Different types of technology used by business
The specification names four types, and it is worth being precise about what each one is, because questions often ask about a specific one.
How technology influences business activity
The specification asks for the influence on three things: sales, costs and the marketing mix.
Sales. Technology tends to increase them. E-commerce opens a national or global market instead of a local one, and the shop is never shut. Social media reaches customers who would never have heard of the business. Fast, easy payment systems reduce the number of people who abandon a purchase. Customer data allows recommendations that lead to more sales per customer.
But it can also reduce sales: online, a business competes with everyone rather than the shops nearby, and customers can compare prices in seconds.
The marketing mix. Technology changes all four elements, and this links directly to 1.4.3:
• Product — digital products and services become possible, and existing products gain online features. • Price — customers compare instantly, which pushes prices down; but prices can also be changed quickly and varied by customer or time of day. • Promotion — targeted online advertising, social media and email replace much traditional promotion, more cheaply and with a measurable response. • Place — e-commerce means the product reaches the customer directly rather than through a shop.
Worked example
A small independent clothes shop is considering launching an online store. Analyse the likely impact on its sales and costs.
- Sales: the market expands from people who walk past to anyone in the country, and the shop can sell outside opening hours — so sales should rise.
- But add the counterweight: online it competes with large national retailers rather than nearby shops, and those rivals can undercut it.
- Costs, downwards: it can promote through social media far more cheaply than local advertising.
- Costs, upwards: building and maintaining the site, payment fees on each order, and packing and delivery — costs it does not currently have.
- Reach a judgement that names the deciding factor.
Answer: Sales should rise because the market is no longer limited to passing trade, and social media promotion is cheap. But set-up costs, payment fees and delivery are new costs, and online it faces national competitors able to undercut it. Whether it gains depends on whether the extra sales outweigh those costs — which is more likely if it sells something distinctive rather than clothes available everywhere.
Common mistake
Technology does not automatically reduce costs. It usually lowers running costs but raises set-up costs, and for a small business the up-front spending can be the bigger problem — say which kind of cost you mean.
- Digital communication
- communicating with customers through websites, email and social media, which reaches people who would never have heard of the business
- Payment system
- the method by which a customer pays; fast, easy systems reduce the number of people who abandon a purchase
Before you practise
- The four types: e-commerce, social media, digital communication, payment systems.
- Technology usually increases sales by widening the market and keeping the business open all hours.
- But it also exposes the business to national competition and instant price comparison.
- Running costs generally fall — premises, promotion, staff, communication.
- Set-up costs rise — websites, systems, training, payment fees, delivery.
- Technology changes all four elements of the marketing mix.
- Say which kind of cost you mean: set-up or running.