-profit and
not-for-profit organisations undertake this
form of analysis. For example, World Vision
Australia implements targeted marketing, public
awareness and fundraising campaigns to raise
its profile and to generate revenue in order
to work to eliminate poverty and its causes.
Examples of these activities are:
s child sponsorship
s gift purchases made through the Smiles Gift
catalogue
s 40 Hour Famine
s Teenage Affluenza an internet film
s donations
s voluntary work.
The total revenue (income) raised by World
Vision Australia during 2009 was $346.6 million.
This figure is slightly lower than the 2007 figure
of $356.5 million. World Vision would review and
analyse their individual activities to determine
which areas of their fundraising program were
lower and the relationship to the marketing
Figure 17.3 Both for-profit and not-for-profit organisations must undertake sales analysis.
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strategies adopted. Analysis of external factors,

such as poor economic conditions during that
period, would also be considered as part of
this analysis.
Market-share analysis
Market-share analysis provides a comparison of
how well a business is performing in relation to
its competitors. Market share can be measured
by looking at the businesss sales as a percentage
of total market sales. A dilemma occurs when a
businesss marketing strategy is to decrease the
price of its product, which leads to the business
gaining an increase in its market share but
does it actually mean an increase in financial
return to the business? While marketing may
see that they have done a good job and met
their objective, have they brought an increase in
financial worth/revenue to the business and will
this be sustainable in the long term? This price
reduction strategy is often used by airlines as a
short-term strategy when wishing to gain market
share in the highly competitive marketplace.
Marketing expense-to-sales
analysis
Businesses need to keep an eye on how much
it is costing them in salespeople, advertising,
sales promotion, market research and sales
administration for every dollar of sales revenue.
If the expense figure is too high, it will affect
the margin being contributed by that product to
the businesss overall profit.
Profitability analysis
It is important for a business to analyse whether
certain products or geographic areas are more
profitable to the business than others. Similarly,
the marketing expense-to-sales ratio needs to be
examined to see whether there are more efficient
ways to manage the salespeople, advertising,
sales promotion and distribution of products.
Ultimately, a decision needs to be made as to
whether certain products are contributing to the
overall profitability of the business.
Customer-based measures
The following customer-based measures can be
used to evaluate the marketing process.
s The number of new customers attracted
to the business and its products/services
indicates that the product/service offered
by the business is meeting the needs of the
customer.
s The number of repeat customers indicates
that customers are willing to continue to either
purchase or use the services of a business.
s The number of dissatisfied or lost
customers indicates that some component
of the marketing mix is not working. Is it the
product, price, place or promotion? It also
indicates that the business has a problem with
its goodwill.
s Target market awareness indicates that the
business has been able to reach the correct
target audience for its product and is aware
of the customers profile.
s Loyalty indicates that consumers value
and are loyal to your product or service. It
confirms you have a committed customer
base. Many businesses offer loyalty programs
to both attract and reward their customers. An
increase of members to your loyalty program
and the use being made of the offers would
indicate whether the program is successful.
In 2008, the Qantas Frequent Flyers program
expanded its loyalty program in an attempt to
overcome negative feedback from customers
who were experiencing difficulty obtaining
a redemption seat on flights as well as the
growing competition from other more flexible
loyalty programs.
s Brand awareness is to have a customer able
to recognise a brand instantly and believe
it offers quality and value. This is a good
measure of a brands success. In addition, to
be awarded superbrand recognition is also
an important indicator of brand success.
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ACTIVITY 17.2
A business that has gone from strength to strength by recognising and meeting the needs of its
customers is Byron Bay Cookie Company, whose motto is Cookies are our life.
Byron Bay Cookie Company

20 years of baking cookies to meet the needs of their customers
Figure 17.4 Byron Bay cookies

From the baking and selling of their cookies at
the local Byron Bay weekend market in 1990,
Byron Bay Cookie Company has now expanded
into a company which supplies biscuits
internationally. The favourite cookies when they
commenced business were the white choc chunk
and macadamia cookie and triple-choc fudge
cookie which are still today the companys top
selling cookies. Demand spread with local cafs
wanting to be supplied their cookies, followed by
larger retail venues. With hundreds of thousands
of cookies baked weekly, Byron Bay Cookie
Company now supplies to many Australian cafs
and gourmet food stores as well as David Jones,
Qantas and Jetstar airlines. Internationally, they
have expanded to supply stores in Singapore,
Japan, Europe and USA. Always wanting to
appeal to new customers, a gourmet savoury
collection was launched in 2004.
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After months of product development and

testing, a range of gluten-free cookies was then
added to their cookie selection. These glutenfree cookies, which will appeal to customers
intolerant of wheat and gluten, are based on
the already famous original recipes and are
available in four flavours. Managing Director
Richard Raffaelli believes that the US will be
a definite market for these cookies, as ours
are taste indulgent compared to those of our
competitors.
Byron Bay Cookie Company is often written
about in food articles appearing in newspapers
and gourmet food magazines. During Oprah
Winfreys visit to Australia in 2010, Byron Bay
Cookies were among the gifts she showered on
guests at a lavish Sydney party.
ISBN: 9781107665910
Questions
1 Identify why Byron Bay Cookie Company has changed its product range.
2 What segment of the market is Byron Bay Cookie Company aiming to target?
3 What evaluative measures would be appropriate for Byron Bay Cookie Company to use to measure
the success of its expanded product offerings and its exporting strategy?
4 Do you believe that the inclusion of Byron Bay Cookies in the gift packs from Oprah Winfrey will
have any impact on the sales of the cookies, either in Australia or in the United States? Provide
reasons for your opinion.
Issues in marketing
Issues in marketing can range from the
changing role of technology and our interaction
with it to the social and moral responsibilities
of marketers.
Role of technology
The use of the internet is now deeply
embedded into our culture. Most people in
Australia regard it as an important source of
information. A survey conducted by the ARC
Centre for Creative Innovation at Swinburne
University (July 2008) showed that internet use
was slicing into television viewing more deeply
than the reading of newspapers, magazines or
books. The highest proportion of internet users
is among those aged 1824 years (95 per cent)
with the lowest among those over 64 years of
age (30 per cent). For marketers, this survey
highlights the fact that consideration may need
to be given to the promotional techniques they
will use in future campaigns.
The internet, for both consumers and
businesses, has become a tool for locating
and assessing product or supplier information
and increasingly as a way to purchase and
sell products or services. Small businesses in
particular can use this global tool to market and
sell their products and services. A small business
operator only needs a personal computer
connected to the internet to operate on the global
marketplace. Larger businesses, concerned also
with measuring the return on each marketing
dollar they spend, are also able to use internet

advertising. This form of advertising has the
advantage of providing instant measurement of
effectiveness, particularly if they build recording
mechanisms into their website to record number
of visits (hits) and then how many are turned
into actual sales.
Businesses are also actively involved in
e-commerce, using their websites and email as
further important elements in their marketing
strategies. There is still, however, a major fear
with some consumers that an unauthorised
person will gain access to their personal or
confidential information, by hacking into the
system. It is imperative that businesses using
this form of marketing ensure adequate security
measures are in place.
Global or domestic
business market
For Australian-based companies, the domestic
market is regarded as being within the
geographic boundaries of Australia. Advances
in both communications and transport
are providing opportunities for Australian
companies to extend their marketing overseas.
Worldwide there are potential customers
who have needs to be satisfied and money to
spend. Australian companies also need to be
aware that an aggressive overseas competitor
may see Australia as an expansion opportunity.
Should a business decide to market globally,
it needs to be aware of social, cultural, religious
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and language differences between countries.

The concept behind the US-based Starbucks
was that it sold the coffee culture to the US
marketplace. One of the major reasons it failed
in Australia is that it did not conduct sufficient
market research into the Australian marketplace.
It dumped on the Australian marketplace a
concept that seemed to work in the United
States, but did not understand that turning up to
compete is just not enough.
Legal and political differences are also very
important because of trade barriers that could
be in place or different legal requirements for
product labelling and selling. The infrastructure
of the country to which a business intends
to expand must be examined for reliability.
For example, distribution of a product may
be adversely affected if the transport system
is unreliable. Often businesses enter into
licensing agreements or joint ventures with
overseas businesses to help overcome these
potential problems.

responsible marketing
Businesses need to ensure that they are practising
ethical and socially responsible marketing.
Commission (ACCC) is the body responsible for
administering the Competition and Consumer
Act 2010 (formerly the Trade Practices Act
1974), which establishes guidelines relating
to disclosure of information on performance,
composition, contents, design, construction,
packaging and the form and manner in which this
information is included with the goods sold. In
addition, there are two industry-based regulators.
The Australian Marketing Institute (AMI) is a
professional group representing marketers that
has developed a code of professional conduct
306
requiring businesses to respect the interests of

the public while conducting their professional
activities. Secondly, The Australian Association
of National Advertisers (AANA) has established
a code of practice as a form of self-regulation
for those involved in the advertising industry.
There are some additional issues that give
rise to ethical dilemmas for marketers, such as:
s product testing
s deceptive packaging
s exaggeration in advertising
s advertising to children
s over-promising
s product placement
s sex in advertising
s ambush marketing.
All managers within an organisation must be
concerned with social responsibility, which
involves the organisation improving its positive
impact on society and reducing any negative
impact it may have. Social responsibility should
mean businesses do not make products that
may harm consumers in the long run, e.g.
products such as cigarettes, alcohol, or food
that is highly processed, high in fat, salt or
sugar. Being more socially conscious can often
lead to a positive customer response. Marketing
is made easier when products can be tagged as
environmentally friendly or food products can
be labelled low fat, low in salt, all natural
ingredients and contains no MSG.
Not all marketing or advertising is directly
aimed at selling the particular product or service
of a business. Sometimes it is about positioning
the business as a good corporate citizen and
supporting other groups deemed as needing a
link to a reputable and trusted brand name. For
instance, the Alannah and Madeline Foundation,
together with NAB (National Australia Bank), is
backing the Better Buddies Framework, an antibullying program designed to protect children.
ISBN: 9781107665910
ACTIVITY 17.3
ACCC alleges ugg boot misrepresentations by

online trader
Commission has instituted legal proceedings
in the Federal Court, Perth, against Marksun
Australia Pty Ltd.
The ACCC alleges that from at least June
2010, Marksun represented on various websites
that its ugg boots were made in Australia when
the ugg boots were in fact made in China.
Marksun was an online seller of ugg boots
and promoted its products on two websites:
s www.marksunboots.com.au, and
s www.uggbootsonsale.com.au.
The ACCC alleges that Marksuns conduct
breached sections 52 and 53(eb) of the Trade
Practices Act 1974* and sought:
s declarations
s injunctions
s civil pecuniary penalties
s costs, and
s corrective notices.
The matter was filed in the Federal Courts
fast track list and was listed for a scheduling

conference in Perth on 2 February 2011 before
Justice Gilmour.
Section 52 of the Act prohibits conduct by
business that is misleading or deceptive, or
likely to mislead or deceive and section 53(eb)
prohibits false or misleading representations
about the place of origin of goods.
*The proceedings were filed in late 2010. On 1
January 2011 as part of Australian Consumer
Law amendments the Trade Practices Act 1974
was renamed the Competition and Consumer
Act 2010.
Source: www.accc.gov.au
Questions
1 Outline what you believe would be the likely consequences of the above legal ruling of the Federal
Court on Marksun Australia Pty Ltd.
2 Go to www.accc.gov.au and conduct a search to find out the result of the Federal Court hearing.
Discuss whether you believe the decision of the Federal Court was an effective course of action
in this case.
CHAPT E R 17 THE MARKETING PLAN AND EVALUATION OF PERFORMANCE
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intangible assets
assets that have a
monetary value to
the business, but no
physical form,
e.g. goodwill,
copyright, patents
tangible assets
assets that have a
physical form, e.g.
stocks, property
Legal requirements
Exporting
There is a range of laws in place to protect

consumers and to regulate marketing practices.
The overall purpose of the Competition and
Consumer Act 2010 (Commonwealth) is to
protect consumers against actions taken by
producers and distributors of products and unfair
competition. Advertising standards for television
and other forms of broadcasting are established
by the Broadcasting Services Act 1992.
One area of law that is seen as an important
ongoing issue for businesses is protecting their
trademark. While for consumers a trademark
provides an indication of quality being
associated with a particular product or service,
to the trademark owner it is an intangible asset
in the form of goodwill, which actually has a
monetary value. Sometimes for a business the
trademark is more valuable than other tangible
assets, such as a factory. Trademarks allow
the owner of the mark to build and maintain
a brand evident in Nikes swoosh and the
Qantas flying kangaroo. If a business believes
that their trademark has been infringed, legal
action is sure to follow. This occurred in 2008
when Dimmeys department store in Melbourne
sold football jumpers that the AFL argued
infringed upon their protected trademark.
Exporting is an excellent method for businesses

to use when wanting to expand their market.
For instance, imagine you manufacture food
products and are now contemplating exporting
your products to Japan. This is an exciting
prospect for any Australian food manufacturer, as
Japan is a mass importer of food products, has a
population of approximately 126.8 million (with
the majority of the population (64.3 per cent)
in the 1564 years age group) and insufficient
land for agriculture. While this export prospect
may be exciting, there are a few important
steps that need to be taken before advancing
too far down the exporting track. Research
needs to be undertaken to understand both the
marketplace and the culture of the country. It is
helpful to learn the language and also to gain
an understanding of trade, freight and payment
issues. As your product is food, understanding
the quarantine regulations is essential.
Expansion strategies
in marketing
Established businesses are often looking to
improve their products, extend their product
range or expand their markets. There are a range
of expansion strategies available; three of these
are exporting, innovation and diversification, and
research and development.
Expansion strategies can result from market
research or may need a marketing campaign to
support them.
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ACTIVITY 17.4
Not-so-secret recipe
Carmans Fine Foods
Conduct a Google search on Carmans Fine
Foods. Use these sources and the information
provided on the official website,
www.carmansfinefoods.com.au, to help
you answer the following questions.
Questions
1 Outline how Carolyn Creswell started out in
business and why the name Carmans Fine
Foods was chosen.
2 Identify the range of products manufactured
by Carmans Fine Foods.
3 Does Carmans Fine Foods sponsor any
groups? If so, which ones?
4 Describe the ways you believe eating habits
have changed in recent years.
5 What was the first major expansion strategy
undertaken by Carolyn?
6 What was the next major expansion strategy?
7 Describe the process she undertook to make
this second strategy happen.
8 How successful has this strategy been?
Justify your answer.
9 What considerations/changes were needed to
make the product export ready?
10 In which countries are Carmans Fine Foods
products currently sold?
Figure 17.5 Carmans Fine Food Range
Innovation and
diversification
For a business to be innovative, they have usually
created a better product or service, improved
the method of production or come up with an
unusual approach to increase their appeal to
the marketplace. In marketing, innovation can
result from the business conducting market
research, changing the way it performs its
business activities, the adoption or improvement
in the use of technology or making sure it
continues to highlight its point of difference
from other products.
11 Identify ways in which Carmans Fine

Foods adopts a personal approach in
its marketing strategy.
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ACTIVITY 17.5
Natio
Natio is Latin for creation, birth,
birthplace and the ancient name for
the Goddess of Nature. It symbolises the pure
and natural, plant-based origins of Natios
range.
Natio has evolved from an Australian
family business that has been manufacturing
skin care and cosmetics for national and international brands over four generations during
the past 75 years. In 1993, Max and Vivienne
Ross launched Natios beauty care range and
the colour range followed three years later.
Max and Vivienne both retain hands-on positions within the company.
Natios founders enjoy the rewarding
experience of self-discovery through yoga and
meditation and wish to share this experience
through the Natio products and philosophy.
The Natio range is continually developing with
a very clear objective in mind to deliver plantbased, simple and gentle beauty treatments
that are flexible and fit comfortably within
todays diverse lifestyles.
Natio is one of the fastest growing beauty

brands in Australian department stores and the
top performing skincare and bridge make-up
brand in Australian pharmacies. (Michael
Edwards Cosmetics & Perfume Survey 2008)
The uniqueness of Natio comes from being
an easily accessible, plant-based beauty care
range specifically designed for a contemporary
lifestyle.
At Natio we believe that no one should
compromise when it comes to skin care and
cosmetics, so we have produced a quality
beauty care system that everyone can afford.
We ensure that customers pay primarily for the
product and not for expensive promotions and
packaging.
Source: adapted from
www.natio.com.au/about-us
Questions
1 Describe the ways that Natio is being innovative in its approach to providing skin care and cosmetic
products to customers.
2 Provide examples of how Natio has diversified its product range (Hint: visit the Natio website.)
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Research and
development
In a market-oriented organisation, responding
to the feedback of your customers can lead to
research and development (R&D) of current
products to find an improved product to offer
to the marketplace.
For instance, a common problem people
have when painting a room, and in particular a
ceiling with white paint, is knowing which parts
have they actually painted and which parts need
still to be painted. The research and development
group at Dulux responded to this feedback
from customers and developed a ceiling paint
called NeverMiss. When first applied, this paint
is pink, but dries to white. To get the market to
know about this improved paint product meant
that a new marketing campaign was launched
with its major promotional activities being
television advertising and in-store promotions.
With consumers taste in chocolate changing,
Cadbury, already a household name for block
chocolate and a variety of chocolate bars,
undertook four years of research to perfect the
flavour of their Cadbury Dream block. Launched
in 2001 as real whiter chocolate, wicked
taste, it has been greeted by the market with
enthusiasm and has been judged by Cadbury to
be an outstanding success.
In the automotive industry, Ford Australia
is an organisation that values and places its
customers at the forefront. Ford Australias
President Bill Osborne said in a 2008 media
release: We design our cars to deliver real-world
safety benefits for our customers. This statement
is affirmed by the FG Falcon becoming the first
Australian-built car to receive a 5-star safety
rating from the Australasian New Car Assessment
Program (ANCAP). In the development phase of

the FG Falcon, Ford undertook 426 full vehiclerepresentative physical crash tests and more
than 5000 state-of-the-art simulated crash tests.
In 2008 Ford was able to exploit its marketing
advantage both with the safety award by ANCAP
and the comparative safety analysis with other
vehicles which was provided at that time. Now
many more vehicles carry this safety award
and while it is an important consideration for
customers, it is possibly not as significant in
marketing terms.
research and
development
scientific
research and
technical development
of new products
and/or processes
Figure 17.6 Dulux launched a new marketing campaign for a new product.
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CHAPTER SUMMARY
U A marketing plan is an important document that

can be either an individual document or part of
an overall business plan.
U The marketing plan needs to consider the
Where is the business now?
Where is it going?
How will it get there?
Has it achieved what it set out to do?
What are the future opportunities?
U The usual format for a marketing plan is
as follows:
executive summary
introduction and situational analysis
target market and segments
goals and objectives
strategies and tactics
budget
CHAPTER SUMMARY
QUESTIONS
audit and control procedures.
1 Imagine you are the marketing manager of a

business. You have been asked to come to a
Year 11 Business Management class to explain
and expand upon the importance of preparing
a marketing plan and evaluating the marketing
process. Using either a Microsoft PowerPoint
presentation or a written report, you are to provide
answers to the following important questions.
a Why is a marketing plan important to the
overall strategic plan of a business?
b Why is it necessary to set specific goals for
your product or business?
c Why is it important to have a clear
understanding of your customers and
competitors?
d Why is undertaking an analysis of both internal
and external factors (i.e. SWOT analysis)
very important to gain knowledge of the
marketplace?
e What does it mean to segment a market?
312
U The final step in the marketing process is

evaluation, which should be conducted
periodically monthly, six-monthly or annually
to ensure targets are met and expenses are
controlled.
U A range of indicators are used to evaluate
performance, such as:
sales analysis
market-share analysis
market expense-to-sales analysis
profitability analysis
customer-based measures: number of new
customers, repeat customers, target market
awareness, loyalty and brand awareness
ethical and socially responsible behaviour.
U Marketing expansion strategies result from
market research or using a marketing campaign
to support business expansion.
U Types of strategies are: exporting, innovation,
diversification, and research and development.
What is the importance of conducting market

research?
g What are the commonly used market research

techniques?
h How does a business put together all
the information gained through market
research to formulate appropriate marketing
strategies relating to product, price, place
and promotion?
2 What are some of the most effective ways of
measuring whether the marketing process has
been managed successfully?
3 Provide two examples of organisations that have
used each of the following expansion strategies.
Briefly describe the marketing strategies they
have used to support these initiatives.
a Exporting
b Innovation and diversification
c Research and development.
ISBN: 9781107665910
1 Undertake the SWOT analysis of the school
for incorporation into the marketing plan. It

is anticipated that this will be presented to
school council at its next meeting.
EXTENSION
QUESTION
The principal and school council of your school

are worried: enrolment numbers for the coming
year are low. Their solution is to increase the
profile of the school by conducting a marketing
campaign in the local area. A marketing plan
needs to be written and they have asked for your
assistance. Your role is to:
2 Provide practical suggestions of how the
schools profile could be enhanced in the

local community.
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18
THE MARKETING MIX

MARKETING STRATEGIES
WHATS AHEAD
Product
Price
Marketing plan
Place
Promotion
ISBN: 9781107665910
MANAGING THE MARKETING FUNCTION

KEY KNOWLEDGE
Students will learn the following about the marketing mix and related
the marketing mix and related strategies
product
price
place
promotion
product life cycle
issues in marketing, including the role of technology, in the global
business context and in the context of ethical and socially responsible
management and legal requirements.
Marketing strategies, which are seen as the

means to achieve an end, result from the
setting of marketing objectives. All elements of
the marketing mix need to be used to achieve
the desired outcomes. The marketing mix is
comprised of four variables (sometimes called
the four Ps of the marketing mix):
s Product what is being sold?
s Price for how much will the product
be sold?
AREA OF STUDY
AND RELATED
s Place where will the consumer get the

product?
s Promotion how will potential customers
be informed about the product?
As businesses aim to provide customer
satisfaction and business profitability, it is
important that they understand which marketing
strategies relate to each component of the
marketing mix.
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product
end result of production
process; can be either
a good or a service;
one of the four Ps of
the marketing mix
consumer profile
a statistical picture
of the typical consumer
of a product based on
demographic data,
e.g. income, age,
gender, occupation
What is a product?
Business goods
Product is the first component of the four Ps of

the marketing mix. A product is anything that
can be offered to a market to satisfy a need or
want. It can include physical goods, services,
experiences, events, persons, places, properties,
organisations, information and ideas. Consumer
and business goods and services can be classified
on the basis of their characteristics relating to
purchasing habits. The consumer profile will
then have an effect on the form of marketing
best suited to that category of product.
Business goods and services can also be classified

according to their characteristics, ensuring that
the appropriate marketing strategies can be
applied. These may include:
s raw materials (e.g. minerals and agricultural
products) and manufactured materials and
parts (e.g. component parts)
s capital items, such as buildings, equipment,
computers and office equipment
s supplies, such as paint, petroleum products,
paper and cleaning materials
s services, such as engineering, surveying,
maintenance, accounting and legal.
Consumer goods
Table 18.1 Types of consumer goods, their classification and impact on marketing strategies
Product classification
Groups
Convenience goods (purchased

Staples are items bought on a
frequently and without much effort) regular basis, e.g. newspapers,
bread, milk, toothpaste, shampoo,
food items
Ones that allow for wide exposure

of the product, e.g. television
advertisements
Impulse are items bought with

no planning, e.g. chocolate bar,
chewing gum, magazines
Prominent display such as

checkout counters,
e.g. colourful displays
Emergency items are purchased

when the need is urgent and price
is not important, e.g. umbrella
during a rain storm, shopping bags
Prominent display near checkout

counters, e.g. product display
positioning
Shopping goods (a comparison is

e.g. clothes, shoes, furniture,
made based on suitability, quality, household appliances, new and
price, style; research is undertaken used cars
prior to purchasing the item)
316
Broad range of strategies required

to cater for varying purchasing
styles; salespeople need to have
good product knowledge and
selling techniques
Specialty goods (have unique

characteristics or brand
identification; brand and product
quality are the main considerations
rather than price)
e.g. new cars (luxury), photographic Exclusive distribution rights

equipment, computers
and limited production allow
for marketing to be specifically
targeted
Unsought goods (those goods not

regularly purchased)
e.g. smoke detectors, life

Marketing needs to be specific
insurance, encyclopaedias, prepaid and advise benefits of products/
funerals, financial planning
services; personal selling and
direct marketing important for
product promotion
ISBN: 9781107665910
ACTIVITY 18.1
Classify each of the following consumer products
according to its type. Explain why you have
chosen this category.
1 iPad
2 DVD player
3 Lawnmower
4 Perfume
5 Snowboard
6 Magnum ice-cream
7 Sports shoes
8 Health or car insurance.
Figure 18.1 Consumer goods
CHA P T E R 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES
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Developing
the product
product development
design and
development of new
or existing products
Stage 1
Idea development
Stage 2
Idea screening
Stage 3
Idea evaluation
Stage 4
Developing the product
Stage 5
Commercialisation
of the product
It is very important for businesses to keep their

product range appealing to the marketplace.
They need to consider changes in consumer
tastes, new competitors and technology.
There are five stages involved in product
development that is, in getting a new product
developed and out to the market.
Stage 1: Idea development

Ideas can be generated from input from both
staff and customers or by carrying out market
research. A business will then be able to
find out what needs are not currently being
met, or how the current product could be
modified, enhanced (innovated) or extended. A
competitors product could be analysed to see
how to improve on the concept. Product ideas
may also come from what are being seen as
current consumer trends, such as the following:
s emphasis on leading a healthy lifestyle and
eating healthy products, i.e. being alive
and well
s concern for environment or genetic
modification of products
s peoples desire to indulge or reward
themselves by purchasing something
decadent, e.g. purchasing premium quality red
wine, an expensive car or stereo equipment
s enjoying a change of lifestyle and undertaking
a sea change or tree change
Figure 18.2 Stages in the new-product development process
Figure 18.3 Consumer trends take many forms.
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s nostalgia for a carefree childhood and looking

for products from a bygone era, e.g. Mini
Cooper and Volkswagen Beetle cars.
Stage 2: Idea screening

Business owners need to consider how attractive
these ideas are to their business and how well
they fit with the business objectives and profile.
Consideration should also be given to the current
product range as to whether the new idea will
totally change the range, or become an extension
of a current range.
Stage 3: Idea evaluation

Idea evaluation involves the testing of the concept
with market analysis to determine demand and
gain the reactions of customers, identifying target
markets, working out the cost of producing the
product and forecasting sales and profits.
Stage 4: Developing
the product
The actual product now needs to be produced
and market-tested, and marketing strategies
need to be determined. Alterations may still
be made to the final product, depending on
feedback from market testing.
Stage 5:
Commercialisation
of the product
ACTIVITY 18.2
1 Using the internet to help you research,
identify three products you know of that have
failed in the past five years.
2 Explain why you believe these products were
not a success, e.g. poor marketing,
too expensive.
Why do some
products succeed
and others fail?
It would appear that there are a number of
important factors that contribute to the success
of a product. Commitment on the manufacturers
part to continuously develop a unique and
superior product is one key to success. Failure
can occur due to the market segment being
too small, poor choice of marketing strategies,
changes in consumer tastes or a forecasting error.
Product life cycle

Business success would be guaranteed if it were
possible to determine the exact time to launch
a new product or update an existing product.
What is known, however, is that all products go
through a life cycle. An awareness of this can
help businesses gain an advantage over their
competitors. The product life cycle is divided
into four stages, as described here.
product life cycle

the stages through
which all products
pass: launch
(introduction), growth,
maturity, decline
or extension
Once developed, the product enters the

marketplace through a product launch and its
accompanying marketing campaign. The success
of the product is judged against the forecasts
made during the idea evaluation stage.
Figure 18.4 The product life cycle
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Stage 1: Introduction
This stage commences with the launch of the
product into the marketplace, after its product
development and testing stages. Sales at this
stage are low (increasing at a slow pace), profits
are non-existent or very small, and competition
is scarce.
maturity
stage of product life
cycle where sales
peak (saturation point);
mature products either
decline or are
extended to lengthen
their life cycle
Stage 2: Growth
Due to effective promotion of the product and
acceptance by consumers, sales will be growing
fast with profits rising, to then flatten out and
start to fall over a period of time. At this point,
competitors may have now entered the market.
Stage 3: Maturity
or saturation
The level of sales has stabilised and competition
for the product is strong. Profit can start to
decline. The initial consumer demand for the
product has been satisfied and the product
as yet does not need to be replaced. Prior to
launching a brand-new product, extension
strategies may be introduced to extend the
old products maturity stage, e.g. a re-launch
that involves new packaging and advertising of
the product.
Stage 4: Decline
or extension
The marketing strategies of a product need to

change during the various stages of a products
life cycle as customers attitudes to the product
will change. In addition, the target market may
need to change and there may be an increase in
competition for the product.
ACTIVITY 18.3
1 Provide three reasons why an understanding
of the product life cycle is so important to
business success.
2 Identify what stage in the product life cycle the
following products have reached at the current
time. For example, the long-playing (LP)
record player declined in the original product
cycle. Interestingly, it is now becoming trendy
due to its retro appeal.
a DVD player
b Electric car
c Flat-screen television
d Bottled water
e CD
f
Digital camera
g Four-wheel drive vehicle

h Video phone
i
Video tape
Solar panel heating
k Hybrid car.
Table 18.2 sets out the relationship between

the marketing mix and the four phases of the
product life cycle.
This stage involves a steady decline in sales as

newer competitors products are more popular.
When the product becomes unprofitable or a
new product is ready, the original product will
be withdrawn from the market. An extension
strategy, such as exporting, may be adopted in
the maturity stage as a way to boost sales.
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Table 18.2 Product life cycle relationship to the marketing mix

Product life
cycle phases
Introduction
Product
Price
Place
Promotion
New model or
product
Market
penetration pricing
Limited number
of outlets, with
possibility of
expansion
Informative
advertising to
(low) or skimming
policy (high)
make consumers
aware of product,
its price and
features
Free samples,
trial periods
Trade incentive/s to
stock the product
Growth
Product
improvements need
to be planned to
maintain appeal to
customers
If penetration
pricing policy is
Increased number
of outlets
a success, prices
may now be
increased
Reinforcement
and persuasive
advertising
to encourage
consumers to
repeat purchase
Sales promotions
to encourage
repeat purchases
and establish and
maintain brand
loyalty
Maturity or market
saturation
Decline
Extension strategies Competitive pricing

needed, e.g. new
models, colour
range, packaging
Large number
of outlets, with
possibility of new
and different types
of outlets
Sell off existing

stock ready for
withdrawal from
product range and
market
Reduce number of No active promotion

outlets to those that or advertising
are profitable
Possibly, price
reduction
information
Discount or
lowering of pricing
Importance of
brand image,
with advertising
emphasising the
difference between
your product
and that of your
competitor
market penetration
a pricing strategy that
aims to set low prices
initially to gain high
market share quickly
informative
advertising
advertising that gives
consumers factual
information about a
product rather than
creating a product
image
penetration pricing
a pricing strategy
where the products
price is set lower
than a competitors
price; also used when
introducing a new
product to the market
persuasive
advertising
attempts to create an
emotionally positive
feeling about a
products image to
encourage consumers
to buy it
brand loyalty
when consumers
continue to purchase
the same product, even
though rival products
may exist
market saturation
occurs when most
consumers already own
the product and the
market is not growing;
any sales that occur
are replacement sales
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brand
a powerful business
asset that is essentially
a makers mark; it
creates and brings
with it awareness,
desirability and power
product mix
a full set of all
products being sold
by a business
product line
a broad group of
products that are
intended for similar
uses and have similar
physical features
product
differentiation
products are developed
and advertised to make
them appear different
from others on the
market
brand leader
the brand in the market
with the highest market
share
What is the
product mix?
Many businesses offer more than one product
for sale. The product mix is the full set of all
products being sold by a company. The mix has
two main elements or dimensions:
s breadth measured by the number of product
lines carried
s depth determined by the variety of sizes,
colours, and models offered within each
product line.
A product line is a broad group of products
intended for basically similar uses, and having
reasonably similar physical characteristics. For
instance, in an electrical retail store the product
mix would include items such as washing
machines, dryers, microwaves and dishwashers,
referred to as whitegoods. An example of one
product line would be washing machines. Within
that product category, its breadth can then be
determined by the number of different brands
that store is selling and the depth by the number
of different models of that particular product.
The role of branding

A brand is the distinguishing name, term,
symbol or design that is used to identify one
manufacturers product and differentiate it from
another manufacturers product. Branding is very
influential in marketing, creating either a positive
or negative image in the mind of the consumer.
Products are developed and advertised to make
them appear different to others on the market
(product differentiation).
The business with the largest share of the
market is known as the market leader (or brand
leader). It is estimated that a successful brand is
a powerful asset to a business and may account
for between 50 per cent and 70 per cent of the
total value of a business.
What is it that makes a brand connect with
the consumer? Is it emotion, market leadership,
high quality or being judged as value for money?
Research firm The Leading Edge conducted a
poll of 750 people, who were asked to rate 130
well-known brands on a trust scale of 1 to 10.
Some of the results are set out in activity 18.4.
Figure 18.5 Two of Australias most trusted brand names
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ACTIVITY 18.4
Other Category Winners 2010

CATEGORY
WINNERS
AIRLINES
AUSSIE ICONS
BANKS
CARS
CREDIT CARDS
ELECTRONICS
FOOD
HAIR
HOME APPLIANCE
INSURANCE
LAUNDRY
MOBILE PHONES
ORAL HYGIENE
PAIN RELIEF
HEALTH AND WELLBEING
PET FOOD
RETAILERS
SKINCARE
TELECOMMUNICATIONS
VITAMINS & SUPPLEMENTS
WHITEGOODS
(equal winners)
QANTAS
VEGEMITE
ING DIRECT
TOYOTA
VISA
SONY
CADBURY
DOVE
BREVILLE
ING
OMO
NOKIA
COLGATE
PANADOL
BAND-AID
WHISKAS
BUNNINGS
DOVE
VODAFONE
BLACKMORES
FISHER & PAYKEL
WESTINGHOUSE
Source: www.readersdigest.com.au/australias-most-trusted-brands-2010
Questions
1 Out of the 21 companies (brands) listed above, identify which brands are Australian-owned and
which brands are foreign-owned. (Hint: visit the website http://ausbuy.com.au/.)
2 Choose five of the above brands and describe the features that you believe each of these brands
possesses to make it most trusted. For example, Cadbury has been judged as best of the best
based on its scandal-free reputation for its long years of operating in Australia, and the fact that in
2010 Cadbury Australia began making Fairtrade Certified Cadbury Dairy Milk milk chocolate its
biggest selling chocolate!
3 What do you believe makes a brand connect with the consumer?
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Why is brand important?
brand stretching
using an established
brand name in order
to introduce unrelated
products
A brand can convey a range of meanings:

attributes, benefits, values, culture, personality
and type of user. Taking the example of a luxury
car such as a BMW, it is possible to analyse
these brand meanings:
s Attributes of the product a BMW car
suggests an expensive, well-built, wellengineered,
long-lasting,
high-prestige
automobile.
s Benefits both functional and social status.
A BMW car will last for a long time and
can make some people feel important and
admired for having this product.
s Values this car says something about the
manufacturers values; BMW stands for high
performance, safety and prestige.
s Culture the brand may represent a
certain culture. BMW represents German
cultural traits of organisation, efficiency and
high quality.
s Personality BMW projects a certain
personality: high status and interested in
on-road performance.
s Type of user who would we expect to see
behind the wheel of a BMW?
The importance of branding is recognised
by luxury car manufacturers, such as Ferrari,
Porsche and Aston Martin. These manufacturers
know the value of cashing in on their highly
regarded brand, selling branded clothing, key
chains or other trinkets. These branded goods
provide a profitable product line for such
premium, low-volume car producers. Their
growing non-car product lines underscore
the power of their brands, but also the harsh
realities of the car business: selling baseball
caps and luggage can be more profitable than
selling cars. This practice is known as brand
stretching and occurs where a central logo is
used as an umbrella for a range of products.
Another example of brand distinguishing
a product is in the very large and competitive
paint industry. The brand Dulux, with its motto
(created in the 1970s) Worth doing, worth
Dulux, conveys the image of quality attached
to any paint product from its range. As part of
their brand recognition, the company features
an English sheepdog. The Dulux dog is seen as
a powerful trademarked symbol of the Dulux
brand for consumers. Research confirms that the
inclusion of the Dulux dog in any promotional
material increases the memorability and
branding for the consumer.
Figure 18.6 The importance of branding and brand recognition
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Businesses that adopt a brand ownership

strategy must ensure the strategy adequately
promotes the brand, while also maintaining
its quality. It is possible to register a brand
name to protect its use. Over time, some brand
names have become accepted in our common
language as the generic name for a type of
product. For example, plastic cling wrap is
commonly referred to as gladwrap, a felt-tip
pen as a texta, and a portable car fridge as
an esky. This kind of product recognition is a
marketing advantage.
Businesses also now want to monopolise the
colour they use in their brand. This has become
an increasingly contested issue, with Red Bull
winning a court case in 2002 against a soft-drink
distributor whose can used the same red, blue
and silver combination with the same diagonal
thrust as the Red Bull can. In January 2006,
Clark Rubber won an injunction against Oasis
Foam and Rubber, which had painted its stores
with blue and red on a yellow background,
similar to the Clark Rubber colour scheme.
In more recent times, BP wanted to register
the colour green under the Trade Marks Act
1995 (Commonwealth), which can then protect
its brand. Meanwhile, Cadbury and Darrel Lea
fought a five-year legal battle in Australias
Federal Court over the right to use the colour
purple in packaging and advertising. Cadbury
wanted to gain sole right to this colour. Cadbury
was told that it does not own the colour purple,
and its attempt to sue Darrel Lea was rejected
by the Federal Court.
ACTIVITY 18.5
1 Choose two different products and describe
the range of meanings attached to those
products in terms of: attributes, benefits,
values, culture, personality and types of user.
2 Create a list of at least 10 products where the
brand name has become accepted as the
common name for the product.
3 Identify three luxury brands where the
business is cashing in on the brand name to
gain an additional revenue stream.
An advertiser wants its product to be in front

of peoples eyes, wherever those eyes might be.
Product placement has become very popular
in television programs and movies. When you
are next watching television or at the movies,
take some time to actually count up how many
products are strategically placed in the show
itself to subconsciously catch the eye. You
product placement
a method used to
gain prominence of a
product in
the consumers
mind, e.g. television,
movie, internet
may also want to count up how many times

an individual product appears or is mentioned
during a television show that the business
has sponsored.
Figure 18.7 The importance of colour in marketing a brand
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generic brand
a brand that attributes
its identity to the
retailer rather than
the manufacturer
label
placed on a product
to inform customer/
consumer with
information such
as manufacturer,
ingredients,
use-by date
326
Product placement is now also appearing in

simulated aspects of the real world in computer
software games and virtual reality environments.
McDonalds and Intel are engaged in product
placement activities within virtual worlds
and this activity is expected to become more
popular with brands as people spend more time
in virtual environments.
The internet has become part of the
branding strategy of many organisations. The
website for a business becomes a brand portal
offering site visitors more than just straight
product information. It offers opportunities to
participate in activities such as games, puzzles,
message boards, live chat, email, surveys and
e-commerce. It aims to gain commitment from
visitors to the website by building a virtual
community around that brand of product.
For small business operators, deciding to
stock branded products is a sound strategy
as these products carry with them their own
consumer recognition and brand loyalty. This
will cut down on the amount of marketing a
business will need to undertake.
Some large supermarkets offer products that
have generic brand names, such as No Frills,
No Name or Select brand. The brand attaches
to the supermarket chain, rather than the various
manufacturers of the product. These brands
are produced by a variety of unacknowledged
manufacturers, packaged plainly and therefore
more cheaply. They do not receive a lot of
promotion. These savings are then supposedly
passed on to the consumer by way of lower
prices for the product.
The choice of the right

packaging
The packaging of a product is very important
and not to be overlooked. It has a multitude of
purposes, including:
s acts as an advertisement, attracting attention
and new customers
s builds image, brand recognition and positions
the product in the marketplace
s differentiates the product from that of
its competitors
s protects the product primary wrapper,
secondary and transportation packaging
s tamper-proofing
s provides consumer information ingredients,
manufacturer and country of origin.
One of the most important considerations when
designing packaging is colour. For instance,
consumers associate certain colours with
certain feelings and products: white (purity)
with milk; red (warmth, passion and sensuality)
with Coca-Cola; blue (professionalism) with
IBM computers; purple (luxury) with Cadbury
chocolates.
Labels can be used to provide information
about the product, the manufacturer or retailer.
Often the trademark of the business is displayed
on the label. Labels can be part of the packaging
of a product or attached directly to the product.
Packaging, while very important from a
marketing sense, has also come under greater
consumer scrutiny and criticism, mainly due
to environmental issues. The use of reusable
packaging such as glass or recycled cardboard
has helped overcome some of this criticism.
Customers also choose products based on the
convenience of the packaging. For example,
Heinz moved from selling glass bottles of tomato
sauce to plastic, squeezable containers. White
Wings flour is now available in a screw-top plastic
jar instead of a paper packet. Producers should
also think about portion sizes when designing
their packaging. Not all households are large and
therefore individual pre-packaged portions of
items may lead to more sales.
ISBN: 9781107665910
ACTIVITY 18.6
1 Choose four products and analyse their packaging based on the following criteria.
a Design use of colour, placement of logo or business name
b Consumer information, e.g. ingredients, name of manufacturer, country of origin
c Level of packaging primary or secondary
d Brand recognition
e Environmental friendliness.
2 Identify which colours you associate with the following brands.
a John West
b Maggi
c Weight Watchers
d Twisties
e Sara Lee
f
Lipton.
ACTIVITY 18.7
Debranding
In April 2010, the Australian Government
decreed that from 1 January 2012, all cigarettes
will be sold in plain packaging. The boxes will
be the same colour. The name will appear in a
small font. The style and size of the font will
be consistent across all brands, as will the
position of the brand name. The new laws
will ban colours, logos, brand images and
any kind of text that would allow cigarettes
to be distinguished from one another. The
only colour will come from those graphic
photographs of what smoking can do to the

human body. The final packet design is being
trialled by government graphic whizzes to
achieve maximum lack of effect for the brands.
Exact standards will be released closer to
the date.
Source: The Gruen Transfer,
Jon Casimir
ABC Books, p. 109
Questions
1 Describe what you believe was the purpose to be achieved by the Australian Government in its
move to debrand cigarettes.
2 Do you believe that this strategy is effective? Justify your opinion.
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What determines
price?
mark-up
pricing determined by
adding gross profit to
the direct cost per unit;
usually expressed as
a percentage
There are three main ways that the pricing of a

product or service is determined.
Price is the second component of the four Ps

of the marketing mix. The price is the amount
of money paid by customers for a product or
service. It is the customer who will ultimately
determine whether the business-set price is
correct. Pricing levels greatly influence the
revenue and profit made by a business, helping to
determine its financial success or failure. Correct
pricing decisions are therefore some of the most
important issues facing marketing managers.
Businesses often apply different pricing methods
to their portfolio of products, depending on costs
of production, stage in product life cycle and
competitive conditions within the market.
Pricing a product for the market is dependent
upon a range of factors. When a business
determines its pricing strategy, it must ensure
that it covers the base price for the product,
then takes into account the range of price
adjustment strategies available. Outlined below
are various factors that must be considered when
determining the price of a product or service.
1 Cost-based methods
A business will want to recover the total costs
(both fixed and variable) associated with actually
getting the product to the point of being ready
for the marketplace. This requires the business
to calculate its break-even point. Costs are
normally calculated on a cost-per-unit basis. A
standard percentage mark-up (representing the
desired profit margin) is then added to the unit
cost to arrive at the sale price.
2 Competition-based
methods
It is normal for a customer to compare prices and
quality between items being offered by a business
and that of its competition. To be competitive in
the marketplace, it is therefore very important
to price products in a similar price range to
competitors. This is referred to as establishing the
going rate. While price is important, businesses
Business
objectives (profit)
Costs
Marketing
strategies
Legal constraints
Price
Competition
Life cycle position

of product
Supply and
demand
Customers
perception
of value
Figure 18.8 Factors that determine price
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need also to focus on other aspects of the

business, such as customer service and loyalty
programs to entice customers. If a business wants
to be the market leader, it will have to adopt a
price leadership strategy, thus setting the prices
for other competitors in that industry.
3 Marketing strategy
methods
The pricing strategy will differ based on whether
a business is introducing a new product or
whether its product or service is already
established in the marketplace.
Introducing a new product

Introducing a new product may mean the
business adopts one of the following strategies.
s Penetration pricing policy is used to get
customers to try the product. The price is set
lower than that of competitors or the normal
price for such a product. The aim is to create
a long-term relationship with customers, who
hopefully will still remain when prices increase
to the level of normal competitive pricing
for that product. Other forms of penetration
pricing are introductory price discounts (two
for the price of one) and sampling.
s Skimming pricing is used for products
that are of high quality and have an image
attached to them. The market is usually small
and not seen as having potential to grow in
size. The price charged is high relative to
competitors, and is skimming off the cream
of the market.
Established product/service
A range of pricing strategies exist and the
objective of the current marketing of the
product/service will assist in determining which
is most appropriate.
s Creating a loss leader the price set on
one product may be low in order to attract
customers to buy other products in the range
with a higher margin.
s Adopting psychological pricing used

by manufacturers and retailers to make the
price appear lower than it actually is. The
price of $1999 appears far lower than $2001;
similarly, $0.99 instead of $1.01. Consumers
also assume that some products, because
of their image and quality, are going to
be expensive. While the cost of producing
perfume and cosmetics is not all that high,
a large proportion of the cost is actually
associated with the packaging to make the
product look exclusive.
s Using complementary pricing where
the price is set low on one item and high on
another item that would normally go together,
e.g. suit, shirt and tie, coat and scarf.
Other factors that

affect pricing
price leadership
a business that through
its dominant market
position is able to
set prices that other
businesses adopt
skimming pricing
a strategy where high
prices are set to ensure
high profits before
marketing advantage
is lost
psychological pricing
pricing strategy
whereby the price is set
in accordance with the
value the consumers
place on the product
Supply and demand

Some products are very sensitive in their pricing
to the level of supply of the product. For instance,
the price of fresh fruit and vegetables is highly
dependent on the level of supply available
at the wholesale market. This type of product
has the additional consideration of seasonal
factors affecting availability of supply. When the
marketplace is oversupplied with a product, the
price will usually fall in the hope of attracting
consumers to buy additional quantity. Just think
of the price comparison between strawberries,
mangoes and watermelon in summer and winter.
Demand is slightly more complicated in
its relationship to price. Some products may
have a price increase with little or no impact
on the demand for the product. These products
are referred to as being price inelastic, and
generally tend to be essential items such as
milk, bread and eggs. Products that have a large
drop-off in demand due to a price increase are
referred to as being price elastic, and generally
tend to be non-essential items, such as movie
tickets, leisure travel and restaurant prices.
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Government regulations
place
encompasses the
distribution channels
used to market
products to customers;
the marketing mix
direct
distribution channel
a manufacturer sells
the product directly to
the customer
Controls are periodically imposed to set maximum

prices for certain products. It is often those items that
are considered to be staples, such as milk, bread,
eggs and petrol. The government also regulates
prices through the provisions of the Competition
and Consumer Act 2010 and in some instances
prohibits certain pricing practices, such as:
s price fixing, which is when suppliers formally
arrange with competitor suppliers to fix the
same price for a product
s resale price maintenance, which prohibits
product suppliers specifying a minimum
price below which retailers must not resell
or advertise their goods or services
s misuse of market power, which is when
a supplier, having a substantial degree of
market power, tries to eliminate or damage
a competitor, prevent a person entering
the market or deter a competitor from
undertaking competitive practices.
ACTIVITY 18.8
Choose two recently launched products.
1 Consider whether either the skimming or the

penetration pricing strategy has been used for
these products.
Place
Place is the third component of the four Ps of the
marketing mix. It is very important that businesses
place their product correctly so that it is accessible
to the end user (consumer) when and where they
want it. Place therefore involves making decisions
to ensure that the right quantity of product is in
the right location, at the right time.
Distribution channels are used to provide
the link between the manufacturer and
the customer. There are two main types of
distribution channels: direct and indirect.
Direct distribution
channel
A direct distribution channel enables the
manufacturer or producer to sell their product
directly to the customer. This method usually
requires the business to invest in facilities and
staff to sell their product; however, it allows them
complete control of the marketing function.
The internet has added to the popularity of this
distribution channel, especially for services such
as insurance and banking.
2 Comment on whether you think this was an

appropriate strategy for that product.
For example, Virgin Airlines, JetStar and
Tiger Airways, when launching their Australian
operations, used a penetration pricing policy
to try to win the travelling public away from the
established airlines.
Table 18.3 Direct distribution to the customer
330
Advantages of direct distribution
Disadvantages of direct distribution
s Cuts out the profit margins of the middle man

(retail intermediary)
s Manufacturer/producer needs to warehouse the

stock, adding to storage costs
s Pricing and marketing of the product/service

is under the full control of the manufacturer/
producer
s Product is not on display in a retail outlet for the

consumer to browse and make comparisons to
other products
ISBN: 9781107665910
Table 18.4 Indirect distribution to customer

Advantages of indirect distribution
Disadvantages of indirect distribution
s Manufacturer/producer has passed on the cost of

holding and storing stock to a retailer
s Customers can view a wider range of items and

make price comparisons
s Manufacturer/producer is given more freedom

to focus on producing a product rather than also
having to concentrate on selling the product
s Marketing decisions relating to price are now out

of the control of the manufacturer/producer and
are made by the retailer
Indirect distribution
channel
Traditionally,
an
indirect distribution
channel involves the use of a retail outlet,
where products are stored and displayed. It is a
popular distribution channel for occasions when
consumers want to purchase an assortment of
items, the value of purchasing transactions is
low and the market is fragmented and dispersed.
In recent times, the concept of an
online department store has evolved.
DealsDirect.com.au is Australias most popular
online shopping department store. It sells
products from more than 23 categories. It runs
a 24-hour, seven-days-a-week operation from its
distribution centre in Sydney. Another innovation
is Aussie Farmers Direct (www.aussiefarmers.
com.au), which is a free home delivery service
supplying directly to the consumer Australian
grown and produced products such as milk,
cream, cheese, bread, eggs, bacon, orange juice
and spring water.
Often businesses will have a combination of
both direct and indirect channels, as they have
their own retail outlet where they employ their
own sales staff as well as placing the product
for sale through distributors. Industrial products

are more likely to be sold directly with fewer
intermediaries than consumer goods.
Logistics covers decisions relating to
transportation, warehousing and storage of goods.
Having an efficient logistics operation can provide
a business with a strong competitive advantage.
indirect distribution
channel
a manufacturer sells
their product to a
retailer (intermediary),
who then sells it to the
customer
ACTIVITY 18.9
1 What distribution channel issues or
considerations would be important for
the following businesses?
a Car manufacturer
b Clothing manufacturer
c Furniture manufacturer
d Paint manufacturer.
2 Visit the DealsDirect online department
store website (www.dealsdirect.com.au) and
describe how they undertake their distribution
of products and promotion of their business.
3 Which major retail stores are now moving to
adopt an online store? Why do you believe
they are adopting this strategy?
Figure 18.9 DealsDirect logo
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Promotion
promotion
the use of advertising,
branding, sales
promotion and public
relations to inform and
persuade consumers;
the marketing mix
Promotion is the fourth component of the four

Ps of the marketing mix. Promotion involves
the business communicating with its actual or
potential customers. Promotion is the element
of the marketing mix that informs customers
of an organisations product or service while
also convincing them of that products ability to
satisfy their individual needs or wants.
For promotion to be effective, either shortterm or long-term objectives must be established.
A short-term objective may be to promote an
end-of-season sale, while a long-term objective
may be to change the whole image of your
business. Other examples of some promotional
objectives include:
s To raise consumer awareness of a new or
existing product.
s To remind consumers of the existence of a
particular product or service.
s To promote distinctive features or superior
quality of a product or service over those of
its competitors.
s To create and reinforce brand image
or personality.
s To correct misleading reports about a product
or service or reassure the public after a crisis
or accident relating to the product.
Once the promotional objectives have been set,
it is time to decide what will be the appropriate
promotional mix. This refers to the combination
of promotional techniques that will be used to
sell the particular product or service, or range of
products or services.
Promotional techniques
Advertising
advertising
informing potential
buyers about a product
332
Advertising is a powerful medium of mass

communication that is designed to:
s inform by giving information to potential
customers about the technical details, product
use, key features, price and where the product

may be purchased. It is important to use this
form of advertising when introducing new
products.
s persuade by creating a distinct image or brand
identity for the product. An advertisement
can be used to persuade consumers to buy a
product and not a competitors, when there is
really little difference between the products.
It is the role of the marketer to build up the
image of quality and difference between the
products in the mind of the consumer. Note
the persuasive comments made in the advertisement Pork as lean as skinless chicken?
s remind and reinforce when products are
well established in the market, advertising is
undertaken to remind consumers of the products presence and reinforce what the product
has to offer to consumers, so that a switch in
preference is not made to the competitions
product.
Advertisements are often presented using a
variety of styles:
s personality creating a character to represent
the image of the product
s slice of life showing typical people using
the product in an everyday setting
s lifestyle showing how a particular product
fits in with a certain lifestyle
s celebrity famous spokesperson acting to
promote either the product/service or the
business
s fantasy creating a fantasy around the
product or its use
s mood or image building an image around
the product, such as beauty or serenity
s testimonial evidence featuring a highly
believable or likeable person endorsing the
product
s technical expertise showing a companys
expertise in making the product
s scientific evidence presenting a survey or
scientific evidence that the product is superior
to competitors products.
ISBN: 9781107665910
Figure 18.10 A reinforcement advertisement
ACTIVITY 18.10
1 What image is RACV trying to portray with this
advertisement?
2 Where is RACV aiming to position itself in the
marketplace with this advertisement?
3 Create a chart and provide an example of an

advertisement based on the use of each of the
nine advertising styles listed above.
Forms of
advertising media
After choosing the style of advertisement to
be used, it is then the role of the marketer
to select the most appropriate media for the
advertisement that will best target the particular
market segment they want to attract. For
example, it would be a waste of money to
advertise expensive pearls or French perfume
in a computer magazine.
Set out below are the most common forms
of media used by marketers.
s Newspapers allow for large amounts of
detailed information to be provided in
advertisements, which can vary greatly in
size, from full-page to very small. Small
businesses would be more attracted to placing

a small advertisement in a local newspaper,
as a full-page colour advertisement in The
Australian would be approximately $49 000
including GST. As newspapers generally
run special-interest sections, it is possible
to aim the marketing at particular market
segments. For instance, in the Drive section
of The Age newspaper you are likely to see
advertisements similar to the one below.
s Television is a very expensive medium that
can provide high impact, as it relies on a
combination of visual, movement, sound and
special effects to communicate the message.
It lends itself best to simple messages
delivered in 30-second time frames. Products
can be demonstrated as well. With the
popularity of channel surfing using remote
controls, potential audiences can easily miss
the advertisement.
s Radio has a wide reach and the ability to
target market segments, particularly those
based on age. As radios are often in the
background when working, studying or
driving, it means that our attention can in
fact be at a low level.
s Magazines are appealing due to the high
quality of their print and colour. They are
ideal for marketing fashion items, food and
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Figure 18.11 Mitsubishis Triton GL-R 4X4 compared to competitors
334
anything associated with glamour. Magazines

are usually read in a leisurely manner and
passed on to multiple readers, so extending
the longevity of the advertisements time
frame.
Direct mail is the most personal and selective
of all advertising media. Lists of names
and addresses can be purchased, which
have already undergone sorting based on
various demographic or target segmenting
characteristics. Costs can arise due to printing
and postage fees, but it does mean there is
less waste circulation.
Outdoor advertising occurs using a wide
range of techniques such as billboards,
neon signs, bus and tram shelters, railway
stations, backs of taxis and sides of buses.
It can reach a large percentage of the
population, but is only appropriate for very
simple or reminder messages.
Yellow Pages is available both in print
and electronic format. It is still a popular,
low-cost medium used by small and medium
-sized businesses.
The internet is regarded as the fastest
developing advertising medium. Businesses
must ensure they use the medium effectively
to provide information to customers, as it is
still not widely accepted as a common way
of making direct purchases.
ISBN: 9781107665910
Table 18.5 Advantages and disadvantages of advertising

Advantages of advertising
Disadvantages of advertising
s Reaches a broad or mass market
s Expensive and difficult to gauge effect
s Acts to persuade if creative techniques are used
s Impersonal
s Able to target market segments through directed

media (e.g. teenage girls through Dolly magazine)
s Inflexible or not as compelling as a salesperson

s Consumer is able to tune out
s Able to create powerful brand image and

product recognition
Direct marketing/selling
This technique has developed from the desire
of businesses to deal directly with their target
market using marketing tools, such as direct
mail, telemarketing, directed catalogues, mailouts, phone calls, personal visits or emails. By
using these techniques, the business hopes to
develop a closer relationship with its customer.
Technology has seen the expansion of direct
selling into the area of telemarketing, where
sales staff are employed to sell products over the
telephone, instead of face to face. Telemarketing
saves a business money and time by not requiring

salespeople to travel or sell on a door-to-door basis
with no guarantee of a sale. Using the telephone,
sales personnel are able to work through a far
larger target market in a smaller time, arranging
both payment and delivery details at the same
time. It can also be cost-efficient, as all sales staff
are located at one central call centre and do not
need to be provided with transport. As many
sales staff earn commission on the value of sales
received, this form of promotional payment acts
as a motivator to increase their sales performance.
Table 18.6 Advantages and disadvantages of direct marketing/selling

Advantages of direct marketing/selling
Disadvantages of direct marketing/selling
s Allows for one-to-one personalised communication s Could be seen as invasion of privacy, as

with targeted market
customer questions where/how you gained their
personal details
s Increases opportunity for customer loyalty and
higher frequency
s Negative image of direct mail and unwanted

phone calls (particularly at meal times)
s Flexible
s Relatively expensive due to high costs of making

direct contact rather than the broad approach
of advertising
Sales promotion
The sales promotion technique is used to
entice a customer into purchasing a product in
the belief that they are gaining some economic
advantage. The incentives to purchase may
be immediate, e.g. a product being offered as
a bonus pack or free samples attached to the
regular product. Alternatively, the incentive may

be delayed, where a customer needs to send
in a coupon or save up points in order to gain
a reward. The promotional objective must be
clearly defined by the business as to whether it
wants a short-term increase in sales or a longterm relationship with the customer.
sales promotion
use of incentives to
encourage increased
sales, e.g. free gifts,
competitions, buy one,
get one free
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For instance, where a marketing campaign

offers discounted accommodation packages in
off-peak periods, it may be deemed successful
as it has generated extra guests for the hotel. In
overall financial terms, however, it would not be
judged as successful as the hotel has additional
costs to bear associated with ensuring all its
facilities are fully operational while only gaining
a smaller revenue increase, due to the heavily
discounted marketing offer.
Sales promotion techniques are used on both

consumers and those in the trade (retailers).
The economic advantage for the retail outlet
may come in the form of buying allowances,
cooperative advertising and point-of-sale
material, trade shows and training to motivate
staff to improve sales performance.
Table 18.7 Advantages and disadvantages of sales promotion

Advantages of sales promotion
Disadvantages of sales promotion
s Provides additional support (reinforcement) to an

advertising campaign
s A technique that can be easily copied and

improved upon by competitors
s Offers short-term incentives to increase sales,

without long-term pricing implications
s Short-term solution to product promotion, does

not generally lead to long-term improvement in
product sales
s Provides opportunity for immediate feedback on

effectiveness of the technique
personal selling
product is sold by
a salesperson,
preferably trained
Personal selling
salesman are hopefully gone, replaced with a
Personal selling can be the largest single

operating expense of a business. To make this
expense cost-effective, it is therefore important
that sales personnel are adequately trained in
their product knowledge and interpersonal
skills. The days of the stereotypical loud mouth
professionally trained problem-solver who has

something to contribute to the business and its
customers. A salesperson should be someone
customers can trust for accurate product advice
and ethical behaviour. This helps form the basis
of relationship marketing.
Table 18.8 Advantages and disadvantages of personal selling

Advantages of personal selling
Disadvantages of personal selling
s In person (customer is actually dealing with

a salesperson who has product knowledge)
s Business needs to make sure sales staff

are trained and adequate staffing levels are
maintained to satisfy needs of customers
s Immediate answers to questions posed

by customer
s Ability to ask and answer questions
s Immediate feedback not left to wonder what the
answer will be; can gain a response even by body
language or facial expression
336
s Largest single operating expense of a business

and costly on a per-customer basis
s Unless a large sales force is used, it may only be
possible to reach a limited number of customers
ISBN: 9781107665910
Internet marketing
This technique involves all online marketing
activities used to promote and sell the goods
and services of one business to another business
(B2B) or a business selling to the consumer
market (B2C).
It is important that the web address of
the business is included in other forms of
promotional activities and communication such
as advertisements, sales brochures, product
specification sheets, letterheads, business cards
and even delivery and service vehicles.
When adopting this form of promotion, there
are some considerations that need to be analysed
by the business:
s Do the goods or services have online
promotional potential, and how can that
potential be used? For instance, goods or
services that require a first-hand experience
or demonstration in order to appreciate
their benefits would be more difficult to sell
online. Similarly, if the product is currently
widely available from a retail outlet, such as
grocery items, there must be some additional
incentive to using this promotional strategy
as a purchasing method. Online grocery

and produce shopping has experienced
a slow increase in popularity and offers to
the consumer the convenience of firstly not
having to take time out to go into a store and,
secondly, having the items delivered directly
to their home.
What type of website do they need one
that, while simple and easy for customers to
use, adequately reflects their corporate brand
and image?
How do they get customers to visit their
website? Promotional strategies will only be
successful if sufficient visitors are attracted to
their website.
How should it be advertised on the internet?
Should it use banner advertising to draw
customers to your site? (Banners are the
headline advertisements seen on the top of
popular websites.)
Can it be registered through a search engine
so that customer product or service enquiries
are directed to your website?
Can it get referrals by using links to
other websites?
ACTIVITY 18.11
Visit five of the following websites and answer the questions below.
U www.afl.com.au (Australian Football League)
U www.arnotts.com.au (Arnotts Biscuits Limited)
U www.raysoutdoors.com.au (Rays Outdoors)
U www.commbank.com.au (The Commonwealth Bank of Australia)
U www.holden.com.au (Holden Limited)
U www.coca-cola.com (The Cola-Cola Company)
U www.nike.com (Nike Inc.)
U www.three.com.au (3 telecommunications supplier)
U www.virginaustralia.com.au (Virgin Australia airline)
1 Identify the aim of the website.

2 What age do you think is the target market for the products or service?
3 Identify and describe strategies used by some of the site to gain further commitment and brand
loyalty.
4 Estimate how long you spent browsing the site. Would you visit it again?
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Mobile marketing
As there are now more mobile phones than
people in Australia, it is hardly surprising that
the mobile phone is now becoming a means to
market products and services. With the advent
of iPhone and other sophisticated handsets
from competitors, some businesses are now
making use of the location-based services (GPS
function) on phones for target marketing to
people in a geographic area.
Publicity and public relations

Publicity is a free form of mass communication
that is different from advertising, which attracts
a cost. The role of a publicist is to attract
favourable attention to the business and what
it offers without having to pay media costs.
The common tools used by publicists are press
releases, product launches, special events,
lobbying and sponsorships.
Public
relations
activities
involve
communication aimed at developing a
favourable corporate and product or service
image. The communication can take the forms
of advertising and/or publicity and acts to
support other marketing strategies.
ACTIVITY 18.12
1 From the various forms of promotional activity
discussed in this chapter, identify which of
those you consider to be the new forms of
promotional activity to market products or
services.
2 Identify either a product or service being
marketed using a new form of promotion or
media. Comment on whether you believe
the form of promotion or media chosen is
effective for advertising that particular product
or service.
3 For the products and services listed below,
identify which form of promotional activity
you recommend would be best to market that
product or service. Justify your choice.
a Underwear
b Houses for sale
c A school
d Superannuation
e Solar heating
f
Rainwater tanks
g Hairdresser
h Gymnasium/Fitness centre
i
Solicitors
House builder.
Table 18.9 Advantages and disadvantages of publicity and public relations

Advantages of publicity and public relations
Disadvantages of publicity and public relations
s Low cost, as the business generates the

communication
s Difficult to be in total control of the publicity a

business receives
s High credibility
s Can be negative as well as positive
s Allows the business to build a positive

brand image
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U Each stage in the product life cycle

will attract the use of a different
marketing strategy.
U As businesses aim to provide customer

satisfaction and business profitability,
understanding how marketing strategies
relate to each component of the marketing
mix is vital.
U Product mix represents the full set of

products being sold by a company. A
product line represents the broad group of
products intended for the same use.
U The marketing mix comprises

four variables: product, price, place
and promotion.
U Product is anything that can be offered to a
market to satisfy a need or want.
U Products can be physical goods, services,
experiences, events, persons, places,
properties, organisations, information
and ideas.
U Products and services can also be classified
as being either consumer or business goods.
U Consumer goods are classified as
convenience, shopping, specialty
or unsought.
U Business goods are classified as raw or
manufactured materials or parts, capital
items, supplies and services.
U There are five stages in developing a
new product:
1
Idea development
Idea screening
Idea evaluation
Product development
Product commercialisation.
CHAPTER SUMMARY
U Marketing strategies are seen as a means

to an end, as their result should be the
achievement of set marketing objectives.
U A brand is the distinguishing name, term,

symbol or design that is used to identify and
differentiate one manufacturers product
from that of another.
U Packaging is multifunctional; it acts to
advertise, to build a brand image, to
differentiate from other products, and to
provide physical protection for the product.
U Price what are customers prepared to pay?
U Price how is it determined? Does the
business want to cover costs, achieve a
profit margin, be competitive, or adopt
pricing strategies appropriate to the relevant
stage in the products life cycle?
U Place how will the consumer get the
product; through direct or indirect
distribution channels?
U Promotion how is the business going to
make the product known to its market?
U Promotional techniques include advertising,
direct marketing/selling, sales promotion,
personal selling, publicity, internet
marketing, mobile marketing and
public relations.
U Product life cycle has four stages:

1
Introduction
Growth
Maturity or saturation
Decline/extension.
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CHAPTER SUMMARY
QUESTIONS

a Product
b Impulse goods
c Wholesale
d Brand
e Retail
f
Break-even point
g Distribution
h Going rate
i
Promotion
Psychological pricing
Product line
Publicity
m B2C website.
2 What pricing policy should the following
businesses adopt?
4 List and explain which would be the best
promotional techniques for the following

products and services. Provide more than one
technique for each product or service.
a Hair shampoo
b Life insurance
c Window washing service
d Hire a Hubby maintenance service
e Chocolates
f
Instant microwave meals
g Instant mocha coffee

h Deodorant
i
Sports drink
Hair care products.
5 Identify any current government restrictions that
are imposed on products or services relating to

their packaging, pricing, place and promotion.
a Local petrol station

b Florist
c Hairdresser
d Ladies clothing (fashion) boutique
e Menswear shop
f
Take-away food shop
g Greengrocer
h School cafeteria.
3 Direct-to-consumer or factory shops have
become a very popular shopping alternative.

From the point of view of the following parties,
explain why they are successful.
a Manufacturer
b Consumer.
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a Move to a larger factory in an outer
suburb where she will have the capacity

to make more jeans. This additional
space will allow her to create a factory
outlet store.
b Remain in her current premises and
distribute the jeans through retail outlets.

c Create a website that allows customers
to view her range of jeans and then

order online.
Samantha seeks your advice on what to do.
In providing advice, consider the marketing
implications (product, price, place and
promotion) of each option.
EXTENSION
QUESTION
Samantha manufactures jeans at her small

premises in Brunswick. Current sales figures
indicate that her jeans are very popular. She
has good forward orders for the entire product
range: straight leg, boot leg, flares, hipsters.
She now has a dilemma of whether she should:
Some issues to think about when giving

advice include:
U Product is this product a fashion item or
a longstanding product? If she sells her
product online, does she need to design a
separate range of jeans?
U Price what pricing policy would be the
most appropriate, competitive or give the
highest profit margin? Will the pricing policy
need to be different for online customers?
U Place does she want to be both a
manufacturer and a retailer? What will be
the best way of delivering the product to
online customers?
U Promotion if she is to become a retailer,
how will she promote her jeans? Would
it be better to ensure sales are gained
from retailers, and let them worry about
promoting the jeans to the consumers? If
she sells her jeans online, how will customers
find out about her website?
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19
MANAGING THE PUBLIC

RELATIONS FUNCTION
WHATS AHEAD

Significance
of image
Public relations (PR)
The public
PR objectives
PR objectives and
strategies
Planned situations
PIs evaluate PR
Unplanned crisis
management
PR issues
ISBN: 9781107665910
KEY KNOWLEDGE
Students will learn the following about managing the public relations function:
the management of public relations and its relationship to business
objectives and business strategy
the significance of image
the concept of publics and their respective characteristics
AREA OF STUDY
MANAGING THE PUBLIC RELATIONS FUNCTION
public relations objectives and strategies used in a range of planned

business situations for identified publics
public relations objectives and strategies used in a range of unplanned situations
relevant performance indicators to evaluate the performance of public relations strategies
issues in public relations, including the role of technology in the global business context
and in the context of ethical and socially responsible management and legal requirements.
In a business environment where legal action
An important, but sometimes overlooked,
against organisations is increasing, many
communication strategy is the use of public
businesses are turning their attention to how
relations techniques. In the previous chapters
they can protect one of the most valuable assets
on communication and marketing, the need
they have their business reputation. While
for effective communication and business
unfavourable judgments can be challenged in
marketing strategies was discussed. Public
a court of law, public opinion is more difficult
relations is another area related to organisational
to change the reputation of a business can be
communication and marketing objectives.
public relations
relationships
established with
the media to create
favourable reports
about the business and
its products
permanently tarnished.
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The role of public relations (PR) is vital,

as businesses that develop effective networks
and PR strategies will often find their exposure
to the public increased, usually at little cost
to the business itself. Businesses can build a
reputation by pursuing free media publicity
through events, community involvement, and
by issuing media releases. Some businesses
also engage in charitable activities to convey
a positive image. A large proportion of media
stories develop from PR leads, so businesses
need to tap into this resource to enhance
their profile, which will hopefully flow into
increased sales and market share.
What is
public relations?
There are a number of definitions of public
relations, including the following:
s PR is the practice of promoting
goodwill among the public to present a
favourable image.
s PR is primarily concerned with the image of
the organisation portrayed to the public.
s The British Institute of Public Relations has
defined PR as a deliberate, planned and
sustained effort to establish a relationship
between an organisation and its public.
s PR also refers to how the public sees the
organisation and the image it has decided
to portray.
While PR is aligned to marketing and
communication techniques, it is not the same
concept. Both functions aim to increase the
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reputation and recognition of the organisation

in the public arena. Public relations, however,
is usually not product-specific. Instead, it may
occur as a result of a crisis and is usually seen
as a long-term investment in the goodwill and
reputation of the organisation.
Public relations and

its relationship to
business objectives
and business strategy
It is important for any business, regardless
of its size, to have a business plan and some
strategic or long-term objectives. The long-term
objectives of the business are likely to include
increased market share, growth, and perhaps
diversification of products and customer base.
Public relations should be planned and used to
increase public recognition of the business and
prepare public opinion to accept the business
brand and its product range.
Well-planned public relations campaigns
will contribute to the achievement of business
objectives such as:
s increasing the customer base
s increasing demand for products or services
s gaining a competitive edge
s enhancing credibility
s creating goodwill within the community.
A major aspect of the role performed by the PR
professional is that of issue and crisis management
(discussed in more detail later in this chapter).
ISBN: 9781107665910
Table 19.1 The difference between marketing and public relations

Image and marketing
Reputation and public relations
A business must work on creating and promoting an

image for the business
A reputation is gained over time and it occurs when

the community sees what an organisation is doing
Marketing involves a conscious decision to spend

A reputation is an asset that the business can develop
money on an advertising campaign in an effort to gain over time
extra sales
Marketing campaigns and advertising can be changed Reputation is complex; it is difficult to change quickly
quickly in response to changes within the market
and needs to be cultivated over time
Marketing needs to make the most of the
opportunities as tastes and trends change
Reputation is something a business wants

to strengthen
Marketing is product-specific
Public relations relates to the organisation as a whole
Marketing is designed to increase sales and

market share
Public relations is used to strengthen credibility,

enhance business image
Emphasis is on product recognition and product image Organisation attempts to control the release of
information to the media
Focus is on customers and potential customers and
clients
Public relations is used to gain publicity for the

organisation
Often follows market research before an advertising

campaign is launched
Public relations is designed to keep the organisation

in the public eye
Public relations uses a variety of media
Public relations is aimed at the public at large or the
public of the organisation
CHAP T ER 1 9 MANAGING THE PUBLIC RELATIONS FUNCTION
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The significance
of image
There is a saying that image is everything!, and
perhaps in terms of public relations, it is. An
image can be carefully created and developed
so that there is a public persona that is readily
identifiable with an individual or company.
Many businesses have used celebrities as a
means to develop and promote an image for
the business. They pay celebrities, actors and
sportspeople to promote the image of the
business. Many of these may also be given
items such as designer clothing, jewellery and
perfumes to wear as a way to further enhance the
image of the business by association. A famous
actor or actress arriving at the Academy Awards,
for example, may be wearing a particular brand
of watch or a designer dress, and this provides
further publicity for the business.
Richard Branson, for example, is an expert
in marketing and public relations. He uses the
media and is able to create news. According
to dynamicbusiness.com, Branson is an
entrepreneur who knows that through highprofile events, customers will find out when his
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company has a new product or service. Branson

has estimated that his PR stunts are 30 times
more effective than money spent on advertising.
While small to medium-sized businesses cannot
match the profile of Branson, his approach is a
lesson about the value of PR and that publicity is
advertising that is not paid for. In some circles,
a good publicity or PR stunt is known as doing
a Richard Branson
ACTIVITY 19.1
1 List the image or impressions that
you identify with the following people,
organisations and products.
a Dick Smith
b Paris Hilton
c SS Holden Commodore
d Large four-wheel drive vehicles
e The Salvation Army
f
Madonna
g Porsche Motor Company

h Ralph Lauren.
2 Why do you have these impressions? List as
many sources as possible about where these
impressions have come from.
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ACTIVITY 19.2
Brand power with Richard Branson

by Peter Switzer
The words Coca-Cola and Microsoft, the letters
people who believed as much as I did that we
BP and the name Richard Branson have one
could do it.
thing in common they have brand identity.
Beyond the vision
Branson, like Bill Gates and Michael

Jordan, has reached planet celebrity status.
Unlike other stars, however, he is a walkingtalking brand, who instantly makes consumers
think about his products.
Brand experts have acknowledged the
entrepreneurial instincts and strategic vision
of Sir Richard along with his quality management teams, which are driven by a fanatical
will to succeed as being critical to the success
of Virgin products. Its argued that the Virgin
brand is the glue that holds it together.
The success of a brand is its ability to tell
the market what it stands for without actually
Bransons summation of how he made his

vision real recounts a formula for success:
By working damn hard, putting faith in
a lot of people who had experience where I
didnt, as well as those who didnt have a clue,
but had great life experience and by following
instinct and having a great time.
I believe the Virgin brand, for many people,
now stands for a lifestyle choice that sums
up our core brand values of fun, innovation
and value for money, and it attracts people
who appreciate and demand great customer
service.
saying it. Virgins brand identity, according to
Thinking outside the square
the experts, stands for quality service, innova-
Branson believes owners of businesses have
tion, fun and value for money. And all of these
to be willing to have a go. He states I think its
Branson symbols are constantly delivered by a
important to put yourself on the line if you are
maestro of public relations (PR).
going to back something. And if it means dressing
Brand power, Branson-style
up in a wedding frock or wearing a stinking-hot
When a Branson event is announced to the

media, the simple assumption is that a news
story is on the way. To gain insights into his
intimate understanding of brand building, we
spoke to Sir Richard. The first thing we asked
was whether it was always his intention to
create one of the most well-known brands in
Tassie Tiger costume for the launch of a new

route, then so be it.
Branson acknowledges that the role he
plays is important, but he wont accept the
notion that perhaps his name and Virgin had
virtually become co-branded. In fact, he insists
that it is much more than just Richard Branson.
Against the mould
the world.
Yes, I think it probably was, Branson says.
In many ways, his business model seems to be
I always wanted to have fun and succeed at
a contradictory one, defined as not doing what
whatever I attempted. I didnt stop and think
his corporate competitors are doing. You can
it couldnt be done. I surrounded myself with
see why he has fun.
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Getting the message out

On the issue of brand building, Virgin and the
roles played by advertising and PR, Bransons
insights are instructive. He views advertising
as a steady medium that gradually drops in the
Virgin message to its target audience. PR, on
the other hand, happens in spurts. For those
wondering about the relative importance of
the often-competing marketing methods, his
observations on their merits will please the
advertising industry.
While PR is great to get a key message out
there, advertising is a strong and consistent
means of communicating the message, he
insists. Both are important, even a deliberate
or calculated stunt that gets PR attention.

Sometimes its a spur of the moment idea that
takes the PR team by surprise.
His thoughts on what brand-builders of the
future should be thinking about are typically
provocative and predictably Branson. While
he likes to hear other points of view, he is not
entirely convinced about experts and does
not believe that they had a critical role in the
building of his brand. Always ask as many
people as you can for advice and guidance
that certainly doesnt stop just because youve
become successful, he advises. Friends,
family, colleagues, mentors draw on everyone around you, not just the so-called experts.
Source: www.switzer.com.au.
Questions
1 Define the concepts of marketing and public relations.
2 How has Richard Branson developed his brand?
3 Discuss the methods Richard Branson has used to gain access to free publicity and PR.
4 What advice does Branson give in making the most of publicity and business opportunities?
Figure 19.1 Richard Branson has used publicity to develop a recognisable brand
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The concept of
the public and its
characteristics
Publics will vary for each business or
organisation. The public may be all members
of a particular state or country. For example, if
the federal government decides to bring in a
change in policy, then it is necessary to reach
all Australians, as it will impact on everybody.
Campaigns may include advertisements, stories
and brochures. Other organisations may find that
their public is only a sector of the community.
It is therefore important for organisations to be
very clear about who their public really is. The
public can be defined as those with a stake or
interest in a particular company or business.
The public may be internal or external
stakeholders:
s Internal public may include employees,
shareholders and management.
s External public might include the local
community, suppliers, competitors, and all
tiers of government.
The public of a large retail store will be different
from that of a small cabinet making business.
Public relations strategies must be targeted at
the correct groups and in the most appropriate
form, taking into account the business objectives
and goals.
ACTIVITY 19.3
List the public for each of the following
organisations. This may be presented in
a diagram.
1 A gymnasium
2 The Carlton Football Club
3 A local secondary school
4 A supermarket
5 A hospital.
Public relations
objectives
Image and reputation are closely related and
sometimes people have trouble telling which
is which. There is a tendency for image to get
a lot more attention than reputation. Senior
management, especially those in marketing,
often do not fully appreciate the differences
between image and reputation. Public relations
officers need to explain to senior management
the differences, so that brand marketing and
corporate communication efforts work more
harmoniously to build a common goal.
The aim of public relations is to maximise
good news and to minimise bad news. In a
planned situation, this is usually achieved using
a range of strategies that the organisation has
developed. These ensure that the messages
and images they wish to portray to their
public are executed in line with overall
organisational objectives.
The aims of public relations can be classified
under the following headings:
s Gain free publicity
s Promote the organisation
s Develop relationships with the community
s Lobby to influence government or other
policy makers
s Provide the public with information
s Manage issues and crises.
As discussed previously, Richard Branson has
been able to develop and expand the image
and reputation of Virgin. In order to get Virgin
Atlantic known and its launch publicised,
Branson donned a Virgin pilots outfit and
ended up on the front pages of the newspapers.
He stated: I thought, well, that was easy, Ill
keep going. Branson continued with his public
relations campaigns and adventures under the
Virgin brand, grabbing headlines around the
world. There was the race to circumnavigate the
globe in a hot air balloon (Branson was rescued
from two failed attempts), dressing up in a
public
the internal or external
stakeholders potentially
affected by the actions
of a business
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wedding dress to help launch Virgin Brides, and

even cheeky campaigns carrying on the public
fight with British Airways (when introducing
shiatsu massages on Virgin Atlantic flights, they
advertised BA dont give a shiatsu).
It is harder for small businesses to gain the
same level of publicity, hence it is important for
them to understand their customers and market.
Branson believes it is important to have the
right message for the market, and the right way
to deliver that message.
Public relations in
planned business
situations
Taking advantage of planned public relations
situations means that an organisation can make
the most of opportunities that it has control over
by being clear about how publicity can be positive
and increase business exposure with the public.
There are many ways an organisation can
communicate with its public. Communication can
take a number of forms: verbal (written and oral)
and non-verbal (visual). It also involves the use
of a range of media, including television, radio,
newspapers, company publications and the
internet.
Public relations communications sometimes
attempt to persuade the public or change public
opinion. For public relations to be effective,
it is necessary to match the strategies and
techniques to the situation and to choose the
most appropriate channels. Many businesses and
associations employ a public relations consultant,
and larger organisations may have a PR officer or
a whole department to oversee these strategies
in conjunction with the other functions of the
business.
Public relations can be integrated into
advertising and marketing activities in a number
of ways and it is important to ensure that the
following are covered:
350
s PR has to lead a product launch of a new

product or service.
s The message is still important in PR.
s PR-led activities need to encompass a range
of audiences or stakeholders.
s PR is not always aimed at the customer
or buyer.
s It may be necessary to include some extra
information or research beyond product
information.
s The brand manager and senior management
may need to attend media events and
launches.
s PR needs to be ongoing and to build up
relationships with the media.
Beyond a launch event, PR works best on a
gradual and cumulative basis.
There are a number of methods or strategies an
organisation can use for planned public relations.
Free publicity
This could include issuing a press release
informing the general public about a specific event
or function. If the media runs a story, it allows the
organisation to receive free publicity and lifts the
profile of the business. The opening of a new real
estate agency in the local area may include a paid
advertisement together with a story in the local
community paper or magazine highlighting the
new business and an employee profile.
Develop relationships
with the community
To develop positive relationships with the
wider community, an organisation may hold a
public information session so that people can
see what is happening within the business.
Yarra Valley Water published a guide on
reducing water consumption in the home.
The AFL runs subsidised football clinics to
develop football skills and increase interest in
Australian Rules football.
ISBN: 9781107665910
Figure 19.3 Lobbying government is one aim of a public relations campaign.
ACTIVITY 19.4
Why would an organisation lobby a local MP
or minister on the following issues? Outline the
arguments or point of view that would be taken
by the group or organisations representative.
Figure 19.2 Australian Rules football clinic
Lobbying
While lobbying is usually related to government
activities, it is a way of putting forward the point
of view of an interest or industry group or a
specific organisation. This method is designed
to increase public awareness of an issue and
to pressure a public body, often a level of
government, to either introduce or change a law
or proposed law.
The mining industry has lobbied the federal
government to reduce and change a proposed
super tax on mining. The Friends of Banyule
group has started protests and campaigns
against the proposed linking of the Eastern
Freeway and the Western Ring Road. Plans by
the state government to try to better manage
water by building a desalination plant and
redirecting water from rural Victoria have been
opposed and supported by various groups,
including farmers groups, local residents
groups and environmental groups, using the
media to publicise their cause.
1 A tobacco company representative lobbies

on a proposal to ban smoking outside all
sporting venues.
2 An environmental group is concerned about
a proposal to extend the Metropolitan
Ring Road through an environmentally
sensitive area.
3 A residents association hears about a local
council plan to sell off public parkland
to developers for a new high-density
housing estate.
lobbying
conducting activities
aimed at influencing
public officials and
especially members of
a legislative body on
legislation
Public information
Public information includes information and
activities designed to benefit the public. The
major freeways around Melbourne have
information about the time taken to get to the
city or major arterial roads and what the traffic
conditions are like. This provides a service
to motorists and also provides some positive
publicity for the organisation.
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Media releases
media release
an item of news
prepared for and
distributed to the media
media or press
conference
a media conference
is usually called when
an important public
announcement
or newsworthy
story arises
A media release is used by businesses to

inform the television, print or radio media of a
new product release, or a major announcement
or change to the organisation. Public relations
officers will release a statement to try to
influence the media to write about the business
or its product favourably, which will provide
free publicity about the business in addition to
getting its specific message out.
An example of an effective media release
is that of Brewtopia, a company where you
can design a personalised label for beer,
wine or water online and theyll ship you out
your customised order. A customer ordered a
case of beer with a marriage proposal on the
label, which Brewtopias Managing Director
knew would be a great story for the media.
He asked the customer if hed mind featuring
it in a press release, which was then faxed
to 400 media outlets. The story got coverage
on television, radio and in newspapers
throughout the country and as far away as the
United Kingdom. With no advertising, just the
cost of sending that fax, Brewtopia saw an
immediate jump in sales of around 30 per cent.
(Source: www.smallbusiness.yahoo.com.au)
Media and press

conferences
A media or press conference is usually
called to make an important announcement.
Representatives from the print, television and
radio media will usually attend. The police
will often use a media or news conference as
a means to publicise an incident or an unsolved
crime and in an attempt to gain public assistance
or support. A sporting person may use a media
conference to announce their retirement.
Figure 19.4 Media releases should be accurate and should not contain obviously outrageous claims.
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The essential ingredients for a media release

Media releases are an important part of the public relations process. A release should:
s include contact name, phone number and
website address
s have a title, which should look like a newspaper headline and be catchy and bright
s have a first paragraph that includes the five
Ws who, what, when, where, why
s have second and subsequent paragraphs
containing the most important information
first, down to the least important; sometimes
the only text that is used is the first couple of
paragraphs
s be half a page to three pages long

s include at least one memorable quote
s be precise, clearly formatted and written in
an appropriate style; information should also
be newsworthy, timely and relevant
s perhaps include a photo opportunity
as well
s be followed up with media liaison.
Figure 19.5 A media release should be clear and concise, with the most important information coming first.
ACTIVITY 19.5
Liam and Daniel run VR Sporting Goods. Three weeks ago, the company opened their outlet to sell
direct to the public. The company uses the services of a PR consultant. The latest media release is
shown below.
People need sport

More people than ever are playing sport. A recent survey suggested that 63 per cent of the population
participate in a team sport. Now everyone can afford to purchase equipment and clothing. Come
along to VR Sporting Goods, now selling direct to the public.
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Question
This media release was not used. Rewrite the media release for the local community newsletter using
the guidelines above. Ensure that the language is clear and provides more detailed information.
Additional information about VR Sporting Goods that you might want to use includes:
U VR Sporting Goods sponsors the local soccer club.
U The outlet has expanded its range of sporting equipment.
U VR Sporting Goods has earned an award for innovative designs.
U Ninety-one per cent of the local community participates in five main sports: basketball, soccer,
hockey, golf and netball.
Figure 19.6 Annual reports
Brochures, pamphlets
and newsletters
Although there is some cost involved, a
newsletter or brochure provides a relatively
inexpensive means of communicating with the
public and other stakeholders in an organisation.
A newsletter for employees may profile a staff
member, discuss changes in the organisation and
provide information about upcoming events. A
brochure distributed to the public may highlight
a new product or service being offered.
Annual reports
An annual report is an important means
of communication and it is another way to
highlight the achievements of an organisation.
Businesses listed on the Australian Securities
354
Exchange (ASX) are required by law to produce

reports for shareholders. The public can also
visit the ASX and organisational websites to
access copies of annual reports.
Open days and tours

If an organisation opens its doors to the public, it
presents an opportunity to improve or reinforce
its image. An open day allows the public to see
first-hand the organisation in action. In some
circumstances, it may provide or enhance an
understanding of what the organisation does.
An open day at Melbourne Waters sewerage
treatment plant may increase awareness of how
the organisation is recycling water and conserving
natural resources. Schools, TAFEs and universities
have tours and open days to allow prospective
students and their families to see them in operation.
ISBN: 9781107665910
Figure 19.7 Billboards and sponsorship can also be a part of the public relations process.
Seminars and conferences

Conferences may be used to train staff and also
to inform customers and potential customers
about the organisation. Information can be
presented visually, participants have the chance
to ask questions and usually only interested
parties will attend. In communication and
marketing terms, conferences and seminars
allow organisations to disseminate information
quickly to a wide audience. The VCTA
(Victorian Commercial Teachers Association)
runs an annual conference in partnership with
the Victoria University Faculty of Business and
Law and accounting software company Reckon.
s the Arts, e.g. sponsorship of Opera Australia

or the Australian Ballet
s charities, e.g. Target T-shirts raising money
for breast cancer research.
s educational scholarships, e.g. the BHP
Billiton Science Awards
s health and lifestyle promotion, e.g. launch
of a Safe under the sun campaign for the
Optometrists Association of Australia.
sponsorship
a business provides
financial support to
a team, organisation
or event in return
for naming rights,
merchandising or image
for the organisation
Sponsorship
A common strategy in creating positive public
relations is sponsorship. The act of sponsoring
creates an awareness and positive image of
the business. The business may provide
financial support in return for naming rights
and merchandising. Common forms of
sponsorship include:
s sporting events, e.g. sponsorship of the
Australian Tennis Open or the AFL Grand Final
Figure 19.8 The Victorian Commercial Teachers Association conference
C H A P T ER 1 9 MANAGING THE PUBLIC RELATIONS FUNCTION
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ISBN: 9781107665910
ACTIVITY 19.6
1 List six sporting events, charities or
campaigns supported by an organisation.
For each one, describe a possible benefit of
the sponsorship.
2 Why do organisations spend money on these
types of sponsorships?
Public relations and

crisis management
crisis management
a technique used to
manage an unplanned
(crisis) situation
While most public relations techniques and efforts

form an integral part of the business strategies
of an organisation, there are times when it may
have to move quickly to manage a crisis. A crisis
is a situation or set of circumstances that puts an
immediate public focus on an organisation. It is
usually caused by an event or threat that can be
related to something, such as product recalls,
equipment failure or accidents. Crises typically
have a strong human aspect to them, which
means that they become the focus of media
scrutiny. Having plans in place to manage the
information that is given to the public and the
media is called crisis management.
Importance of a crisis
management plan
Patrick Weaver, vice president of communications
at Fleishman-Hillard Stratcom, argues that
companies that ignore critical incident planning
place their corporate reputations on the line.
Organisations have to try to plan for the unexpected
and have in place some kind of critical incident
management strategy. Positive brand reputation
may take years to develop, but without critical
incident plans it can be destroyed overnight. It
is imperative that all organisations have a wellprepared and tested crisis management plan
in place. Widespread publicity in recent cases
involving sexual harassment claims against the
356
former CEO of David Jones, Mark McInnes, and

the former CEO of Hewlett-Packard, Mark Hurd,
meant that both companies had to manage the
fallout from the allegations and in one case,
legal proceedings. Organisations without a crisis
management plan suffer greatly.
Planning for managing a

business crisis
Planning for and developing techniques to handle
crises should be part of the normal planning
processes of the business. A crisis management
plan is necessary because news and information
travels faster than ever and companies must be
quick to answer questions and allegations honestly.
Many organisations are unprepared when a crisis
strikes and handle the situation poorly. Some
organisations will try to stonewall or ignore the
situation. This usually makes the situation worse
and businesses that waste valuable time will
usually see a loss in revenue and plummeting
share prices.
The probability of events such as natural
disasters (e.g. flood, earthquake, bushfire),
customer relations, product failure, product recall,
product tampering, consumer boycott, service
complaints, product rumours, management
issues, plant closure, redundancies and class
actions should be assessed as part of the crisis
management plan.
Crisis management is vital for every
organisation. There are three smart ways to
approach crisis situations:
1 Avoid a crisis in the first place (prevention
is better than a cure).
2 Quickly address and resolve crisis issues
before they escalate.

3 Seek possible ways to turn your crisis into
an opportunity.
A crisis can happen to any business at any time
and may be outside its control. There are a
number of things that a business can do to
ensure that it manages a crisis.
ISBN: 9781107665910
Table 19.2 Methods and strategies to manage a crisis

Have plans in place that have been endorsed and supported by senior management to manage information
given to the media and key stakeholders.
Nominate a key spokesperson and ensure all communication is channelled through this person.
Have a policy to tell the truth and tell it quickly and convincingly. A no comment answer will only make a
situation worse and there is usually no way to avoid the situation.
Admit any accountability and be prepared to express regret, empathy or embarrassment depending on the
situation. If the crisis affects members of the public, always show compassion and concern for the people involved.
If an organisation cannot release information, it is important that it takes control of the situation and explains why.
Offer as much information as possible to avoid the chance of inaccurate information being reported to
the public.
Respond quickly to define and control public perception of how you are handling the crisis, or the media will
do it for you.
Dont allow for speculation. If the interviewer says something that is not factual, correct the information.
Report bad news before the media finds out. This will avoid the media assuming a business is guilty without
getting its side of the story.
Anticipate possible attacks and criticisms against the organisation. Is the business doing anything that others
might find fault in?
Hire an outside consultant to assess the companys image and any potential PR problems.
There are many examples of organisations

that have had to deal with a crisis. Some have
done this successfully, some have not. Firestone
continued to sell faulty tyres to the public
when they knew there was a problem with the
product. In 2010, Toyota had to recall millions
of cars globally due to a fault.
An example of a positive outcome was when
Johnson & Johnson withdrew bottles of Tylenol
from store shelves after seven people died
from cyanide poisoning caused by capsules
of the medicine that had been tampered with.
The company met the crisis head-on. First, it

spent $300 million recalling all samples of the
medicine bottles. Then the company introduced
new
tamper-proof
medicine
containers
that changed the entire industry. But most
importantly, the company was prepared; it acted
coolly, willingly answered tough questions, and
in the end maintained dominance in the market.
It used the media to demonstrate concern and
a determination to resolve the crisis. It was a
message of courage and leadership through
effective public relations.
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ACTIVITY 19.7
Hayward could have survived if BP was

better drilled
by Adam Blight
The CEO and his company
were damaged in the PR battle
The departure of Tony Hayward, BPs chief
executive, is a timely reminder that regardless
of how well established a businesss reputation
is, its standing with customers, suppliers,
employees, communities and governments can
unravel with astonishing speed. BPs failure to
manage its public relations in the aftermath
of the explosion on the drilling rig that
killed 11 workers has exacerbated the crisis.
Its sluggish, reactive and defensive public
relations performance guaranteed hostility
from the corridors of power, local communities
and many in between.
BPs PR gaffes have been widely reported
and are an important factor in Tony Haywards
demise. The BP CEO incensed members of
the US Energy and Commerce Committee
last month with his evasive responses to
their questions. He also infuriated affected
communities, politicians and the American
media with his comment that he would like his
life back, only to outdo that by being pictured
relaxing on an expensive yacht in the British
Isles.
Could a better approach to public relations
have saved Haywards job? Yes, it could have.
Although
immunity
from
risks
and
shocks can never be assured, a robust public

relations strategy can uncover potential risk
blind spots within an organisation. However,
to reap these benefits, businesses need to
rethink the way they use PR. Businesses also
need to acknowledge that managing risk
is as much about influencing perceptions
358
as it is about diligent operational or financial

management.
This crisis is first and foremost an
operational
problem,
but
inadequate
communication has contributed to the
breakdown of the public and political trust
in the company. Once this trust has been
broken, it is very difficult to regain control
of the agenda. BPs shattered public profile
undermines its capacity to manage effectively
short-term issues and begin the long-term
work of rebuilding its reputation.
So, what can companies do to help prevent
public relations issues from spiralling out of
control in to crises?
The first place to start is organisational
structure. Failure to incorporate a public
relations perspective into organisation-wide
management can unnecessarily increase risk.
It is therefore a structural necessity that the
public relations manager has the ear of the
CEO and is part of the executive management
group.
Once a sound structure is in place,
companies should ensure that they invest time
and resources in preparing for the inevitable
PR storms. Too often, issues management
is sidelined in a relentless pursuit of more
positive media coverage, but a well-earned
public profile will vaporise in a heartbeat if
an organisation cant prevent or minimise the
impact of an issue or crisis.
The importance of being prepared is a
valuable lesson arising from BPs experience.
Many companies appear to stall on the starting
line of managing public relations when an
issue or crisis breaks. Burson-Marsteller
ISBN: 9781107665910
research reveals that 29 per cent of CEOs (and

50 per cent of CEOs from larger companies)
have experienced a crisis in the past few years,
but only 30 per cent believed they handled the
crisis very well.
US Congressman Ed Markey, who chairs
a committee covering the oil spill issue, had
this to say in regard to Haywards imminent
departure: The new leaders of BP will have
an uphill climb to correct the legacy [he] left.
Although PR alone cannot douse the flames
of corruption, faulty operations, misguided
adventures or plain incompetence, it will

help identify weaknesses and vulnerabilities,
improve organisational preparedness and
reduce the impact of an issue or crisis.
And if you are still not persuaded that PR
matters, the BBC is reporting that Haywards
replacement, Bob Dudley, has a PR advantage
of being American and speaking with an
American accent.
Source: Sydney Morning Herald,
28 July 2010
Questions
1 Why do organisations need to develop a crisis management plan?
2 Why would BP need to re-examine its PR strategy?
3 Explain how the advice given in the article could assist an organisation develop a sound PR strategy.
4 Using newspapers and the internet, identify one PR crisis. Discuss how the situation arose and
what the organisation did to resolve the issue.
Measuring the
success of public
relations strategies
Any evaluation of the success of public relations
as a communication and marketing tool should
include measures of whether the good name or
reputation of the company has been enhanced.
Organisations can evaluate their public
relations strategies using a range of performance
indicators, including:
s the amount of media exposure from media
releases how much exposure has the
business had compared with the cost of
brochures, open days and conferences?
s market share has this increased due to
the higher profile of the public relations
campaign or been maintained by managing

a crisis effectively?
reputation this may be measured through
customer and public recognition of the
organisation, and opinions of the community
at large
benefits of sponsorship, media releases has
the money spent on these types of activities
led to more sales or new customers?
number of people who attend a public
relations event is this number greater than
in the past or more than expected?
number of customer enquiries has a
media release and positive publicity led to
an increase in customer enquiries? This may
be measured by surveying where customers
gained information about the business and
its services.
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Issues in public
relations
There are a number of issues under the domain
of public relations strategies. These include:
s the role of technology
s global issues
s ethical and socially responsible management
s legal requirements.
Technology
The increasing use of technology has meant that
the world is much closer and communications
take place more quickly. In terms of public
relations, technology can influence the
reputation of an organisation. Public relations
should be an integral part of an organisations
technology policies and procedures.
The increased use of blogs has also allowed
organisations, especially small businesses, to
increase their media profile and image within
the community. Due to the uncontrolled nature
of blogs, they are just as likely to negatively
impact on an organisations reputation.
There are a number of ways that businesses
would plan to use blogs, such as:
s testimonials or personal recommendations
from clients these are an ideal way to
help establish business relationships, as they
create the personal links with clients and
potential clients
s profiling a successful outcome in a case
study this helps explain the benefits of the
business service and raises its profile.
The global business

context
As the economies of the world become more
integrated, public relations strategies to improve
the organisations global reputation and position
become more important. This influences the
methods used and the necessity for the public
relations manager to understand different
360
cultures and business practices. A planned PR

campaign and a crisis management plan should
take into account the global nature of many
industries. Plans need to cross over countries
and borders. BPs oil spill and the subsequent
media fallout was at a global level.
Legal issues
An increase in the number of class actions
in Australia has placed a new focus on how
organisations can protect their brand and
reputation. The use of the courts to seek redress
has seen more consumers taking legal action
against organisations.
It is therefore vital that companies understand
the legal issues involved and the need to be
proactive in their dealings with the public and the
media. Failure to follow or adhere to legislative
requirements will mean the business is likely
to have a negative public image and perhaps
have legal action taken against it by authorities
as well. (See chapter 12 for more information on
legislative requirements.)

of the public relations
process
As a result of greater consumer awareness,
corporate governance requirements and more
litigation, there has been a push in recent years
to promote and enforce ethical and socially
responsible practices within organisations. This
needs to be reflected in an organisation and in
its PR focus and strategies.
Many businesses are aware of consumers
interest in sustainability and wish to be judged
as environmentally friendly. Unfortunately, some
organisations have misled consumers regarding
their environmental practices or benefits of a
product or service. This behaviour has become
known as greenwashing.
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Commentators argue that some businesses

are stretching the truth in regard to claims of
eco-friendliness as a means of gaining positive
publicity and increased sales. In one instance,
GM Holden was criticised for claiming that Saab
vehicles, which Holden markets in Australia,
were green because native trees were to be
planted for every car sold.
ACTIVITY 19.8
Taking the spin out of sales with an

industry standard
by Mathew Murphy
Iain Chaney was mortified to hear his Orange
Power cleaning products had been held
up on national television as examples of
greenwashing.
The 49-year-old said his products had been
developed to find a use for waste orange oil,
a natural solvent, discarded after the juicing
process.
It turns out we had made about 17 claims
for our products that werent substantiated,
Chaney said. We had said things like the
product was biodegradable so it had the
potential to mislead consumers into thinking
our product was greener than others. That was
really the trigger for us to seek independent
verification.
Orange Power was one of many
products picked up by consumer advocate
Choice for greenwashing the practice of
presenting products or services to seem more
environmentally friendly than they really
are. As consumers started demanding more
sustainable products, the temptation for some
creative advertising was increasingly evident,
Choice said.
So Chaney obtained an independent audit

from Good Environmental Choice Australia,
the only local organisation using the highest
international standard for eco-labelling the
ISO1 4024.
The process, which took about nine
months, assessed Orange Power products
from manufacture to use. After a few
minor changes, Orange Power became the
first product on Australian supermarket
shelves with the GECA logo. Chaney said
sales remained stagnant despite a $750 000
advertising campaign to promote its point
of difference. The company paid for an
endorsement from campaign group Planet
Ark, which did result in a spike in sales.
There really needs to be a Heart
Foundation-style tick that people trust, and
which is promoted, otherwise it is easy for
consumers to get confused about what all the
logos mean, Chaney said.
Since its creation in 2001, GECA has
licensed its logo to 1500 products from 188
companies, including Boral, the Smith Family,
Bridgestone and Fuji Xerox. GECA spokesman
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Nick Capobianco said the non-profit was

hoping to increase awareness of the standard.
Chaney said: Companies can green their
products and services and, if its done properly,
then customers can purchase with confidence.
Source: The Age,
26 January 2010
Questions
1 Define the term greenwashing.
2 What is the relationship between greenwashing and public relations?
3 Outline how the story on television affected the manufacturer of Orange Power cleaning products.
4 Why did the manufacturer gain an ISO (International Standard) certification for the Orange
Power products?
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U PR is usually defined as the deliberate and

planned effort to sustain and develop a positive
image with the organisations public.
U PR is linked to but not the same as marketing,
which tends to focus on brand and products.
U PR strategies are an integral part of the overall
business objectives of an organisation and
can include media and publicity releases, news
and press conferences, brochures, pamphlets
and newsletters, annual reports, seminars
and conferences, open days and tours, posters
and billboards.
U The public of an organisation will vary. It includes
internal stakeholders (employees, managers and
shareholders) and external stakeholders (suppliers,
local community, competitors and government).
developing relationships with the community

lobbying to influence government
providing the public with information
managing issues and crises.
U PR can be planned and unplanned organisations
have to be able to manage both situations.
CHAPTER SUMMARY
U Public relations (PR) is vital for an organisation,

regardless of its size.
U An important part of the public relations

process is crisis management. This involves
acting quickly to avoid or minimise a situation
that may harm a corporate reputation.
U Indicators of public relations performance
include planning, communication, evaluation
of outcomes in terms of cost and time, and an
increase/decrease in market share, number of
customer enquiries, profit or goodwill.
U Issues impacting on public relations include
technology, global issues, ethical and socially
responsible management, and legal requirements.
U There are a number of public relations

objectives, including:
gaining free publicity
promoting the organisation
1 Define the term public relations.

3 What is the relationship between marketing and
public relations?
4 Why would an organisation consider press
or media releases as an important public
relations tool?
5 Choose three of the public relations methods
described in the chapter. Outline an advantage
and disadvantage of each method.
6 Why is it important for an organisation to
evaluate its public relations techniques?
CHAPTER SUMMARY
QUESTIONS
2 List the public for a local fish-and-chip shop.
8 Why has crisis management in public

relations become an increasingly important
concern for most organisations?
9 Using the internet or newspapers, find two
examples of public relations techniques, such
as sponsorship of a charity or a sport. Why do
organisations spend money on these?
10
10 The community expects organisations to
take a positive role in the environment.
Outline why the issue of greenwashing may
become increasingly controversial.
7 Outline the relationship between public

relations and the objectives and strategies of
an organisation.
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Promoting an image
1 Working in groups of two to four, select
EXTENSION
QUESTIONS
an organisation and assess any existing public

relations strategies and design a poster to
promote the strategy. Examples could include:
U an open day/evening at school
U the VCE information evening held at school
U the local council holding a meeting to
promote a new initiative or a change in a
local law
U a local business trying to promote its
products or services
U a sporting club trying to promote its team
or facilities.
a Investigate the communication methods
available to promote the organisations

image. For example, the new image may be
promoted on television, radio, letter-drop,
newspaper or sponsorship.
b What benefits will the organisation derive
from the event (e.g. increased enrolments,

increased sales)?
c What are some of the costs and benefits
associated with the maintenance of a positive

public image?
d What communication skills are required for
effective management of the PR exercise?

2 It is crucial for all organisations, regardless of
their size, to promote their image in a positive

manner. Negative public relations can spell the
death of a company. Evaluate this statement.
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DICTIONARY
Accountability
Blog
The extent to which a worker is held answerable to
A web log or website, usually maintained by an individual
supervisors or managers for their work actions or performance
or a business, with regular commentaries, descriptions of
Action plan
The detailed actions undertaken to implement a strategic
plan or implement an alternative to solve a problem
Advertising
Informing potential buyers about a product
Assets
Items of monetary value owned by the business
Australian Business Number (ABN)
Nine-digit identifier of a company
Australian Company Number (ACN)
Nine-digit number to be used on a companys common seal
and all public documents involving the company
Australian Competition and Consumer Commission (ACCC)
Government authority responsible for administering the
Competition and Consumer Act 2010 and for promoting and
educating in the provision of good business practices for a
fair and efficient marketplace
Award
An agreement that sets out minimum terms and conditions of
employment relating to an industry
Bank statement
A periodical statement where the bank itemises the
transactions, e.g. debits, credits, government and bank
charges, relating to that account
Bankruptcy
Legal process that requires a business owners assets to be
sold to discharge debts owed to creditors
Barriers to effective communication
The reasons why communication fails, or why messages are
not correctly received or understood by the receiver
Benchmark
A standard against which a business will make comparisons,
e.g. an industry standard
Benchmarking
Comparing the performance of a business to industry
standards or the market leaders in the industry
Best practice
A form of benchmarking where organisations compare
events, or other material such as graphics or video

Body language
A form of non-verbal communication that includes messages
and communication conveyed by facial expressions and other
gestures
Boycott
An agreement that has the effect of excluding a person or
class of persons from a particular market
Brand
A powerful business asset that is essentially a makers mark;
it creates and brings with it awareness, desirability and
power
Brand leader
The brand in the market with the highest market share
Brand loyalty
When consumers continue to purchase the same product,
even though rival products may exist
Brand stretching
Using an established brand name in order to introduce
unrelated products
Break-even point
The level of sales at which total revenue is equal to total
expenses; the business makes neither a loss nor a profit at
this level of sales
Business card
Small card distributed to clients in order to promote the
business; includes information such as name of business and
person, address, phone number and email address
Business incubator
An organisation that supports new business by making
available premises, secretarial services, advice and other
support at minimal cost until the business is established
Business or economic cycle
Regular swings in economic activity; from boom conditions to
recession, and the reverse
Business plan
The formalised planning a business undertakes on a periodic
basis
themselves with the best in their industry or operating area
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Business strategy
Collusive tendering
The long-term plan of action adopted by an organisation to
Occurs when two or three businesses plan which one will put
achieve its goals and objectives
in the lowest quote or tender to ensure that jobs or contracts

are shared and there is no real competition
By-laws
Local government laws/regulations relating to activities
within a municipality
Common law
Law that has been made by the courts
Communication
Capital
Funds invested in a business, which form one of the main
A process of creating and exchanging information between
inputs for the production process
people that produces the required response or understanding
Cash book
Company
One of the simplest forms of financial record keeping; sets
Separate legal entity (incorporated body) that is subject to the
out all the cash transactions of a business, including receipts
requirements of the Corporations Act 2001 (Commonwealth);
and payments
owned by shareholders whose liability is limited to the extent
Cash flow
The movement of cash into (income and capital) and out of
(purchases and expenses) a business
Cash payment
Items purchased and paid for in cash
Casual employees
Employed on a short-term or irregular basis; do not attract
any leave entitlements
Causal research
Research that involves finding the cause and effect of
certain actions
Cheque
An instruction to the bank to pay money from your account
to the person named on the cheque (drawee)
Cheque butt
Form of evidence to support writing of the cheque and
payment of an account
Closed questions
Questions that require a simple answer, e.g. Yes/No,
True/False
Code of conduct
Guidelines to regulate standards of behaviour and conduct
either within an organisation or within an industry
Collective bargaining agreement
An agreement where collectively the employees have
negotiated with an employer the conditions of employment
relating to their pay and working conditions
of their shareholding in the company; it can sue and be sued

in its own right and is run by directors, registered officers
and its owners; it has perpetual succession
Competitive advantage
A point of difference or superiority held over
ones competitors
Competitor
A business rival in the same market for products or services
offered by an organisation
Complementary business
A business whose activities complement those of
another business
Compliance
When a business meets government and industry regulations
and standards
Computer virus
A computer program that can copy itself and infect a
computer; it can also spread to other computers via a
network or the internet
Consumer
A person or group who purchases or uses a product
Consumer profile
A statistical picture of the typical consumer of a product
based on demographic data, e.g. income, age, gender,
occupation
Contract
A legally binding agreement that incorporates the following
elements: offer, acceptance, the intention to enter into legal
relations, consideration, the capacity to contract, legality of
purpose, consent and certainty of terms
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Contract law
Debt
The law relating to contracts, which are legally enforceable
A sum of money owed by one person (debtor) to another
agreements made between two or more people who have full
person (creditor)
legal capacity
Contract of employment
A legally binding agreement between an employee and
employer that sets out the terms and conditions of the job
Cooling-off period
A period of time where a purchaser (in some cases) is
permitted to change their mind about a purchase
Corporate citizenship
Acceptance by an organisation of its responsibility to
stakeholders for its actions and decisions
Corporate culture
The shared values and beliefs of an organisation, which can
influence the actions and decision-making style of managers
and employees
Corporate objectives
The long-term objectives of the organisation, which provide
focus and direction for the organisation; they form the
foundation for strategic planning
Credit card
Facility enabling customers to enter into transactions where
cash payment is not required at the time of purchase, with
the customer later making a payment to the credit card
provider
Creditor
An individual or organisation that has extended credit to an
organisation
Crisis management
A technique used to manage an unplanned (crisis) situation
Cross-selling
Where customers are offered and encouraged to purchase
complementary items
Current assets
Short-term assets that are likely to be converted into cash
before the end of the financial year, e.g. bank accounts,
stock and debtors
Customer profile
Range of variables that can be identified when defining
a market to best suit a particular customer
Debtor
Customer who has bought goods or services on credit terms
and owes the business money
Debtors turnover
Amount of time taken for a debtor to pay their account
Decision making
A multistep approach whereby a selection is made between
a range of different alternatives
Decode
Understand a message
Defendant
A person who has been taken to court by another; the
defendant is defending or challenging the legal action
Depreciation
Depreciation is an expense; when an asset is written off
during the time it is used by a business; for example, a car
may be depreciated by 20 per cent per year over five years
Deregulation
Involves removing government regulation from an industry
in pursuit of greater efficiency and creating an improved
competitive environment
Descriptive research
Research that incorporates consumers attitudes, intentions
and behaviour
Direct distribution channel
A manufacturer sells the product directly to the customer
Dismissal
Termination of an employment contract due to incompetence
or indiscipline
Downsizing
Occurs when an organisation reduces its operations; may
result in office or plant closure, and reduction in functional
positions (jobs)
E-commerce
Conducting business electronically
Effective
The degree to which an organisation achieves its stated
goals and objectives; doing the right things
Customer satisfaction
Degree to which customer expectations have been met
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Efficiency
The way an organisation uses its available resources to
achieve its goals and objectives; doing things right
Email policy
Guidelines regulating the use of email within the business
Employee
Exit interview
An interview to find out why an employee is leaving
Exploratory research
Collecting information in an unstructured and informal
manner
External business communication
A person working for another person or a business for wages
External business communication includes business-to-business
or a salary; enters into an employment contract and is under
communication and also business-to-the-wider-community
the control and direction of the employer
communication
Employee relations
Facebook
The relationship between employees (or their
A social networking website where people can connect to
representatives) and employers (or their representatives),
friends and their friends; businesses can use this as a way
encompassing all aspects of their working lives, including
of connecting with others and to market their products
wages and conditions of employment based on optimum

working relationships
Employer
Fair Work Australia

The national independent workplace relations authority
with power to carry out a range of functions relating to
A person who hires another to work under their authority and
establishment of workplace conditions, dispute resolution
control, in return for payment of a regular wage or salary
and other workplace matters
Employment cycle
Feasibility study
The entire process from human resource planning to
Initial research that is required to determine whether the
termination of the employment contract
business is potentially viable
Enterprise agreement
Financial management
The formal agreement that results from the enterprise
Managing the financial activities relating to the operation
bargaining process
of a business
Enterprise bargaining
Direct negotiation of working conditions and remuneration,
which takes place between an employer and its employees
(or representative) at a particular workplace
Entrepreneur
A person who is willing to combine an element of risk taking
with their own knowledge and skills to make a profit
Equal employment opportunity (EEO)
Providing people with a fair and equitable opportunity to
succeed without any form of discrimination based on age,
sex, race or nationality
Ethics
A set of moral principles that an organisation needs to
establish and follow
Evidence
Information that identifies the type of transaction, its date,
parties and financial value (if any)
Executive summary
Fixed costs
Costs that in the short term do not vary with output
Focus group
Between six and 12 participants gather together in an
informal setting to give their opinion on a product or service
Formal communication
Messages sent using official communication channels
Franchise
A business that is based upon the purchase of a franchise
licence from the franchisor; allows the franchisee to use the
business name, logo and products
Franchising agreement
A franchise agreement is a legal document that outlines
the rights and responsibilities of the franchisor and the
franchisee
Fringe benefits
Benefits received by employees in addition to their normal
wage or salary, e.g. company car, medical benefits
An overview or summary of the key points of the

business plan
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Fringe benefits tax (FBT)
Induction
A tax on the value of company-provided benefits for
The process of introducing new workers to their place
employees in lieu of income, e.g. cars, entertainment
of work, their job role, their colleagues, supervisors,
Full-time position
Employees are employed usually for five days a week, 38
hours a week; these positions are normally permanent
Gap in the market
An opportunity for a business to enter into an area of the
market not currently being serviced
Generic brand
A brand that attributes its identity to the retailer rather than
the manufacturer
Generic market
A market where broadly similar needs of customers are
met by sellers offering a variety and often diverse range of
products
Global economy
The economy of the world; it has no domestic economic
boundaries
Globalisation
Removal of economic boundaries, which creates free
international trade and movement of capital between nations
Goodwill
management and corporate culture

Industrial espionage
Gaining valuable information on a competitors activities
(i.e. spying)
Industry association
Representative body for a particular industry group
Industry sector
Different types of organisations and enterprises producing
goods and services in the same industry or business area
Informal communication
Messages sent through informal channels rather than formal
networks; referred to as the grapevine
Informative advertising
Advertising that gives consumers factual information about
a product rather than creating a product image
Infrastructure
Physical resources of an area, e.g. power, transport, utility
services, that benefit the entire community
Innovation
The difference in value between the price that a business
Introduction of new things or methods; improving the current
is sold for and its net asset value; reflects the value of the
work practices, procedures and products
firms reputation and trading contacts

Goods and Services Tax (GST)
Insolvency
A business that closes due to inability to meet financial
A value added tax on all goods and services; in Australia, the
commitments and sells its business assets to repay
rate of tax is 10 per cent
outstanding debts
Gross domestic product (GDP)

Total value of output produced in a country in one year
Grapevine
Informal communication channels; often referred to as the
Intangible assets
Assets that have a monetary value to the business, but no
physical form, e.g. goodwill, copyright, patents
Intellectual property
rumour mill or office gossip ; management has no control
The property of mind or intellect; can be an invention,
over these channels
trademark or an original design
Hierarchy of objectives
Internal business communication
The aims and objectives of an organisation are placed in
Forms of communication used within a business, e.g.
descending order of strategic importance
memos, emails
Indirect distribution channel
A manufacturer sells their product to a retailer (intermediary),
Activities, functions and pressures that occur within an
who then sells it to the customer
organisation over which it has control

Interpersonal communication
Sharing information and understanding between two people
or a small group
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Interview
A formal meeting enabling one or more persons to question
and evaluate another person; a selection device used to
gather information about a job applicant
Inventory
The holding or storage of raw materials, component parts,
work in progress and finished goods
Involuntary separation
Occurs when an employee is retrenched or dismissed from
an organisation
Job
A group of tasks performed by an employee
Job analysis
A systematic process of gathering information relating to a
job being performed
Job description
A written description of a jobs title, duties and responsibilities,
including its location on the organisational chart
Job specification
Liquidity
Ability of a business to meet its short-term liabilities (debts)
Lobby group
A group that aims to influence organisations or governments
in their decision-making process
Lobbying
Conducting activities aimed at influencing public officials and
especially members of a legislative body on legislation
Logo
Graphical representation signifying a business
Macro environment
Broad operating conditions in which an organisation operates
and over which it has no control
Management
The process of planning, organising, leading and controlling
the work of subordinates to achieve organisational goals;
getting work done through other people
Market
Group of potential customers with similar needs who are
Detailed listing of the personal skills and characteristics required
willing to exchange something of value with sellers offering
to perform a particular job
various need-satisfying goods or services
Key Performance Indicators (KPIs)
Market-oriented approach
Criteria or measures used to evaluate performance of an
A business strategy that focuses on the needs and wants of
organisation in terms of effectiveness and efficiency
consumers and develops products to meet them

Market penetration
Label
Placed on a product to inform customer/consumer with
A pricing strategy that aims to set low prices initially to gain
information such as manufacturer, ingredients, use-by date
high market share quickly
Lateral communication
Market positioning
Communication between people or departments on the same
A product is placed within a market with regard to its image,
level within an organisation
price and age of target market
Legislation
Act of parliament (statute)
Letterhead
Stationery printed or engraved, usually with the name and
address of an organisation
Liabilities
What a business owes to an external party or entity
Market research
Systematic approach used to assist in making decisions
about consumers and the marketplace
Market saturation
Occurs when most consumers already own the product
and the market is not growing; any sales that occur are
replacement sales
Market segment
Licence
A permit or approval to operate
Limited liability
Shareholders are only personally liable to the level of their
original investment in an organisation
Relatively similar (homogeneous) group of customers who are

likely to respond in similar ways
Market segmentation
An approach that is midway between mass marketing and
individual marketing
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Market share
Memo
The percentage of total sales in a market held by one brand
A form of formal communication; a brief note sent within an
or business
organisation, usually to employees
Marketing
Mentor
Process that provides the link between producers or
An experienced, skilled and trustworthy person whose role is
providers of goods and services, and consumers
to guide another
Marketing concept
The business focuses on satisfying the needs of the
customer rather than on selling a product or service
Marketing consultant
A professional (specialist) who provides advice on marketingrelated issues
Marketing mix
The variables that are used when undertaking marketing
strategies: product, price, place and promotion
Marketing objectives
The objectives set by the marketing department to meet the
overall business objectives
Marketing plan
The plan that sets out the marketing objectives and strategy
to be undertaken by a business
Marketing process
Continuous study of the market by a business to ensure it is
always meeting the needs of its customers
Marketing strategy
A set of ideas and actions that outline and guide decisions
on how to create, distribute, promote, and price a product or
service; activities undertaken to ensure all marketing efforts
of the business will be coordinated and consistent
Mark-up
Pricing determined by adding gross profit to the direct cost
per unit; usually expressed as a percentage
Maturity
Stage of product life cycle where sales peak (saturation point);
mature products either decline or are extended to lengthen their
life cycle
Media or press conference
A media conference is usually called when an important
public announcement or newsworthy story arises
Media release
An item of news prepared for and distributed to the media
Merchandise
The stock of goods in a store or business
Merge
Two or more businesses join together to form one united
business
Microbusiness
Small business that has fewer than five employees
Mission statement
A global statement that reflects an organisations reason for
being or purpose and the way it will be managed
Net assets
Total assets less current liabilities, i.e. working capital
Net profit
Gross profit less expenses and overheads of running the
business
Network
An interconnected system of people or businesses
Niche market
Narrow segment that aims to provide products to buyers with
specific desires and preferences
Non-verbal communication
Any form of communication that does not rely on words
(spoken or written) to convey a message
Obiter dictum
Latin for things said by the way; in the judgment given at
the end of the case, the judge sometimes makes a statement
that is not part of the decision
Occupational Health and Safety Act 2004
Framework for providing a safe and healthy work
environment
One-way communication
Information is passed by the sender to receiver with no
feedback
Open-ended questions
Questions that allow the respondent to provide a descriptive
answer
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Operating environment
Passive investors
The environment immediately external to an organisation
Often referred to as silent partners, they provide financial
with which it has close interaction when conducting its
input into the business but do not actively participate in the
business activities
business operations
Organisation
Penetration pricing
Two or more people who work together in a structured way
A pricing strategy where the products price is set lower
to achieve a specific objective or set of objectives
than a competitors price; also used when introducing a new
Organisational communication
Use of systems to share information and understanding with
large groups of people
Organisational stakeholder
product to the market

Personal selling
Product is sold by a salesperson, preferably trained
Persuasive advertising
A person, such as an employee or customer, who is involved
Attempts to create an emotionally positive feeling about a
with an organisation and therefore has responsibilities
products image to encourage consumers to buy it
towards it and an interest in its activities

Outsourcing
Process of using another business to undertake some task or
work process
Overdraft
A short-term, flexible loan facility giving a business the right
to borrow up to an agreed amount as and when needed by
the business
Owners equity
The amount of money or capital invested in the business
Owners/shareholders equity
Money contributed by the business owners
Packaging
Petty cash
A small amount of cash held to pay for items such as stamps,
tea and coffee
Place
Encompasses the distribution channels used to market
products to customers; one of the four Ps of the marketing mix
Plaintiff
A person who begins civil law action against another, e.g.
breach of contract or negligence
Plan
An outline (formal/informal) of an approach to be taken
Podcast
An audio file (usually an MP3 file) placed on a website that
Physical protection given to a product that can also form an
allows people to subscribe and automatically download any
important part of its image and appeal to the consumer
new content recordings
Pareto Principle
Population
Referred to as the 80/20 rule (approximately 80 per cent of
Entire group under study as defined by the research
business is generated by approximately 20 per cent of the
objectives
customer base)
Partnership
A legal form of business organisation where two or more
people (partners) work together
Partnership agreement
Formally outlines the duties and responsibilities of the parties
to a partnership
Part-time work
An employee works a fraction, e.g. 0.5, of normal working
hours
Precedent
Court-made decision that is binding on similar cases
Premium
Periodic payment made to an insurance company
Price fixing
Two or more businesses decide to work together to fix a price
and therefore stop competition; this practice is illegal under
the Competition and Consumer Act 2010
Price leadership
A business that through its dominant market position is able
to set prices that other businesses adopt
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Primary data
Information gathered first-hand by the business
Primary sector
Businesses that operate in industries that are concerned
with agriculture, fishing and extraction of raw materials
Private company
Productivity
A measure of the functioning and efficiency of a production
system
Professional association
Representative body for a particular professional group
Profit
A company where the shareholding is limited (small), with shares
The surplus remaining after costs are deducted from sales
being sold privately; often run as a family business; has the words
revenue
Proprietary Limited at the end of the company name

Privatisation
The process of selling government-owned businesses to the
private sector
Procedures
Series of interrelated steps to implement policy
Product
End result of production process; can be either a good or
a service; one of the four Ps of the marketing mix
Product development
Design and development of new or existing products
Product differentiation
Profitability ratio
Measurement of the level of profit compared to variables
such as sales turnover and net assets
Promotion
The use of advertising, branding, sales promotion and public
relations to inform and persuade consumers; one of the four
Ps of the marketing mix
Proprietor
Owner of a registered business name
Proprietorship
The ownership of an unincorporated business
Prospectus
Products are developed and advertised to make them appear
An invitation to the public and potential investors to purchase
different from others on the market
shares in a particular company
Product liability
Psychological pricing
The responsibility of a manufacturer or distributor for harm or
Pricing strategy whereby the price is set in accordance with
injury that results from a defective product; the common law
the value the consumers place on the product
or statutory duty of manufacturers, distributors or suppliers

to warn consumers about any possible harmful effects of a
product or its misuse
Product life cycle
The stages through which all products pass: launch
(introduction), growth, maturity, decline or extension
Product line
A broad group of products that are intended for similar uses
and have similar physical features
Product market
When a consumer is looking for a particular item, e.g. a particular
type of drink, such as a sports drink
Product mix
A full set of all products being sold by a business
Product placement
Public
The internal or external stakeholders potentially affected by
the actions of a business
Public relations
Relationships established with the media to create favourable
reports about the business and its products
Qualitative research
Research based on in-depth, open-ended responses that
focus on emotional or motivational aspects of consumer
behaviour
Quality
The degree of excellence in a good or service and its ability
to satisfy the customer
Quality control
Process of checking the quality of goods and services
A method used to gain prominence of a product in the

consumers mind, e.g. television, movie, internet
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Quantitative research
Remuneration
Market research based on structured, closed questions that
The amount a person is compensated (paid) for performing
aim to gather responses that can be summarised in figures
work tasks (job); it can take the form of cash and/or fringe
Quaternary sector
Industry sector that represents communications, finance,
insurance, property, business services and education
Questionnaire
Form of survey where questions are asked of respondents
Quinary sector
Industry sector that represents accommodation, restaurants
and cafs, health and community services, cultural and
recreational services, personal and household services
Rate of return
Measure of the return (%) a shareholder/owner receives on
their initial investment
Ratio decidendi
The binding part of the decision; sets out the reasons for
benefits; it can be referred to as a salary or wages

Research and development
Scientific research and technical development of new
products and/or processes
Resignation
Voluntary termination that occurs when an employee leaves
the workplace, usually to go to another job
Resources
Inputs used in production: land, natural resources, labour,
entrepreneurial skills, capital and technology
Retailer
Business that sells products, usually in small quantities, to
households or individual consumers
Retirement
the decision; this is then regarded as a statement of law
Voluntary termination where an employee decides to leave
that can be used in future cases
the paid workforce
Record keeping
Retrenchment
Keeping accurate records of all matters related to business
The expression used to describe what occurs to an employee
activities
whose employment is terminated by reason of his or her job
Recruitment
The process of finding the best qualified pool of applicants
Redundant
An employee is redundant when there is no longer sufficient
work for the worker to perform
becoming redundant
Revenue
What a business earns in the way of sales or fees
Risk assessment
Conducted by an insurance company to assess the level of risk for
which insurance cover is sought
Referee
A person who can be contacted to comment on the skills and
qualities of a potential employee; part of the selection process
Reference check
Investigation that looks into a job candidates background;
Salary
An agreed amount of money paid to employees for their
labour during a year; expressed as an amount per annum
Sales orientation
contact can be made with previous employers to verify work
The business focuses on persuading customers to purchase
details or tertiary institutions to check qualifications
its goods and services

Sales promotion
Refund
A refund is when a consumer can receive their money back
Use of incentives to encourage increased sales, e.g. free gifts,
after returning a good; it may be faulty or unfit for purpose
competitions, buy one, get one free
Registered business name (RBN)

Trading name under which a person (sole trader) or
partnership conducts its business or trade, e.g. Roxy Caf;
name requires renewal every three years
Sample
A proportion or subset of the total population being studied
Secondary data
Information that has been previously collected
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Secondary sector
Business activity that relates to manufacture and
construction of goods
Selection
Process undertaken by an organisation to decide whether to
make a job offer to a candidate
Selection criteria
Predetermined criteria created to assist interviewers in selecting
the best applicant for a job
Self-regulation
A group or industry regulates its own conduct and behaviour
Semi-formal communication
Communication using a formal setting but not controlled by
the organisation
Service-oriented industry
Those businesses that provide a service to a client, e.g.
medical, accounting, legal advice
Services
Non-material objects produced by people for the benefit of
others, e.g. legal advice
Shareholder
Part-owner of a company
Short-listing
Working through the applicants and making sure that the
Sole trader
Individual owner of a registered business name
Source document
A document that provides evidence of a transaction
Spam
Unsolicited or junk email
Sponsorship
A business provides financial support to a team, organisation
or event in return for naming rights, merchandising or image
for the organisation
Staff turnover
Number of employees leaving an organisation in a given
period of time
Stakeholder
Individual or group that has a direct or vested interest in the
activities of an organisation
Start-up
Commencement of business operations
Start-up costs
Costs or expenses associated with establishing a new
business; may include registration of a company name, legal
costs, buying fixtures and fittings and major assets such as
buildings
State product
only ones interviewed are those who meet the selection
A measurement of the value of production by businesses in a
criteria
state in a given period of time
Skimming pricing
Superannuation
A strategy where high prices are set to ensure high profits
A pension or lump sum payment made to workers on
before marketing advantage is lost
retirement; the money comes from employers contributions
Small business
An independently owned and operated business, under close
made during the working life of the employee

Supplier
control of its owner who has contributed the majority of the
Supplies the inputs (resources) required for the production
operating capital and is the main decision maker; the business
process
may employ up to 20 people (non-manufacturing) and 100

people (manufacturing)
SMS
A communications protocol that allows the interchange of
short text messages between mobile telephone devices
Social responsibility
Support services
Services (paid or unpaid) used by businesses to assist them
in their decision making, e.g. legal or financial advice or daily
operational activities
SWOT analysis
An assessment of the internal strengths and weaknesses and
Ethical or social responsibility where a government,
the external opportunities and threats for an organisation in a
organisation or individual has a duty to society at large; is
given situation
about improving the quality of relations with key stakeholders
376
DICTIONARY
ISBN: 9781107665910
Twitter
Tactics
Activities or courses of action taken by a business to achieve
A microblog where users can make comments up to 140
business objectives
characters instantly
Tangible assets
Assets that have a physical form, e.g. stocks, property
Target market
The market at which a product or service is primarily aimed
Two-way communication
Communication that is open and encourages discussion and
feedback
Unfair dismissal
Dismissal of staff that does not follow agreed legal
Taxation
A levy, designed to raise revenue, imposed by governments
on businesses and individuals
Technology
Practical application of science to achieve a commercial or
industrial objective; it often involves the use of computers and can
relate to information, communication, design and manufacturing
Termination
Ending of the employment relationship
Tertiary sector
Business activity that provides services for consumers and
other business
Tort
Civil wrong
Tort of negligence
A tort is a civil wrong where the act or omission of one party
affects the rights of another party; negligence is carelessly
causing reasonably foreseeable injury or loss to other people
and their property; damages are usually awarded to the
injured party
Training
procedures; employees may seek to be compensated or

reinstated
Unlimited liability
Applicable to sole traders and partnerships; these business
owners are fully liable (to the extent of their personal assets) if
the business fails
Up-selling
Trying to entice current customers to buy additional or more
expensive items
Venture capitalist
An investor who provides capital to start-up ventures or helps
a business to expand its operations
Verbal communication
Use of language (oral or written) to communicate
Viable
Capable of developing and growing
Vision statement
A statement that outlines the aspirations of the organisation
Voluntary separation
Occurs when an employee has made a decision to withdraw
The process of providing an employee with the knowledge of

specific skills needed to do a job
Transactions
from the workplace

Wage
The monetary reward for labour, paid on a weekly basis,
Contractual arrangements undertaken by a business, e.g.
calculated by multiplying the hourly rate by the number of
payment of wages
hours worked for the period
Transition period
Warranty
A period of time when the previous business owner
Legal requirement; indicates that if the goods are not fit for
works with the new owner to introduce them to business
purpose or faulty, then the consumer is entitled to have the
operations, clients/customers, suppliers and other business
product repaired
contacts
Triple bottom line reporting
Reporting on financial, social and environmental performance
Web page
A page on the World Wide Web that allows the public to
examine information about a company and its range of
products
Trust
Fund or property held or administered (by a trustee) for the
benefit of others
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Wholesaler
Businesses that purchase in bulk from producers and sell
smaller quantities to retailers
Workers compensation
Payment made to employees who are injured at their
workplace
Workforce planning
Planning undertaken to forecast the supply of and demand
for workers
Working capital
Net current assets of the business; the day-to-day finance
required for operating a business
World Wide Web (WWW)
Communications system that allows access to information
through a computer with a modem
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DICTIONARY
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INDEX
Accountability 66
Business
Accounting reports 151
activity 18
Advertising 332
assistance, formal 76-81, informal 72-75
advantages 335
centres 81
disadvantages 335
codes of practice 117
informative (labels) 326
complementary 72
misleading 203-4
cycle 29
persuasive 321
distinguishing characteristics 19-20
reinforcement 332
downsizing 14
styles 334
effectiveness 131
Agreements
efficiency 131
collective bargaining 36
ethics 27, 156, 175, 196-7, 218, 261, 360-361
franchising 56
evaluation 130-131
partnership 58
feasibility study 52
Annual Report 354

Assets 132
current 132
intangible 151, 308
tangible 308
Assistance 72-82
Formal 76-78
Government 78-81
Informal 72-78
features 16
failure 129
formal support services 76-83
goals 5-7
incubators 81
industry types 3, 18
informal support services 72-73
key features 95
large 19
layout 64
Association 61
legal structure 17, 58-61, 150
Australian Bureau of Statistics (ABS) 121
licences 117
Australian Business Number (ABN) 60
location 62-64
Australian Company Number (ACN) 61
mentoring 81
Awards 111
Australian Competition and Consumer Commission (ACCC) 27,
306
Australian Securities and Investments Commission (ASIC) 59
Australian Taxation Office 80, 149
micro 12
networks 72, 81-82
objectives 5, 6, 273, 299
performance measures 131-134, 153-154
plan 90, 92-96
planning 90-91
Bankruptcy 125
preliminary decisions 42-55
Benchmarking 135
registration 106
Body language (communication) 43, 227
regulation 36
Brand 322
resources 118
awareness 322-24
generic name 326
label 326
leader 322
loyalty 321
stretching 324
Break-even
point 155
sectors 15, 18
self regulation 117
size 16
small 12, 19
stakeholders 26, 142
start-up 81
strategy 96
viability 52
websites 83
INDEX
379
ISBN: 9781107665910
Capital 12
Competitors 3
assets 130
operating environment 35
human 130
information source 72
working 130
Cash
book 143, 146
stakeholder 26
Consumer Affairs 208-209
Consumers 34
cheques 145
behaviour 274
control 147
goods 316
evidence 143
protection 114, 203-6, 208-211
flow 137, 147
market 268
payments 145-146
trends/factors 281
petty 146
Contract law 214
receipts 144
elements 214-216
statement 145
definition 76
source documents 143

transaction 143
Competition and Consumer Act 2010 208
Collective Bargaining (Enterprise) Agreement 36, 112
Common law 29, 213
precedent 213
Communication
culture 226, 254
barriers 247-258
body language 227, 239
channels 230-231
direction 225, 228
effective 225
internal/external 228-228
interpersonal 247
language 226, 250
methods 233
organisational 247
non-verbal 239
process 224
Cooperative 61
Copyright 47
Corporations Act 2001 (Cwlth) 59
Corporate
culture 37
objectives 271
responsibility 106, 134
Creditors 26
stakeholder 28
Customers
behaviour 275
profile 278
satisfaction 270
stakeholder 26
Data
primary 288
secondary 288
Debts 17
Debtors 154
reducing barriers 258
Decision making 41
skills 42
Deregulation 36
types 224-225
Depreciation 148
verbal 234-238
Community
Stakeholders 26
Company 59
Limited liability 59
private 19, 59-60
prospectus 60
public 19, 60
Competition and Consumer Act 2010 203
Directors 27
stakeholder 26-27
Downsizing 14
Economy
macro environment 29-30
global 33
Effectiveness 130-131
Efficiency 130
Competitive advantage (edge) 95
380
INDEX
ISBN: 9781107665910
Employees 161
Financial institutions (banks)
equal employment opportunities 174-175
advice 76-77
internal environment 36
deregulation 34
OH&S obligations 109

stakeholder 27
Employers 2
stakeholders 26
Franchise
duty of care 212-14
advantages 55, 57
OH&S obligations 109
agreements 56, 76
Employment cycle 164-173

establishment 164-169
maintenance 169-172
termination 173
definitions 55
disadvantages 55
parties 56
Goods & Services Tax (GST) 150
Employment arrangements 168-169
Goodwill 54
Enterprise Agreement 36, 112
Government
Entrepreneurs 13, 46
Environments
external 26, 29
forces 28-36
internal 26
macro 26, 34
protection 112-113
operating 26
laws 111, 203-206

levels 202
local, by-laws 106
macro environment 26
stakeholder 26
support and assistance 81
websites 79
Globalisation 29
Equal employment opportunity (EEO) 172
Gross Domestic Product (GDP) 3
Ethics 25
Industrial espionage 73
accounting practices 156
Industry associations 82
advertising 204-206
Industry sectors 3
communication 261
industry 3
employment practices 175
primary 18
ICT 196-197
private 19
legal requirements 218
public 19
marketing 306
quaternary 18
public relations 360
quinary 18
Export 305-306
secondary 18
Fair Trading Act 1999 208-210
service oriented 13
Fair Work Australia 111

Feasibility study 52
Financial
Management 142
Performance, evaluation 153
Records 141
Forces 29
Economic 29
Global 33
Government & political 29
Legal 31
Social and cultural 33
Technological 31
tertiary 18
Information and communication technologies (ICT)
Computer viruses 194
costs and benefits 193
e-commerce 192
hardware 181-182
identity fraud 197
marketing 329
security 194-195
software packages 183
strategies 180
Infrastructure 6
Innovation 47, 309
INDEX
381
ISBN: 9781107665910
Insolvency 129
Manufacturer 330-331
Insurance 78, 115-116
Market
Broker 78
Intellectual property 47
attributes 274
Internal environment 36-37
gap 46
Internet 180
marketing 330
Inventory (stock) 143
Investor 58
Passive 58
Job
generic 326
global 270, 274
niche 278
orientation 270
penetration 321
positioning 279
product 316-318
analysis 163
product, life cycle 319-321
description 163
research, approach to 286-292
specification 163
development 311
Key Performance Indicators (KPIs) 131-135, 137
saturation 321
financial 131-133
segment 275
non-financial 134-135
segmentation 275-6
Law Institute of Victoria 76
share 3
Layout 64
target 278
Leadership
qualities 43
skills 42
Legislation 29
Employment laws 111-112
Environment protection laws 113
Equal Opportunity 112-113, 174
Food handling regulations 211-212
Occupational health & Safety 109, 173
Liabilities 132
Liability
limited 58-59
unlimited 58-59
Liquidity 130
Lobby groups
Market research 121

data collection approaches 289-290
data types 287
design types 289-290
population 289
qualitative 290
quantitative 289
sample 289
Marketing
brand 322
concept 268
consumer behaviour 279-280
consumer trends 281
covers 268
evaluation 302-303
expansion 308
internet 338
issues 305
public relations 344
management 37
Location
mix 322
factors 62
mobile 338
different businesses 64
objectives 273, 299
Management
Pareto Principle 276
financial 142
plan 121, 298
internal environment 36-37
practices 269
macro environment 26-29
process 274
qualities 42-3
382
analysis 303
strategies 274
skills 42-3
Mentoring 81
staff 162
Mergers 33
stakeholder 26
Micro business 12
INDEX
ISBN: 9781107665910
Mission Statement 5
Plans
Motivation 42
business 90, 92
Negligence
crisis management 356
tort 216-218
Negotiation
skills 43
Networks 72, 82
Objectives
corporate 271
financial 5
hierarchy 273
marketing 299
mission statement 5
non-financial 6
public relations 344-345
social 6
vision statement 5
Occupational health and safety (OH&S) 109, 173
Organisation 2
financial 100, 119-120

forecasting 90
marketing 95, 121, 298
operational 96
strategic 91
tactical 91
work force 118
Price 154, 328
break-even 155
competitive 155
complementary 329
competition based 328
cost based 328
elastic/inelastic 329
factors 329
fixing 205, 328
government regulation 330
characteristics 3
leader 329
differences 3
mark-up 328
for profit 5
penetration 313, 329
not-for-profit 5
pricing methods 154, 328
Organisational
communication 233-234
skimming 329
strategies 328-329
objectives 5-7
Privacy 115
stakeholders 26
Private
structure 37
Outsourcing 13
company 59-60
sector 15
Overdraft 148
Privatisation 19
Owners 37
Product
Packaging 27, 326
Branding 322-326
Pareto principle 276
development 311
Partnership 17, 58
differentiation 322
agreement 58
general 58
limited 58
Patent 47
Pay
remuneration 28
salary 28
wages 28
Place 330
distribution channels 330-331
life cycle 319

line 322
mix 322
orientation 269
packaging 326
placement 330
types 316
Productivity 130
Profit 148
margin 328
net 132
Profitability 133, 303
INDEX
383
ISBN: 9781107665910
Promotion
advertising 332
direct marketing/selling 335
forms of media 334
personal selling 336
publicity 338
sales promotion 335
techniques 332
Proprietors 17
Proprietorship 58
Public
company 59-60
sector 15
Public relations
Sectors (see industry sectors) 3, 18

Services
oriented industry 13
Shareholders 59
stakeholders 25
Skills 42-44
Small business 12
Social
objectives 6
responsibility 106, 134
Sole trader (proprietor) 17, 58
Stakeholders 26-27
communication methods 350
Superannuation 111
concept 349
Suppliers 36
crisis management 356-7

ethics 360-361
stakeholder 26
Support
image 346
formal 76-81
issues 360
informal 72
lobbying 351
services 71
objectives 349-350
Structure 3
performance measures 359-360
SWOT analysis 96, 298-299
public 349
sponsorship 355
strategies 359-360
Quality 28
assurance systems 97
best practice 97
control 97
definition 28
total quality management 99
Rate of return 132
Registered Business Name (RBN) 61
Regulatory bodies
Remuneration (pay) 28
Taxation 115, 149

company 150
fringe benefits tax 150
goods and services tax 150
income 149
payroll 149
Technology
Computer hardware 181-182
E commerce 192
Security 194
Software packages 183-188
Trade Unions 36
stakeholder 26
Training
Research and development 311
off-the-job 169
Resources 118
on-the-job 169
Retailer 6
programs 172
layout 64
Triple bottom line 134-135
Revenue 3
Trusts 61
Salary (pay) 28
Unfair dismissal 31
Sale of Goods Act (Vic) 114
Vision statement 5
Sales
Wages 28
analysis 302
Warranties 211
orientation 269
Workers compensation 107
promotion 332
384
INDEX
ISBN: 9781107665910
INDEX
385
ISBN: 9781107665910

Vce Business Management

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Vce Business Management

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ESSENTIAL

CAMBRIDGE UNIVERSITY PRESS

About the authors

UNIT 1 SMALL BUSINESS MANAGEMENT

Area of study 1: Introducing business

CHAPTER 1 BUSINESS ORGANISATIONS

CHAPTER 2 SMALL BUSINESS IN AUSTRALIA

CHAPTER 3 BUSINESS ENVIRONMENTS

Area of study 2: Small business decision making,

CHAPTER 4 MAJOR DECISION MAKING PRIOR TO STARTING A SMALL BUSINESS 40

Decision 4: A new business from scratch or an existing business?

CHAPTER 5 BUSINESS SUPPORT SERVICES

CHAPTER 6 THE IMPORTANCE OF BUSINESS PLANNING

CHAPTER 7 MAJOR PLANNING DECISIONS THROUGHOUT THE LIFE

ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2

Area of study 3: Day-to-day operations

CHAPTER 9 INTRODUCTORY ACCOUNTING FOR SMALL BUSINESS

CHAPTER 10 MANAGEMENT OF STAFF IN SMALL BUSINESS

CHAPTER 11 INFORMATION AND COMMUNICATION TECHNOLOGIES

UNIT 2 COMMUNICATION AND MANAGEMENT

CHAPTER 14 EFFECTIVENESS OF COMMUNICATION

Area of study 2: Managing the marketing function

CHAPTER 15 MANAGING THE MARKETING FUNCTION

CHAPTER 16 MARKET RESEARCH

ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2

CHAPTER 17 THE MARKETING PLAN AND EVALUATION OF PERFORMANCE

CHAPTER 18 THE MARKETING MIX AND RELATED MARKETING STRATEGIES

Area of study 3: Managing the public relations function

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ABOUT THE AUTHORS

ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2

KEY KNOWLEDGE TABLE

s Features of organisations, including for-profit and

s Distinctions between small, medium and

s The internal and external (operating and macro)

ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2

s Strategies to select appropriate hardware and software to

ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2

s The management of public relations and its relationship

Students will learn the following introducing them to business organisations:

An organisation is a formal or structured

generations. Having people of varying ages and

Figure 1.1 The champions

ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2

to the next is a vital asset to the business

is a business, does it operate as a sole

competitive marketplace, organisations are

measured in terms of how much monetary

Table 1.1 The 17 main industry sectors

Finance and insurance

The University of Melbourne

ESSENTIAL VCE BUSINESS MANAGEMENT UNITS 1 AND 2

Figure 1.2 The Salvation Army is a not-for-profit

Some NFP organisations are government

majority of funds through donations from the

All organisations, whether they are for-profit or