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BUS101 Study Guide

Site: Saylor Academy
Course: BUS101: Introduction to Business (Demo)
Book: BUS101 Study Guide
Printed by: Guest user
Date: Wednesday, 6 May 2026, 4:09 PM

Table of contents

Navigating this Study Guide


Study Guide Structure

In this study guide, the sections in each unit (1a., 1b., etc.) are the learning outcomes of that unit. 

Beneath each learning outcome are:

  • questions for you to answer independently;
  • a brief summary of the learning outcome topic; 
  • and resources related to the learning outcome. 

At the end of each unit, there is also a list of suggested vocabulary words.

 

How to Use this Study Guide

  1. Review the entire course by reading the learning outcome summaries and suggested resources.
  2. Test your understanding of the course information by answering questions related to each unit learning outcome and defining and memorizing the vocabulary words at the end of each unit.

By clicking on the gear button on the top right of the screen, you can print the study guide. Then you can make notes, highlight, and underline as you work.

Through reviewing and completing the study guide, you should gain a deeper understanding of each learning outcome in the course and be better prepared for the final exam!

Unit 1: The Context of Business

1a. Identify foundational business practices

  • What is the goal of a business?
  • What are the benefits of an organization?
  • What are the needs of a market?
  • What is a stakeholder?

Milton Friedman, the author of "Capitalism and Freedom", states that the only obligation businesses have is to focus on their profit margin. He believed businesses contribute to society by increasing profits, providing goods and services, and employing people in the local community. While profit maximization is a fundamental goal for most businesses, other foundational business practices influence how to organize a business to make it more efficient. In addition to profit maximization and having a sound organizational structure, businesses are also defined by the product they offer (a service or a good).

A profit margin occurs when sales revenue exceeds costs in a business. This helps businesses determine how successful they are. Corporate social responsibility (CSR) happens when a business makes a profit, and the environment and society also benefit. Market needs are important to understand because this is what consumers want or need, and a successful business figures out how to address those needs. Stakeholders are those who have a vested interest in the outcome of a corporation or business. These may include consumers, banks, employees, or suppliers, for example. By understanding these foundational business practices, you will better understand business in general.

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1b. Describe economic indicators

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

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

The consumer confidence index (CCI) is an example of a leading indicator. The consumer product index (CPI) is a lagging indicator. The CPI is the best tool for predicting future inflation. Try inserting some numbers in the US Bureau of Labor Statistics CPI calculator to compare the buying power of today's dollar with the buying power of the dollar in past years. This calculator demonstrates how inflation has changed over the decades.

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

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

  • What are three benefits a local business provides to the community?
  • How does corporate social responsibility positively impact business stakeholders?
  • What is the triple-bottom-line approach?
  • Why do companies agree to promote a triple-bottom-line approach?

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

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

Think about how a company or organization can negatively impact its local community. A gas refinery may harm the air quality of people living there. A lack of corporate social responsibility can negatively affect the community, and a company with a planned corporate social responsibility may positively impact its community.

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

  • How do economic indicators describe the health of the economy?
  • How does inflation impact the economy?
  • What is the difference between an economic depression and a recession?

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

Inflation is when the costs of goods and services rise. Inflation also has the power to positively affect consumers. With low interest rates and inflation, people can afford to purchase homes and easily buy the products they need. But when inflation increases, those same products are more difficult to purchase. From 2007-2009, the United States experienced a depression. The mortgage crisis occurred during this time, and many people lost or had to give up their homes. Depression occurs when there is a long economic decline, and we may also see high unemployment during that time. A recession occurs during a shorter period. For example, we may fall into a recession after only two quarters of negative gross domestic product (GDP) growth. Layoffs also typically occur during a recession.

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

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1e. Identify and explain current economic trends

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

Every business goes through a business cycle, including expansion, peak, contraction, and trough. These stages can be analyzed for every business; some companies may stay on a stage longer than others. Some business managers are good at keeping their business in these stages longer, which ensures the business' overall success in the long run.

ent of a financial indicator. The gross domestic product (GDP) is the total value of all goods and services produced in one country, typically measured over a specific period. The GDP is a measurement used to determine a country's overall health.

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

  • What are the four phases of the business cycle?
  • Which business cycle corresponds to a period of inflation?
  • Which two of the four phases of the business cycle represent a turn in the cycle?
  • What are business owners likely to do when the economy is in a trough, and customers are not buying products?

The four phases of the business cycle include expansion (a period of growth), peak (the highest point of sales/profits), contraction (a decline in sales/profits), and trough (the lowest point of economic activity before the next expansion stage begins). The four phases of the business cycle are extremely important in real-life situations: they help business managers make decisions for their companies. For example, knowing what phase the economy is in can help managers predict whether it is a good time to spend their savings to make needed investments in their company. Making investments during an inopportune time could put their organization at risk.

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

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

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

  • What is the money supply?
  • What are the functions of the US Federal Reserve?
  • Can you give an example of how the business cycle demonstrates increases and decreases?
  • Can the actions of the US Federal Reserve cause changes in the business cycle?

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

Before 2008, the real estate market was in the expansion phase of the business cycle and then reached its peak. Almost immediately, contraction began, and the market fell over the next few years, which led to a depression. By 2011, interest rates had fallen, and home prices were very low; over the next decade, the real estate market took its time to expand. By 2022, interest rates were at an all-time high.

The US Federal Reserve plays a large role in changing the business cycle. Typically, the Federal Reserve creates policies to control the money supply (the total amount of currency and other liquid instruments circulating in the economy at a given time) and inflation, which can influence employment levels in the United States. The Federal Reserve also controls the interest rate. In 2022, when mortgage interest rates and consumer spending were high, the Federal Reserve started to increase the interest rate to control inflation.

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1h. Describe global trade restrictions

  • What trade restrictions can governments impose on foreign businesses?
  • What is a trade embargo?
  • Can you think of an example of a country that imposed tariffs for political reasons?
  • How do tariffs and embargoes affect the country's economy that imposes the restrictions?

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

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

Tariffs are a tax on goods that are imported into a country. Trade embargoes occur when one government imposes a ban on trading with another country. This ban may apply to goods, services, or money. Cuba and North Korea are examples of recent trade embargoes. The currency exchange rate is the difference between the currencies of two countries. For instance, if the exchange rate for the dollar is 1 and the Euro is 1.10, then it costs 1.10 to purchase one dollar (1:1.10).

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1i. Identify factors affecting the success of businesses

  • What factors affect the success of a business?
  • How important is infrastructure, such as the availability of roads or railways, to the success of a business?
  • What is an example of demographics?

Entrepreneurs know many factors influencing their business success and must consider many options. Understanding the demographics of customers is important, as well as determining who their target market is. Demographics are a person's characteristics, including gender, education level, income, religion, and culture. If your target market is female business owners between the ages of 45 and 60, then as a business owner, you will need to better understand that market and their needs to market your products to those individuals.

Changing demographics (or your target market) can harm the profit margins of a business, and it is important to understand why this may be needed and how the company will shift its focus as a result. Changing the demographics of your target market can be a major change in your business, and it is important to understand the pros and cons of this process.

The infrastructure in the United States may include roads, railways, or waterways. Companies need to use this infrastructure to get their products to consumers. When the infrastructure is interrupted, such as a major freeway being shut down for construction, this may affect getting products to consumers.

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

  • Why is it important to review the feasibility of conducting business in another country?
  • What is an example of a national rivalry that could prevent a company from operating successfully in a foreign country?
  • What are some barriers to international business?

There are some barriers to conducting global business, and business owners need to understand all issues before expanding into another country. There are also restrictions that governments place on foreign companies. Corporations need to consider other factors as they look to expand globally, and it is important to conduct research before expanding.

In the previous section, we looked at factors contributing to or hindering business success. It is important to understand these factors when expanding into another country. Global competition is another area of research that is important to understand before expanding into another country. By conducting research, a business owner can learn about competition in that country or other countries that operate in the country to make expansion possible. Examples of barriers to international business might include language, regulations, cultural differences, or currency differences.

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

  • How does importing differ from franchising?
  • Which methods allow foreign business managers to maintain the most control over their products and operations?
  • Which method businesses use to enter the global marketplace is the least expensive option?

Once a company has decided to explore avenues of international trade, it needs to consider the best method for launching its business abroad. For example, the originating business could maintain or relinquish control over its operations. Franchising is another option available to a business owner, and a franchise may be purchased to help eliminate some of the risks of starting a business. Franchising is a business arrangement where one party (the franchisor) grants another party (the franchisee) the right to use its trademark, business model, and systems in exchange for fees and royalties. A business owner with a successful business may want to franchise their business to other potential owners.

Retail companies that import their products may sell online or in their stores. Importing products from another country is one way a company can expand its product line. A company can also export its products to other countries, and this helps it expand into the global marketplace. Since the primary goal of most companies is to make a profit, cost is an important consideration when choosing the best method for entering a foreign marketplace.

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1l. Identify trade facilitators

  • Which trade facilitator is most likely to resolve trade disputes?
  • Can you name two major international trade facilitators?
  • Where should a company go if it wants to conduct business with a foreign company but needs a third party to "hold" its money until it can take possession of the product?

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

Some trade facilitators help businesses understand legal differences, while others allow them to manage the monetary aspects of business globally. By using these trade facilitators, a company that wishes to expand globally can make the process easier.

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Unit 1 Vocabulary

This vocabulary list includes terms you will need to know to successfully complete the final exam.

  • consumer confidence index (CCI)
  • consumer product index (CPI)
  • corporate social responsibility (CSR)
  • currency exchange rate
  • demographics
  • economic indicator
  • franchising
  • gross domestic product (GDP)
  • inflation
  • infrastructure
  • lagging economic indicator
  • leading economic indicator
  • money supply
  • stakeholder
  • tariff
  • trade embargo
  • triple-bottom-line approach
  • US Federal Reserve

Unit 2: Entrepreneurship and Legal Forms of Business

2a. Discuss the legal forms of businesses, including sole proprietorships, partnerships, corporations, limited-liability corporations, and subchapter S corporations

  • What are some advantages and disadvantages of each legal form of business?
  • What are the various legal forms of businesses?
  • Why is it important to evaluate the legal form of business before starting one?

Most businesses in the United States are small businesses (with fewer than 500 employees). When entrepreneurs create a business, they must choose the appropriate legal form. Many options are available, and each legal entity has advantages and disadvantages.

Legal entities of business include a sole proprietorship (one business owner, such as in many small businesses), a partnership (with two or more people sharing ownership), a corporation (a larger single entity that has legal protections), a limited liability company (LLC) (this limits the personal liability that the owners have), and S corporation (a type of corporation that avoids double taxation).

While most businesses maintain the same form and organization throughout their existence, some companies change their legal form of ownership (such as from sole proprietor to corporation) or merge with (or acquire) other businesses. Understanding the benefits and drawbacks of each business entity is important for any business owner.

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

  • What is one advantage of owning a limited liability company LLC?
  • Which form of business ownership gives owners the most protection for their personal property?
  • How does a break-even analysis account for fixed and variable costs?

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

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

For many companies, taxes are simply a cost of doing business. However, taxes can be expensive and controversial when business owners feel their tax dollars are not being spent efficiently. Tax rates are the percentage a company is taxed at.

An organization must also consider its liabilities, which are debts or some type of financial responsibility. Unless it has an outside funding agency, most businesses must make a profit to survive. They need to generate enough revenue to cover their expenses. A business manager needs to calculate how much product they need to sell to cover their expenses or conduct a break-even analysis, a financial calculation determining the point at which total revenue equals total costs, with neither profit nor loss. The equation is: break-even point = fixed costs / average selling price - variable costs.

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

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

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

  • an executive summary
  • a description of the proposed business
  • an industry analysis
  • a mission statement
  • the business' core values
  • a management plan
  • a discussion of goods or services
  • a discussion of the production process
  • a marketing plan (how the business will promote goods or services to the consumer)
  • an outline of global issues
  • a financial plan, and
  • possible appendices.

A market analysis (a comprehensive assessment of market size, trends, competitors, and potential customers to determine business viability) will also need to be conducted, which may include an analysis of the market now and in the future. While the business plan is an excellent tool for internal planning, business owners can also use it to communicate with external stakeholders, such as a potential investor (an individual or entity that provides capital with the expectation of future financial returns), who may review the plan to see if the owner has put enough thought into all aspects of the business.

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2d. Analyze the impact of small businesses on the economy

  • How do small businesses impact the economy?
  • How do small businesses impact consumers?
  • How do small businesses affect business and product innovation?
  • What are some advantages and disadvantages of owning and operating a franchise business?

Business managers use various economic indicators to predict future economic growth. For example, small businesses are vital to the unemployment rate since they employ so many workers. Roughly 46% of the private sector includes small businesses in the United States.

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

Small businesses must also calculate their net profit, which is all earnings after considering expenses. Profitability is another consideration for small businesses; it is the profit they yield after all expenses have been calculated.

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Unit 2 Vocabulary

This vocabulary list includes terms you will need to know to successfully complete the final exam.

Unit 3: Marketing

3a. Identify the major components of the marketing mix

  • What are the four Ps of marketing?
  • What are the main components of each of the four Ps of marketing?
  • Can you name two examples of marketing strategies?

Businesses need to market their product or service to generate revenue. Marketing your product or service to a potential customer involves many more steps and is much more complicated than simple advertising. By understanding the target market, marketers can better focus their marketing efforts.

The 4Ps of marketing include product (what is sold), price (how much the product costs), place (where the product is sold, such as online or in a physical store), and promotion (how the product will be promoted to the target market).

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

  • What is primary and secondary research?
  • What is demographic and psychographic data?
  • What is segmentation as it relates to marketing?
  • Can you name one way a business might use geographic data to market its product or service?

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

A marketer may conduct primary and secondary research to determine a more successful way to market a product. Primary research (original data collected directly by the researcher for a specific purpose) may include a focus group, interviews, or a survey of potential customers. Secondary research includes data that was previously collected by someone else and is available for analysis, such as business reports or government data.

A marketer can focus marketing efforts on the target market by segmenting the market. Segmentation is the process of dividing a broad consumer market into sub-groups based on shared characteristics. It helps to narrow down and specify who may purchase the product. Geographic data includes information about customers' physical locations, such as country, region, city, or postal code; it helps the marketer focus marketing efforts even further. In comparison, psychographics is the study of consumers based on psychological attributes such as personality, values, opinions, attitudes, interests, and lifestyles; psychographic data considers the psychological reasons consumers may buy a product. By conducting research, a business owner may better understand the market where they will sell products or services.

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3c. Describe the marketing concept

  • How does advertising differ from marketing?
  • Does a business have an obligation to protect its customers?
  • What step of the marketing process refers to the responsibility for customer safety?

Marketing involves more than reaching as many people as possible through advertising, which is the paid promotion of products, services, or ideas through various media channels, such as television, radio, print, digital platforms, or outdoor displays. The advertising process begins with finding market opportunities. Marketing to consumers is a relatively old concept, but the ways to market have changed considerably. After a marketer determines the target market, a marketing plan can be developed to help focus marketing efforts.

All business owners must consider CSR and their obligation to consumers. Producing products that may harm consumers can only lead to negative feedback and reviews, which can damage a company. It's important to think about creating products that consumers can safely use. The safer a product, a company may wish to use that safety information in advertising.

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3d. Describe the evolution of marketing

  • What are the four approaches to marketing?
  • Why might a customer buy products that are of lesser quality?
  • What is a selling approach?

The four approaches to marketing include production (how will this product be produced or created?), product, selling, and marketing. Marketing practices have changed since the days of bartering, when someone who created something met and sold it to their customers in the town square. A skilled craftsman was often the only product supplier to a large region. Demand was high, but supply was low. During the Industrial Revolution, manufacturers began incorporating mass production techniques. While societal demand had increased, consumers could buy what they needed from a much larger pool of manufacturers. Demand was still high, but supply was much higher.

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

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3e. Differentiate between the components of a marketing strategy

  • How would you define segmentation?
  • What is an example of a strategy a marketer might use to identify their target market?
  • Can you define the dimensions of segmentation: demographic, geographic, behavioral, and psychographic?
  • What is a SWOT analysis?

A target market is the population most likely to purchase your product or services. The better you define this market, the more focused your marketing efforts may be.

By segmenting your market, you can better define the target market. This segmentation may include demographics, geographic data, behavioral data (data that reflects how consumers interact with products or services, including purchasing habits, brand loyalty, usage frequency, and decision-making patterns), or psychographic information.

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

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

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

  • What are the five stages of the consumer decision-making process?
  • How is the consumer decision-making process different for buying an expensive luxury item vs. a candy bar?
  • How can you analyze purchasing behavior?

When analyzing why consumers buy a product, you may need to consider several issues related to purchasing behavior. These purchasing behaviors may include social functions ( my friends bought a similar dress for the prom, so I need that same designer for my dress), a routine response (I'm out of the product, so I need to repurchase), limited decision making ( I'm on my way to a meeting and need deodorant), or extensive decision making ( I plan to spend two or three months researching my new car purchase).

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

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

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

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

By defining market size (the total population of potential customers) and market share (what percentage of the total market may purchase a product). As you can see, asking these questions will only help develop a solid marketing strategy. Conducting marketing research can help you better understand the market and help you create a better marketing plan.

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

  • What are the four concepts related to customer relationship management (CRM)?
  • What are the benefits of the customer value proposition?
  • What is the customer life cycle?

CRM is integral to any successful business. Many business managers use customer relationship management (CRM) software to keep track of each of their customers, such as to document when someone shows interest in their product, makes a purchase, has not made a purchase in a while, and when they are repeat customers. Online shopping can make it easier for companies to keep track of this information since customers provide their contact information when they visit their website. These contact points describe the customer life cycle: the stages a customer goes through in their relationship with a business, from initial awareness to purchase and potentially ongoing loyalty or eventual disengagement.

The customer value proposition explains the benefits that can be expected from a product or service. This description helps potential customers understand why they should buy a product and what they should expect it to do for them. In addition, consumers can expect a reason the product is needed and what needs or wants it may fulfill.

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3i. Identify the marketing implications of customer relationship management

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

Customer relationship management software may be used by numerous departments at a company. As more information is put into the software, the customer may understand it better. For example, several departments at a college may use the software, including admissions, the registrar, financial aid, and the education department, which may record information about the student's journey throughout a degree or program. Not only does this system assist the college in record keeping, but it also assists the student in seeing what they need to pay and when, what classes they may take next, or even possible degrees they may pursue in the future.

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

  • What are brand and branding as they relate to marketing?
  • Why is purchasing something that has a familiar brand important to some consumers?
  • How does branding help or hinder marketing?
  • How would you describe the product life cycle?

Are you more likely to buy something with a familiar name or brand, or do you prefer a generic brand, such as the name of the pharmacy or grocery store you visit? What is a brand, and how are brands important to marketers and customers?

It is great for a business to have a brand everyone recognizes, but they need to have a product to create that brand. Remember that a product is a good or service a business offers to meet the needs of society. Branding occurs when a company creates a public perception of that brand. A brand is the public perception of a company's products or services.

There are four major categories of product development:

  • New to the market: a business creates a new product that has never been seen in the market before;
  • New to the company: a business decides to produce and sell a product similar to something another business is marketing;
  • Improvement of existing products: a business improves a product they already sell, perhaps due to market research or customer input; and,
  • Extension of product line: a business creates a variation of products it already sells.

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

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

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3k. Use product life cycles to determine marketing strategy

  • During what stage of the product life cycle should businesses focus their marketing efforts?
  • During what stage of the product life cycle should companies focus on branding?
  • What pricing strategies do marketers use during different phases of the product's life cycle?

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

The stages of the product life cycle include development, introduction, growth, maturity, and decline. Businesses should know where their product falls within its life cycle. This position within the product life cycle and technology adoption cycle will help its marketing department determine the best marketing strategy.

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

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3l. Identify the marketing implications of e-business

  • What is the difference between e-commerce and e-business?
  • What are the seven categories of e-business?
  • Why might businesses decide to offer services online?
  • Why might a business use social media to market its goods or services?

Consumers expect to find information about a business and its products, whether the business is completely online or has a physical presence. Companies should understand their e-business (the conduct of business processes on the internet, including buying and selling products, supplies, and services, servicing customers, collaborating with business partners, and managing operations digitally) and e-commerce (specifically the buying and selling of goods and services over the internet) goals to control how customers perceive their online presence. Promoting an e-business can be done through a company website, blog, or even by answering questions on a company's Facebook page.

Today, most businesses also use social media to market their product or services. Social media is a great way for companies to connect with their customers and an easy way to promote products or services. Social media is also an inexpensive way to market a business. For example, at an expo, a business owner may give out free swag to potential consumers if they follow them on their Instagram or Facebook page.

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Unit 3 Vocabulary

This vocabulary list includes terms you will need to know to successfully complete the final exam.

  • 4Ps of marketing
  • advertising
  • behavioral data
  • brand
  • branding
  • customer life cycle
  • customer relationship management (CRM)
  • customer value proposition
  • e-business
  • e-commerce
  • geographic data
  • market share
  • market size
  • place
  • price
  • primary research
  • product
  • product life cycle
  • promotion
  • psychographic data
  • secondary research
  • segmentation
  • SWOT analysis
  • target market

Unit 4: Accounting, Finance, and Banking

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

  • Who are the stakeholders in a business?
  • Why might the stakeholders be different in managerial or financial accounting?
  • What are generally accepted accounting principles (GAAP)?

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

The generally accepted accounting principles (GAAP) are a set of accounting principles that are accepted by people in the industry. These may include issuing quarterly statements, ensuring honesty, using the same accounting reporting methods each year, acting in good faith, etc. When everyone in the industry follows the same set of guidelines, it can be assumed that all these principles are aligned.

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

  • What are assets, cash, accounts receivable, inventory, and fixed assets?
  • Can you give an example of liabilities, debt, and equity?
  • What is the difference between a fiscal and a calendar year?
  • What is the difference between an income statement and a balance sheet?

Business managers prepare two financial statements to present information to their stakeholders: the income statement and the balance sheet. Most accounting principles follow a calendar year, which runs from January to December, while a fiscal year may start in any month of the year. For example, a university fiscal year may run from July through June of the following year.

Assets represent economic value and may generate income. Cash flow is the movement of money in and out of a company. A fixed asset is typically for long-term use; examples may be land or buildings. Debt is money owed. An income statement displays a company's expenses, revenue, and profitability, and a balance sheet includes liabilities, assets, and equity at that point in time. Business managers also need to generate a statement of cash flows, which summarizes a company's operating, investing, and financing activities over some time to show how cash is generated and used. Additionally, they must prepare a statement of owner's equity, which shows changes in the owner's interest in the business, including investments, net income, and withdrawals, over a specific period.

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

  • How would you define profit margin?
  • What is the operating margin?
  • How would you calculate the profit margin?
  • Which financial statement would an analyst review to collect the profit margin?

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

For example, profit margin is the profit a company is left with from revenue after subtracting costs. The return on equity tells an analyst whether management chooses its assets wisely. Financial statements may include a balance sheet, income statement, cash flow statement, or others, and these help demonstrate a company's overall health.

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

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

  • What is a profit margin ratio?
  • How would you determine which category of the three ratios (profit margin, return on equity, and debt-to-equity ratio) would apply in certain circumstances?
  • What is the most common valuation ratio financial analysts use?

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

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

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

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

  • What is the US Federal Reserve, and what are its primary goals?
  • What is an interest rate, and how might that change depending on credit scores?
  • How do banks expand the money supply?
  • What is a credit analysis?

We have many options for investing our money, whether in a savings account, a checking account, a money market account, or under our mattress. Businesses have the same options, but perhaps on a larger scale. There are six types of financial institutions: commercial banks, savings banks, credit unions, finance companies, insurance companies, and brokerage firms.

There are five Cs of credit analysis: capacity, capital, collateral, conditions, and character. These assist a banker in deciding on the worthiness of a potential borrower.

American financial institutions turn to the US Federal Reserve (the Fed) for guidance on making their financial investments. The Federal Reserve sets the discount rate and prime rate (the current interest rates that banks charge customers).

Collateral is anything that may be used to help secure a loan. For example, if a business owns land or a building without a current mortgage, that may be used as collateral for another purchase. If the business defaults on the loan, the bank may take the land or building to pay the loan. Compound interest is the interest earned that is added to the principal balance, which then grows at a faster rate.

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4f. Describe different options for financing

  • What is equity financing?
  • How does the US Stock Market work?
  • What types of assets can a business use for collateral for a loan?
  • Can you think of the types of businesses that would require a seasonal loan?

Businesses often need an influx of capital (money) to help expand their business or cover a temporary deficit in their cash flow. They have two options for getting some extra money into their coffers: equity financing and debt financing. Businesses do not need to repay the money they obtain through equity financing. The business owner may provide the money themselves (from their savings account), or the business could sell shares of ownership in the business to an investor.

Businesses must repay the money they borrow through debt financing. The repayment usually involves a fee (usually in the form of interest). The interest rate is the rate that a bank charges on a loan, and it typically reaches around the prime rate set by the Federal Reserve. The US stock market is a collection of publicly traded American companies, and investors purchase shares in that stock or company.

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

  • What tools might the US Federal Reserve use during a financial crisis?
  • How does the US Federal Reserve use open market operations to control the money supply in the United States?
  • How did the 2008 mortgage crisis affect home buyers?

The US Federal Reserve uses several tools during financial crises to control cash flow, including interest rates, the open market, the prime rate, the discount rate, etc. The US Federal Reserve buys and sells government securities to control the money supply in the United States.

During the recession from 2007 to 2009, the mortgage crisis occurred for several reasons, including a housing bubble and inappropriate lending from banks. Banks approved home buyers for higher loans than they could reasonably afford, and eventually, numerous homeowners were forced to walk away from their homes and high mortgages.

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

  • What role did banks have in the 2008 financial crisis?
  • What role did the housing industry have in the 2008 financial crisis?
  • What role did the US Federal Reserve have in the 2008 financial crisis?

During the 2008 financial crisis, banks provided loans to people who could not afford the payments. Not only did consumers lose during the 2008 financial crisis, but banks also lost a considerable amount of money, and some had to be bailed out by the federal government.

After the 2008 mortgage crisis, there was a decline in interest rates, new home construction, and employment. In those few years after the 2008 mortgage crisis, new home construction was limited, and over time, this created a shortage of new homes being built. The housing market eventually increased, but it took almost a decade in some areas. The US Federal Reserve responded to the 2008 financial crisis by assisting banks and providing liquidity.

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4i. Calculate the time value of money

  • How would you explain compound interest?
  • What formula is used to calculate the future value of money?
  • How much money would you earn if you invested $1,000 in an account that earned five percent for 10 years?

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

Compounded interest means that interest earned is added to the principal balance, and then interest is paid on both. Over time, the compounded interest grows substantially.

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Unit 4 Vocabulary

This vocabulary list includes terms you will need to know to successfully complete the final exam.

  • asset
  • balance sheet
  • cash flow
  • collateral
  • compound interest
  • credit analysis
  • debt
  • debt-to-equity ratio
  • financial statement
  • fiscal year
  • fixed asset
  • generally accepted accounting principles (GAAP)
  • income statement
  • interest rate
  • prime rate
  • profit margin
  • return on equity
  • statement of cash flows
  • statement of owner's equity
  • time value of money
  • US stock market

Unit 5: Management

5a. Define the management process

  • What are the four functions of management?
  • Can you name an example of an action a manager might perform for each of the four management functions?
  • What is the difference between efficiency and effectiveness?
  • How do managers combine efficiency and effectiveness for managerial success?

Most businesses require leaders who can help provide vision and guide the different elements of the business process, such as idea generation, production, accounting, marketing, and customer service, so they fit together to create an efficient system; someone who can see the "big picture". Efficiency is the process of getting things done in your company, while effectiveness is when you do the right things for the company.

The four functions of management are planning, organizing, directing (or leading), and controlling. Planning includes setting objectives for the company and determining how to achieve those objectives. Organizing includes determining resources and how to best utilize those. Directing or leading includes motivating employees to help achieve company goals. Controlling includes monitoring the progress you've made during the planning, organizing, and directing stages, and evaluating the performance of the employees and their performance to help achieve company objectives and goals.

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

  • What is a strategic plan?
  • Why does a company need a mission statement?
  • How do managers establish a positive corporate or organizational culture in their business?
  • How does management contribute to the success or failure of a business?

A strategic plan is an important part of ensuring organizational success. The strategic plan helps management, employees, and shareholders to better understand their role in helping the company achieve its objectives and goals. This document outlines goals, actions, and objectives and may be updated frequently to keep up with company and industry changes.

A mission statement is created by management, showing the company's purpose, goals, and values. The mission statement is often only one or two sentences, but it focuses on how the company wants to grow. Sometimes, employees may be involved in writing the company's mission statement.

Managers and leaders may contribute to the success or failure of a business. If a manager's goals do not align with the overall company goals, then a manager may contribute to the failure of a company. When management and organizational goals are properly aligned, the success of a business is more likely.

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5c. Differentiate between various management styles

  • Why is it important to understand leadership styles?
  • What are some benefits and disadvantages of the autocratic leadership style?
  • When would a laissez-faire leadership style be useful?

We can describe leadership styles as ranging from controlling to hands-off. The most popular leadership styles include autocratic, democratic, and laissez-faire. Each leadership style has strengths and weaknesses that are important to match the job given at a company.

An autocratic leader is extremely useful in a time of chaos. Autocratic leaders are very good at making decisions quickly without others' input. Depending on the situation, this skill can be both a strength and a weakness.

A laissez-faire leader gives quite a bit of freedom to direct reports, and if those direct reports are good at working independently, they may thrive under this type of leadership. However, if a direct report needs quite a bit of guidance or is new to a job, this leadership style may not be the best.

A democratic leader enjoys open communication and includes several people in decision-making. A democratic leader enjoys working and creating a collaborative work environment.

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5d. Explain corporate missions, corporate culture, corporate social responsibility, human resource management, and labor unions

  • Why do businesses try to limit the negative effects of their business operations on their community?
  • How do employees benefit from the labor unions that operate at the companies where they work?
  • Why do some companies discourage labor unions from operating within their businesses?

During the interview process, you should determine a company's corporate mission, corporate culture, and corporate social responsibility to help assess whether the organization aligns with your values and career goals. The corporate mission is the company's overall purpose and reason for existing. It defines what the company stands for and what it aims to achieve. Corporate culture refers to the shared values, beliefs, attitudes, and behaviors that shape how employees interact and work together within the organization. Leadership style often influences this culture and can impact employee morale, collaboration, and the overall work environment. The type of culture and values a company promotes can affect how well leaders and employees collaborate, how the company is structured, and how actively employees engage in socially responsible initiatives.

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

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

In human resource management, managers determine the human resource needs for different parts of the company, recruit and hire people to fill job openings, train employees so they can perform their jobs successfully, compensate employees fairly, perform evaluations, help resolve conflicts, and, at times, let employees go if they are not performing effectively.

Labor unions are organizations formed by workers to collectively negotiate with employers regarding wages, benefits, working conditions, and other workplace policies. Labor unions can benefit employees and employers. For the most part, the role of labor unions has changed as collective bargaining has become more of a collaborative effort between the bargaining unit and management.

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5e. Describe the steps in conducting labor negotiations

  • What are the differences between negotiation, mediation, and arbitration?
  • In labor negotiations, what are boycotts, strikes, lockouts, and strikebreakers?
  • How does the negotiation process between labor and management work?
  • What is collective bargaining?

Negotiation is the process of discussing a situation to resolve a conflict or disagreement. In the workplace, conflict management is an important part of managing employees and maintaining a collaborative work environment. Negotiation helps conflict management by discussing the issues and negotiating a better way to move forward.

Mediation occurs when someone, typically within the company, helps two people to resolve a situation. This mediator does not make the decisions for the people who resolve a conflict, but assists them through the process. Many times, this person may be in human resources.

Arbitration occurs when an outside person listens to both sides of the conflict and decides which side will win. Typically, both parties have previously agreed to whatever verdict the arbitrator makes. There is no opportunity to go back and negotiate after an arbitrator has made a decision.

Collective bargaining is used in contract, group, or union negotiations. This occurs when a large group of people has a collective negotiation. There is some power in collective bargaining in that most people want the same thing, and as a group, they may strike (walk off the job) if they don't get what they want. Union negotiations over salary and benefits are an example of collective bargaining.

A boycott occurs when a population is encouraged not to buy products from a specific company for a reason. For example, recently, Target and Amazon pulled back on diversity, equity, and inclusion (DEI) policies, and a group of consumers asked the public to boycott these retailers for 40 days to show that those DEI policies were important.

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5f. Describe business law concepts that apply to business

  • What is an example of a contract in business?
  • Can you name three sources of contract law?
  • Which form of bankruptcy disbands the business?

Businesses create and enter into contracts with other companies and with individuals to delineate the terms of any financial agreements they have with one another. Three sources of contract law include case law, statutory law, and International Sales Law.

Businesses may fail for several reasons that are within and outside their control. When this happens, business managers must choose a form of bankruptcy to legally disband or restructure their business.

There are three forms of bankruptcy: Chapter 7 is used when a business files for bankruptcy and closes the business completely. Chapter 11 is a business reorganization that allows a company to restructure its finances in a court with a judge who supervises it. Chapter 13 is a personal bankruptcy for a sole proprietor to restructure their debts and propose a payment plan. The court also oversees this process.

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Unit 5 Vocabulary

This vocabulary list includes terms you will need to know to successfully complete the final exam.

  • arbitration
  • autocratic leader
  • bankruptcy
  • boycott
  • Chapter 7
  • Chapter 11
  • Chapter 13
  • collective bargaining
  • contract law
  • corporate culture
  • corporate mission
  • democratic leader
  • four functions of management
  • human resource management
  • labor union
  • laissez-faire leader
  • mediation
  • mission statement
  • negotiation
  • strategic plan
  • strike

Glossary


  • 4Ps of marketing: The four key elements of a marketing strategy that businesses use to meet customer needs and achieve goals: product, price, place, and promotion.

  • asset: Anything of value owned by a business, such as cash, equipment, inventory, or property, that can be used to generate income or provide future economic benefit.

  • balance sheet: A financial statement showing a company's assets, liabilities, and owner's equity at a specific point in time, often summarized by the equation assets = liabilities + owner's equity.

  • brand: The name, design, symbol, or reputation that identifies a product or company and distinguishes it from competitors in the minds of consumers.

  • break-even analysis: A financial calculation that determines the point at which total revenue equals total costs. It shows when a business begins to make a profit.

  • business plan: A written document that outlines a company's goals, strategies, target market, and financial forecasts. It serves as a roadmap for starting and managing a business.

  • cash flow: The movement of money into and out of a business. It shows how much cash is available to meet expenses, repay debt, and invest in growth.

  • consumer price index (CPI): A measure that tracks changes in the average price of a fixed basket of consumer goods and services. It is used to gauge inflation and cost-of-living trends.

  • corporate culture: The shared values, beliefs, and behaviors that shape how employees interact and how the organization conducts business. It is often described as the company's personality.

  • corporate social responsibility (CSR): A business' commitment to act ethically, contribute to economic development, and improve the quality of life of employees, communities, and society at large.

  • corporation: A legally recognized business entity that is separate from its owners. It offers shareholders limited liability and the ability to raise capital through stock.

  • currency exchange rate: The value of one country's currency in terms of another's. It determines how much one currency can be traded for another in global markets.

  • economic indicator: A statistic or measure that provides insight into the state of the economy, such as gross domestic product (GDP), unemployment rates, or retail sales figures.

  • four functions of management: The core activities of management (planning, organizing, leading, and controlling) that guide how a business sets goals, coordinates resources, motivates employees, and evaluates performance.

  • gross domestic product (GDP): The total market value of all finished goods and services produced within a country's borders during a specific time period. GDP is a common measure of overall economic activity and health.

  • human resource management (HRM): The process of recruiting, training, evaluating, compensating, and retaining employees to ensure that an organization's workforce effectively supports its goals.

  • income statement: A financial report summarizing a company's revenues, expenses, and profits over time and showing how well the business performed financially.

  • inflation: The rate at which the general level of prices for goods and services increases over time, thereby reducing the purchasing power of money.

  • interest rate: The percentage charged by a lender for the use of borrowed money, or the percentage paid by a borrower to a lender.

  • liability: A legal or financial obligation that a business or individual is responsible for paying, such as debts or damages.

  • limited liability company (LLC): A business structure that combines the flexibility of a partnership with the tax benefits and limited liability protection of a corporation.

  • market analysis: The process of researching and evaluating a market to understand customer needs, industry trends, competitors, and opportunities for growth.

  • profit margin: A measure of profitability showing what percentage of revenue remains after all expenses are deducted, indicating how efficiently a company turns sales into profit.

  • strategic plan: A long-term roadmap that defines an organization's goals and the necessary actions, resources, and timelines to achieve them.

  • US Federal Reserve: The central bank of the United States that is responsible for setting monetary policy, regulating banks, and maintaining economic stability through tools such as interest rates and managing the money supply.