Tesco has been making the headlines over the last few days over the performance of the company and the strategy for the future of the company. This is a company who has a monopoly in its market and it is estimated that £1 in every £7 spend in the UK is in Tesco. Yet despite the rapid expansion and diversification over the past decade, Tesco is now starting to see sales go from growth to decline. This of course is blamed on the economy, changes in consumer social habits and of course the entrance of new entrants to the market such as Aldi, Lidi, Poundland and B&M. 

Retrenchment is a business term for "getting smaller". This is what Tesco are looking to do. This is a strategy that will enable Tesco to cut its costs, something that will enable it to increase the overall profit of the business or enable price cuts on the items they sell, thus enticing more customers into the stores. This is really important for Tesco given the increase competitiveness in their core market.

Tesco if proposing to retrench though;

• Closing 43 unprofitable stores
• Shelving plans to open 49 Tesco Extra stores
• Reduce overheads by 30%
• Close the company staff pension scheme
• £250m of cost cuts planned
• Selling off of Blinkbox and Tesco Broadband / Home Phone to Talk Talk

All of this is a major change from the UK's largest supermarket. It will be interesting to see if this is the end of the retrenchment from Tesco and what will Tesco's rivals do next? Will they set about the same policy? 

One final interesting note. The share price of Tesco actually increased on the news that Tesco was setting about retrenching.

People have talked about cloud computing for many years now, yet I have not been that keen on placing my documents in some space that I have never seen or visited in the past. However this all changed for me this week when I realised that my mobile communication device decided that it wanted to conduct a factory reset and as a result lose all of my images, videos and files that I had stored on it.

Annoying yes, however I only had myself to blame for not backing up the phone. I wrongly assumed this was being done by my phone automatically, clearly this wasn't the case. So I took some advice from my very knowledgeable friend (Chris Ford) and IT expert from Pikemere Web Services, who assured me that the way to prevent this happening in the future would be to get a DropBox account and set it to automatically backup all the images and videos which are taken on my phone. Best of all, DropBox is FREE!

I don't know why I have never been so keen on this form of cloud computing, given the fact that I have used the excellent Google Docs for many years. This is something that all students in our centre have access to and provides some real educational benefits that are provided Free of charge, unlike some of the other alternative options.

So the lesson has well and truly been learned in this bee hive when it comes to ensuring that you backup all files and images that you have on a mobile device. It's also so simple and easy given that DropBox is free and easy to setup on your mobile device. Combine this with Google Docs and you will have a complete personal cloud which should ensure that you will always feel nice and fluffy about having your data safe and secure.

Why not get yourself a personal cloud and keep your files backed up and safe today via this link; https://db.tt/7QtDDilz

You may have heard a lot in the media about deflation in the Eurozone, however what does this actually mean for the economy?

Deflation is the opposite of inflation so is actually when prices fall over time and products become cheaper. This may sound like a really good thing from a consumers point of view as you can buy items today on average, cheaper than they were last year. It is like having a long lasting sale across the whole economy. 

The problem however is that deflation scares people as much as high levels of inflation. People start to fear that this can not continue to happen and if it does then businesses will need to start reducing costs. The main cost for most businesses is wages, so redundancies are feared by some, causing them to start saving and not spending. This is why deflation is seen as bad, it is effectively proof of declining living standards, especially if you start to get deflation of wages. There is some proof of this in the Eurozone with countries like Greece and Spain having unemployment rates of around 25%.

Of course all this deflation at the moment is being blamed on the reduction in the cost of oil and falling energy costs. This could be a good thing if the additional disposable income is actually spent in the economy by consumers. There is some evidence this is the case in the UK as consumer confidence is much higher than the Eurozone and rather than deflation, we have inflation at around 1%. The Bank of England and the European Central Bank have targets for inflation of 2%.

The European Central Bank to try and encourage consumers to spend and to help get consumers spending is being encouraged to print more money. The technical term for this is known as quantitative easing (QE), however some investors are not so keen on this approach as this devalues a currency something that is not good for importers, however benefits exporters.

You know the market that a business operates in is going wrong when suppliers of a product or service have more power than the customer of the product.

You naturally would expect it to work the opposite way around with suppliers looking to sell their products / services to customers at any given chance. Typically this could lead to bartering over the price to secure the sale and custom.

However the news is littered with fairly modern examples of this not being the case. The first example I remember was that of Heinz and Tesco, in which Tesco were demanding a reduction in the unit cost of each item and Heinz was reluctant to give them this. The end result was Heinz not being sold in Tesco for a short period of time, until the supplier (Heinz) came back to the table and came somewhere close to Tesco’s demands.

Supplier power was also blamed for the demise of Phones4U. The mobile network of O2 and Three withdrew from selling their phones though the company, leaving them dependent on the deals they had with EE and Vodafone. Once both of these networks decided they did not wish to supply Phones4U, effectively that was the end of their business model. This of course also enabled the larger mobile phone companies to remove a competitor from the market as well.

Clearly all of this links in with the topic of Porters 5 Forces. I have a video tutorial on this via my YouTube Channel which you may find useful in trying to apply to the short situations that have been covered above.

One of the common questions that I get asked about on numerous occasions tends to be around what actually causes the price of petrol to increase or decrease in price?

It's a fair question and the first part of the answer is to always link it back to the cost of the commodity that is used as the raw material to produce petrol; the cost of a barrel of oil. So now we need to look at this in more detail and what are the factors that cause the cost of a barrel of oil to increase or decrease in price?

The most obvious answer and the one that all economists like to use is SUPPLY and DEMAND. What this effectively means is how much oil is actually being pumped from the ground and offered for sale, whilst also how many people are actually wanting to buy those barrels of oil that are sitting there waiting for a buyer. In an ideal world you want to have enough supply to meet demand as this will always keep the price constant, however this is business and oil is a great commodity which can make a country rich.

If a country was to cut the supply of oil, eg; pump less oil out of the ground, so have less barrels of oil to sell - what would you expect to happen to the price of each barrel of oil if the level of demand was to stay the same? The price should increase, because you have more customers wanting to buy and less items on the shelve for them to buy. This means that the shop (oil producing countries) can increase the price of each barrel as if the customer really wants that barrel of oil, they will pay more for it.

This is a tactic that is used by many businesses, as cutting supply of your product or just controlling the supply of your product is a great tactic in being able to increase the selling price (sales revenue) and the gross profit margin that you make on each item you sell. This however only works when demand is higher than supply and tends to work in markets where the customer has no "substitute" items to choose from. A substitute in terms of business means an alternative item that the customer could choose, eg; Pepsi is a substitute for Coke Cola

The level of demand also has an impact on the price that we pay for a product or service. If there is an increase in the number of people trying to get their hands on the product or service, then unless supply increases you again get the situation where you have more customers wanting to get their hands on something that does not have enough supply to meet demand. This means that if a customer really wants it, then they will have to be willing to pay more to get their hands on it. In a business sense demand can be increased through the use of marketing, just like Apple does when it creates hype at the launch of their new iPhone. However demand for oil tends to increase when economies are growing, as consumers have more money to spend on items that are produced using this commodity as a raw material, whilst businesses start increasing economic output which tends to see an increase in the use of energy.

One of the resources that I have made and could be useful to share with the students that you teach could be my BeeBusinessBee Business Cards. These are as simple as they sound. Just print them off, cut them out and hand to your students as an easy access resource to free business studies resources.

You could even get creative and put them on a sticky label, which could be stuck on to the front of the books / folders of your students. It’s all about sharing the enjoyment of business.

Click Here to Download.

Have you ever wondered why economists are always talking about the price of oil? What effect does the price of oil have on the economy? Hopefully by the end of this short article both of these questions will be answered.

Oil is known as a commodity (primary sector product) in the world of economics and sold by the barrel in the currency of $. This means that factors such as exchange rates actually play a part in the price we pay for a barrel of oil in the UK.

The price of oil is viewed with such importance economically because of dependency the production of many products have on this commodity. For example we all typically think about oil as impacting on the price of petrol, however oil is used in the production of plastic, something that nearly all of the items we purchase today will be made of. Oil is also used as a form of fuel for heating and power generation, so a change in price here could impact the overheads that a business has to pay.

 Typically the cost of oil will impact;

• Transportation Costs

• Direct Costs

• Indirect Costs

• Consumer Disposable Income Levels

So if the price of oil was to increase by just a few $ per barrel then the knock on effect to businesses and the economy could be huge. All of a sudden a business could be faced with;

• Increased Transportation Costs

• Increased Direct Costs

• Increased Indirect Costs

• Reduced Consumer Disposable Income Levels

The business then needs to decide how does it tackle the issue of these increasing costs? Typically it has two options; either increase the selling price to generate increased revenue or absorb this increase in costs themselves and reduce their profitability.

Both options have their advantages and drawbacks. For example increasing the selling price could mean that your customers start to look elsewhere to make a purchase, thus reducing your sales. Also at a time when consumers have less money to spend increasing the price of a product / service is unlikely to be the best way to tempt them to spend. However, if the business was to absorb the increase in costs then in the long term this could cause issues with any shareholders as this would be reducing the profit figure the organisation makes.

So hopefully as you can see that black liquid pumped from the ground actually has a fairly large impact on how an economy will perform. In a future article I will look at the factors that actually cause the price of oil to change.

It's getting closer to the end of term and business teachers are probably looking for that slighty different educational activitiy that engages the learner but also gives them the chance to apply and use their subject knowledge. This is a great activity for your students to use at any time of the year to develop their business skills.

This is a problem that I have solved by the use of the business simulation activity Open Transport Tycoon Delux (OpenTTD). This is a business simulation activity which encourages the learner to set up a virtual transport company and compete against the computer, or fellow students to return a profit. This simulation takes into account changes in the economy, interest rates and the impact that competitors have on a business organisation. This game really tests strategic decsion making skills and the notion of investing to achieve reward.

The simulation can be a challenge to learn at first, however once mastered it is a very enjoyable activity. 

You can download the latest copy of OpenTTD for your computer from here.

You can also view some of our simple quick start OpenTTD tutorial videos on my YouTube Channel.