AQA A-Level Business 7138

Complete Specification — A/A* Master Notes

Current specification: This file follows AQA 7138, first taught from September 2026. It is deliberately not based on the outgoing 7132 course.

A rule:* Business answers must move beyond definition. Every topic should support: knowledge → application → chain of analysis → quantitative evidence where relevant → counterargument → contextual judgement.

Real-world application rule: Examples below are illustrative and dated where helpful. They should be refreshed periodically because business conditions change.

A* BUSINESS THINKING

Chains of Analysis

Weak:

Lower price increases demand.

Better:

A lower price may increase quantity demanded. If demand is price elastic, the percentage rise in quantity demanded will exceed the percentage fall in price, increasing sales revenue. However, the effect on profit depends on contribution per unit and whether the business has enough capacity to satisfy higher demand.

Evaluation

Strong evaluation depends on:

• size of business;
• objectives;
• market conditions;
• time period;
• competitor response;
• stakeholder priorities;
• finance available;
• product lifecycle;
• elasticity;
• capacity;
• external environment.

Useful judgement phrase:

“The most appropriate decision depends less on whether strategy X is theoretically beneficial and more on whether the business has the financial capacity and operational capability to implement it before competitors respond.”

CORE CALCULATIONS

Revenue

[ Revenue = Selling\ Price \times Quantity\ Sold ]

Total Cost

[ TC = Fixed\ Costs + Variable\ Costs ]

Profit

[ Profit = Total\ Revenue - Total\ Costs ]

Contribution per Unit

[ Contribution = Selling\ Price - Variable\ Cost\ per\ Unit ]

Total Contribution

[ Total\ Contribution = Contribution\ per\ Unit \times Output ]

Break-even Output

[ Break-even = \frac{Fixed\ Costs}{Contribution\ per\ Unit} ]

Margin of Safety

[ MOS = Actual/Forecast\ Output - Break-even\ Output ]

Market Share

[ Market\ Share = \frac{Business\ Sales}{Total\ Market\ Sales}\times100 ]

Market Growth

[ Growth\ Rate = \frac{New-Old}{Old}\times100 ]

Labour Productivity

[ Labour\ Productivity = \frac{Output}{Employees} ]

Capacity Utilisation

[ Capacity\ Utilisation = \frac{Actual\ Output}{Maximum\ Possible\ Output}\times100 ]

Labour Turnover

[ Labour\ Turnover = \frac{Employees\ Leaving}{Average\ Employees}\times100 ]

Absenteeism

[ Absenteeism = \frac{Days\ Absent}{Total\ Possible\ Working\ Days}\times100 ]

Gross Profit Margin

[ GPM = \frac{Gross\ Profit}{Revenue}\times100 ]

Operating Profit Margin

[ OPM = \frac{Operating\ Profit}{Revenue}\times100 ]

ROCE

[ ROCE = \frac{Operating\ Profit}{Capital\ Employed}\times100 ]

Current Ratio

[ Current\ Ratio = \frac{Current\ Assets}{Current\ Liabilities} ]

Acid-test Ratio

[ Acid-test = \frac{Current\ Assets-Inventory}{Current\ Liabilities} ]

Payback

Time taken for cumulative cash inflows to recover initial investment.

Average Rate of Return

[ ARR = \frac{Average\ Annual\ Profit}{Initial\ Investment}\times100 ]

Net Present Value

[ NPV = Present\ Value\ of\ Future\ Cash\ Flows - Initial\ Investment ]

Positive NPV suggests financial acceptability, but strategic and risk factors also matter.

1. BUSINESS PURPOSE, OWNERSHIP AND ENTREPRENEURSHIP

Purpose of Business

Businesses may aim to:

• generate profit;
• survive;
• grow;
• increase market share;
• satisfy customers;
• create shareholder value;
• fulfil social/environmental objectives.

A business can have multiple objectives simultaneously.

Real-world example — Patagonia

Patagonia is useful when discussing objectives beyond short-term profit because environmental purpose is deeply embedded in its brand positioning and corporate identity.

Real-world example — Amazon

Amazon illustrates how growth and reinvestment can be prioritised for long periods to build scale, logistics capability and market position rather than maximise short-term distributable profit.

Stakeholders

Internal:

• owners/shareholders;
• managers;
• employees.

External:

• customers;
• suppliers;
• government;
• lenders;
• local communities;
• pressure groups.

Stakeholder Conflict

Examples:

• higher wages benefit employees but increase costs;
• lower prices benefit customers but can reduce margins;
• dividends benefit shareholders but reduce retained profit;
• expansion creates jobs but may affect communities/environment.

A*: Stakeholders differ in power, interest and urgency.

Business Ownership

Sole Trader

Advantages:

• control;
• simple formation;
• keeps profit.

Disadvantages:

• unlimited liability;
• limited finance;
• owner dependence.

Partnership

Advantages:

• pooled capital;
• shared expertise.

Disadvantages:

• disputes;
• shared profits;
• potentially unlimited liability depending structure.

Private Limited Company

Advantages:

• limited liability;
• separate legal identity;
• potentially more finance.

Disadvantages:

• reporting/admin;
• ownership dilution.

Public Limited Company

Advantages:

• access to large equity markets;
• profile.

Disadvantages:

• takeover risk;
• shareholder pressure;
• disclosure.

Franchise

Franchisor provides brand/system; franchisee invests and operates outlet.

Real-world example — McDonald's

McDonald's illustrates franchising because many restaurants are operated by franchisees under a highly standardised brand, operating system and supply chain. It shows how franchising can accelerate growth while reducing the capital the parent company needs to invest in every outlet.

Evaluation: franchising can grow quickly but weak franchisee execution can damage the whole brand.

Entrepreneurship

Entrepreneurs:

• identify opportunity;
• take calculated risk;
• organise resources;
• innovate.

Motives:

• independence;
• profit;
• social purpose;
• solving a problem.

Risk vs Uncertainty

Risk: probabilities can be estimated.

Uncertainty: future outcomes/probabilities are unclear.

A*: good entrepreneurs reduce uncertainty using:

• market research;
• MVP testing;
• cash-flow planning;
• scenario analysis.

2. MARKETING

Market Orientation vs Product Orientation

Market-oriented

Starts with customer needs.

Advantages:

• lower failure risk;
• stronger product-market fit.

Disadvantages:

• customers cannot always articulate future needs.

Product-oriented

Focus on product/technical excellence.

Real-world example — Apple

Apple is a useful example of combining strong product-led innovation with sophisticated customer insight. The lesson is not that Apple “ignores customers”, but that businesses can shape demand rather than merely respond to surveys.

Market Research

Primary

Collected first hand:

• surveys;
• interviews;
• focus groups;
• observation;
• experiments.

Advantages: specific and current.

Disadvantages: expensive/time-consuming.

Secondary

Existing:

• government data;
• industry reports;
• company reports;
• databases.

Advantages: cheap/fast.

Disadvantages: may be outdated or unsuitable.

Sampling

• random;
• quota;
• stratified;
• convenience.

A*: The quality of decisions depends on representativeness, question design and sample size, not just whether research is primary.

Segmentation, Targeting and Positioning

Possible segmentation:

• demographic;
• geographic;
• behavioural;
• psychographic;
• income.

Targeting: choose attractive segment.

Positioning: create a distinctive place in customer perception.

Real-world example — Ryanair

Ryanair is a clear low-cost positioning example: customers primarily attracted by low base fares may accept a less bundled service proposition.

Real-world example — Rolex

Rolex illustrates premium positioning through brand heritage, scarcity cues, distribution control and symbolic value.

Marketing Objectives

Examples:

• market share;
• sales growth;
• awareness;
• customer retention;
• market entry.

Objectives should ideally be:

• specific;
• measurable;
• time-related;
• aligned with strategy.

Price Elasticity of Demand

[ PED = \frac{%\Delta Quantity\ Demanded}{%\Delta Price} ]

Elastic: [ |PED|>1 ]

Inelastic: [ |PED|<1 ]

Implications:

• elastic demand: price reduction can raise revenue;
• inelastic demand: price increase can raise revenue.

But: revenue ≠ profit.

Example — premium smartphones

A strongly differentiated premium smartphone brand may enjoy lower price sensitivity among loyal customers than a commodity-like handset brand.

Income Elasticity of Demand

[ YED=\frac{%\Delta Demand}{%\Delta Income} ]

Positive: normal goods.

Negative: inferior goods.

High positive: luxury/cyclical products.

Example — luxury travel

Demand for premium long-haul holidays can be highly sensitive to disposable income.

Marketing Mix

Product

Consider:

• design;
• quality;
• features;
• brand;
• portfolio;
• lifecycle.

Product Life Cycle

• introduction;
• growth;
• maturity;
• decline.

Extension strategies:

• redesign;
• promotion;
• new markets;
• new use.

Boston Matrix

• Stars;
• Cash Cows;
• Question Marks;
• Dogs.

Use carefully: market share and market growth do not capture every strategic factor.

Price

Strategies:

• cost-plus;
• penetration;
• skimming;
• competitive;
• dynamic;
• promotional.

Real-world example — Uber

Ride-hailing platforms demonstrate dynamic pricing: prices can rise when demand exceeds available supply, creating an incentive for more drivers while rationing demand.

Promotion

• advertising;
• sales promotion;
• sponsorship;
• social media;
• influencer marketing;
• PR.

A*: promotion effectiveness depends on:

• target audience;
• measurability;
• brand fit;
• cost;
• channel.

Place

• direct;
• retailers;
• marketplaces;
• omnichannel.

Real-world example — Nike

Nike's direct-to-consumer channels illustrate how businesses can seek more control over customer data, brand experience and margin, while still using selected retail partners.

Digital Marketing

Advantages:

• targeting;
• data;
• measurable conversion;
• personalisation.

Risks:

• privacy;
• dependence on platforms;
• ad fatigue;
• reputational risk.

3. PEOPLE AND ORGANISATIONAL DESIGN

Workforce Planning

Businesses forecast:

• number of employees;
• skills;
• location;
• timing.

Influenced by:

• technology;
• demand;
• growth;
• labour market.

Recruitment

Internal:

• lower cost;
• motivates staff;
• known candidate.

External:

• wider talent;
• new ideas.

Selection:

• application;
• interview;
• assessment centres;
• tests.

A*: best method depends on job complexity and cost of hiring error.

Training

On-the-job: cheap, relevant; quality depends on trainer.

Off-the-job: specialist, broader; expensive and employee unavailable.

Training can improve:

• productivity;
• quality;
• flexibility;
• retention.

Motivation

Taylor

Financial incentives and task standardisation.

Suitable where output measurable, but can ignore intrinsic motivation.

Mayo

Social interaction and recognition.

Maslow

Hierarchy:

• physiological;
• safety;
• social;
• esteem;
• self-actualisation.

Criticism: needs do not always follow fixed sequence.

Herzberg

Motivators:

• achievement;
• recognition;
• responsibility;
• advancement.

Hygiene:

• pay;
• conditions;
• policy.

Hygiene prevents dissatisfaction; motivators create satisfaction.

Financial Methods

• salary;
• hourly wage;
• piece rate;
• commission;
• bonus;
• profit sharing.

Non-financial

• job enrichment;
• empowerment;
• flexible work;
• recognition;
• career development.

Real-world example — Google

Google is commonly used to illustrate knowledge-worker motivation through autonomy, collaborative culture and attractive employment conditions. The deeper point is that intrinsic motivators can matter greatly where creativity and problem solving drive value.

Leadership

Styles:

• autocratic;
• democratic;
• paternalistic;
• laissez-faire.

Contingency approach: no universally best style.

Factors:

• employee skill;
• time pressure;
• culture;
• nature of task.

Example

A crisis-response operation may require faster, more directive leadership than a research team where innovation requires autonomy.

Organisational Structures

Tall

More layers. Pros: control and promotion hierarchy. Cons: slow communication; high overhead.

Flat

Few layers. Pros: faster communication; empowerment. Cons: wide spans of control.

Matrix

Employees report across functional/project lines.

Pros: cross-functional collaboration. Cons: role conflict.

4. OPERATIONS MANAGEMENT

Operations Objectives

• cost;
• quality;
• speed;
• dependability;
• flexibility.

Trade-offs often exist.

Productivity

[ Labour\ Productivity=\frac{Output}{Employees} ]

Higher productivity can:

• reduce unit labour cost;
• increase capacity;
• raise competitiveness.

But layoffs or work intensification can damage motivation.

Capacity Utilisation

[ CU=\frac{Actual\ Output}{Maximum\ Capacity}\times100 ]

High CU:

• lower fixed cost per unit;
• strong asset use.

Risks:

• no spare capacity;
• maintenance disruption;
• overtime;
• quality problems.

Low CU:

• spare capacity;
• easier demand response; but higher unit fixed costs.

Real-world example — airlines

Airlines care heavily about seat/load utilisation because an unsold seat on a departed flight cannot be stored and sold later.

Lean Production

Principles:

• reduce waste;
• continuous improvement;
• quality at source;
• efficient flow.

Just in Time

Inventory arrives when needed.

Advantages:

• lower inventory holding cost;
• less obsolete stock.

Risks:

• supplier disruption;
• little buffer.

Real-world example — Toyota

Toyota is historically associated with lean production and just-in-time systems, illustrating the efficiency benefits of tightly coordinated supply networks alongside the vulnerability created when supply is disrupted.

Quality

Quality Control

Inspection detects defects.

Quality Assurance

Processes prevent defects.

TQM

Quality culture across organisation.

Benefits:

• less waste;
• repeat purchase;
• reputation.

Costs:

• training;
• process redesign.

Supply Chain

Factors:

• supplier reliability;
• lead times;
• cost;
• ethics;
• resilience;
• geography.

Real-world example — Zara

Zara is often used to illustrate a responsive fashion supply chain where rapid design-to-store cycles help react to changing customer demand.

Technology

Uses:

• robotics;
• AI;
• automation;
• CRM;
• data analytics;
• e-commerce.

Benefits:

• productivity;
• precision;
• personalisation.

Risks:

• capital cost;
• cyber risk;
• redundancy;
• implementation failure.

5. FINANCE

Sources of Finance

Internal:

• retained profit;
• sale of assets.

External:

• bank loan;
• overdraft;
• trade credit;
• leasing;
• share capital;
• venture capital;
• crowdfunding.

Evaluate:

• cost;
• risk;
• control;
• repayment;
• time horizon;
• collateral.

Cash Flow

Profit does not equal cash.

Cash-flow forecast: opening balance + inflows - outflows = closing balance.

Cash-flow problems arise from:

• rapid growth;
• seasonal demand;
• late payment;
• inventory;
• capital spending.

Solutions:

• overdraft;
• negotiate supplier terms;
• chase receivables;
• reduce inventory;
• delay spending.

A* point

A profitable rapidly growing business can fail if working capital cannot support expansion.

Profitability

Gross profit: revenue less cost of sales.

Operating profit: gross profit less operating expenses.

Margins identify:

• pricing power;
• cost control;
• efficiency.

A falling margin is not automatically bad if temporary price reductions or investment are strategically justified.

Liquidity

Current ratio and acid test assess short-term financial position.

Very high liquidity may indicate inefficient use of assets.

Industry matters: supermarkets can operate with low inventory days and rapid cash receipts differently from manufacturers.

Investment Appraisal

Payback

Pros: simple; useful for liquidity/risk.

Cons: ignores post-payback cash flows and time value.

ARR

Pros: percentage return; easy compare.

Cons: uses accounting profit; ignores timing.

NPV

Pros: time value of money; uses cash flows.

Cons: discount rate assumptions; forecasts uncertain.

A* decision: use multiple methods plus strategic fit.

Budgets

Purpose:

• planning;
• coordination;
• control;
• performance targets.

Variance: difference between budget and actual.

Favourable/unfavourable must be interpreted carefully: lower spending may reflect underinvestment, not efficiency.

6. EXTERNAL ENVIRONMENT AND BUSINESS & SOCIETY

PESTLE

Political

• taxation;
• trade policy;
• government stability;
• industrial policy.

Economic

• GDP growth;
• inflation;
• interest rates;
• unemployment;
• exchange rates.

Social

• demographics;
• lifestyles;
• attitudes.

Technological

• AI;
• automation;
• platforms.

Legal

• employment;
• competition;
• consumer;
• data law.

Environmental

• climate risk;
• carbon;
• resource scarcity.

Inflation

Can:

• raise input costs;
• reduce real consumer income;
• increase wage demands.

Businesses with pricing power can pass costs on more easily.

Interest Rates

Higher rates can:

• raise loan costs;
• reduce investment;
• weaken demand for credit-financed purchases;
• strengthen saving incentive.

Highly indebted businesses are more exposed.

Exchange Rates

Sterling appreciation:

• imports cheaper;
• exports less price competitive.

Depreciation:

• imported inputs more expensive;
• exports potentially more competitive.

Effect depends on sourcing and pricing.

Unemployment

High unemployment:

• weaker demand in some markets;
• easier recruitment;
• reduced wage pressure.

Low unemployment:

• stronger consumer spending;
• recruitment difficulty.

Globalisation

Opportunities:

• larger markets;
• lower-cost sourcing;
• economies of scale.

Threats:

• stronger competition;
• supply-chain complexity;
• geopolitical risk.

Real-world example — Starbucks

Starbucks demonstrates international expansion with significant local adaptation in product offerings, store formats and market positioning.

Ethics and CSR

Issues:

• labour standards;
• tax;
• environment;
• sourcing;
• data privacy;
• marketing.

CSR can:

• improve reputation;
• reduce risk;
• attract employees; but may raise short-run costs.

Real-world example — Unilever

Unilever is frequently used to discuss sustainability and large-company attempts to integrate environmental/social goals into brand and supply-chain strategy.

Sustainability

Businesses face:

• emissions;
• waste;
• circular economy;
• energy use;
• biodiversity.

Sustainable investment may raise short-run costs but reduce regulatory, resource and reputational risk.

7. STRATEGY

Strategic Objectives

Possible:

• growth;
• profit;
• market share;
• shareholder return;
• resilience;
• sustainability.

Objectives can change after:

• new leadership;
• recession;
• takeover;
• technological disruption.

SWOT

Strengths/weaknesses: internal.

Opportunities/threats: external.

Weakness: subjective and static.

A*: SWOT is a diagnostic starting point, not a strategy itself.

Ansoff Matrix

Market Penetration

existing product / existing market.

Risk: lowest.

Product Development

new product / existing market.

Market Development

existing product / new market.

Diversification

new product / new market.

Risk: generally highest.

Example — Disney

Disney's expansion across film, theme parks, consumer products and streaming illustrates diversification and the strategic value of exploiting intellectual property across multiple markets.

Porter's Five Forces

• rivalry;
• buyer power;
• supplier power;
• threat of entrants;
• threat of substitutes.

Use to assess industry attractiveness.

Example — supermarkets

UK grocery retail demonstrates:

• strong rivalry;
• powerful customers able to switch;
• major retailer bargaining power over suppliers;
• pressure from discounters.

Competitive Advantage

Cost Leadership

Lowest sustainable cost base.

Example — Aldi

Aldi illustrates a focused low-cost operating model through limited assortment, private-label emphasis, efficient store operations and straightforward merchandising.

Differentiation

Customers perceive unique value.

Example — Apple

Apple illustrates differentiation based on ecosystem, design, brand and integration.

A*: differentiation only works if willingness to pay exceeds extra cost.

Growth

Internal:

• new stores;
• new products;
• capacity.

External:

• mergers;
• acquisitions;
• joint ventures.

Benefits:

• economies of scale;
• market power;
• reach.

Risks:

• diseconomies;
• culture clash;
• debt;
• integration failure.

Economies of Scale

Types:

• purchasing;
• technical;
• managerial;
• financial;
• marketing;
• risk-bearing.

Diseconomies:

• communication;
• coordination;
• motivation;
• bureaucracy.

Decision Trees

Expected value: [ EV = Probability \times Payoff ]

Calculate branch EVs and subtract decision cost.

Limitations:

• probabilities subjective;
• qualitative factors omitted.

Critical Path Analysis

Key concepts:

• activities;
• dependencies;
• earliest start;
• latest finish;
• float;
• critical path.

Total float: [ LFT - Duration - EST ]

Uses:

• scheduling;
• delay identification.

Limitations: activity times uncertain and human/resource issues may change schedule.

Managing Change

Drivers:

• technology;
• competition;
• regulation;
• crisis;
• strategy.

Resistance:

• fear;
• uncertainty;
• loss of status;
• poor communication.

Successful change:

• clear vision;
• communication;
• participation;
• training;
• resources.

Real-world example — Netflix

Netflix is a strong example of strategic change: it evolved from physical DVD rental toward streaming and then substantial original-content production as technology and consumer behaviour changed.

AQA A* EXAM TECHNIQUE

Knowledge

Use precise business terms.

Application

Use data/names/context supplied in case.

Analysis

Create multi-step causal chains.

Evaluation

Evaluate the specific business, not theory in abstract.

Strong judgement structure

1. answer question directly;
2. identify decisive factor;
3. explain why it dominates;
4. identify condition that could change judgement.

Example:

“A price cut is likely to be effective only if demand is sufficiently elastic and the firm's spare capacity prevents the increase in volume from causing significant overtime or quality costs.”

REAL-WORLD EXAMPLE BANK

COMMON LOST MARKS

• revenue confused with profit;
• cash confused with profit;
• price cut automatically said to increase revenue;
• high capacity utilisation always described as good;
• JIT claimed to remove all inventory;
• lower costs automatically mean higher profit without demand assumptions;
• market share confused with market size;
• productivity confused with production;
• motivation theory listed without application;
• NPV selected solely because positive;
• SWOT treated as strategy;
• Ansoff risk treated as fixed regardless capability;
• CSR treated as charity;
• economies of scale described without lower unit cost;
• evaluation written as “it depends” with no condition.