MEE 523-Entrepreneurial Study

8/6/2019 MEE 523-Entrepreneurial Study

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INTRODUCTION:

An entrepreneur is considered a human agent who mobilizes capital, exploit naturalresources creates market potentials and runs a business. The potential entrepreneur will

need to combine talent, ability and drive to transform resources and opportunities into

profitable undertakings. Since the contention that entrepreneurs are not made, it is also a

fact that they are not born either hence efforts can be made to orient, motivate and get

them attracted to start a business enterprise.

Today, the public and large-scale enterprises sectors are not able to create new

employment and have reached their limit in many countries, it is clear that most future jobs will be created in small-scale enterprises. Numerous youth going into businesses of

their own are confronted with numerous difficulties due to the lack the basic

entrepreneurial education and know-how.

The objective of the MEE 523 is as follows:

- To instil in the students the sufficient self-confidence and knowledge to become

job creators rather than job-seekers

- To transform participants into an enterprising individuals who will readily

contribute their quota to improve any system they are part of rather than salary -

drawer.

- To instill sufficient financial literacy in individual to enable them take firm control

of their finances.


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Problem S olving Cyc le

Clearunderstanding

of problem

Definition of objectives

Elaboration of strategies

Allocation of resources

Action

Failure Success

Evaluation

Informationseeking

Creativity

Contact withproblem


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2. Goal S etting

G oals should be smart:

S pecific

M easurable

A mbitious

R ealistic

T ime bound

Goal Ach ievement : example of obsta c les Goal: To arrive for the training course at 9 oclock.

Strategy: Take the 8:40 bus at the .... bus station.Obstacle (Monday morning):

Its 8:20! The damned clock didnt ring!

Motivation: If I dont hurry up, Ill have to pay the fine.

Priorities: I have to go out without having breakfast.

Obstacle: Brrr! Bus strike!

Alternative: Ill take a taxi.

Additional information:

Everybody is trying to take a taxi!

Resources: Oh, G od! I forgot the money at home!

Motivation: Ok, I cant arrive in time. What can I do?

Goal conflict: I can go to the hairdresser. I need it.

Priorities: No! At all cost I'll go to the training course even if I have towalk!


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H andout

GOAL SETTING

A. Modes of Formulating G oals

1. D oing - activities considered importantI want to do... or I will work on...

2. Owning - possession of somethingI want to own... or I want to have...

Note : Owning is very often just a means to reach certain goals like, to own a car can be a means to transport something, to be mobi le or to represent a certainstatus.

3. Changing oneself setting personal standards in position, expertise, status.I want to become...

B. G oal Setting Process

1. Describe long and short-term goals!

2. Relate to what you want to achieve in life!

3. Action plan is outlined including activities, responsibilities and time frame.4. Performance standards, measurement criteria are defined!

5. Consider environmental and personal obstacles!

6. Identify resources!

S spe c ificM measurable A ambitious R realisti cT time-bound


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C. Classificati on of Goals

1. Career satisfaction , work, profession.

2. Family , home.

3. Social , interpersonal relations outside home (cultural, social, political, professionalassociations, etc.).

4. Hobbies , leisure and recreation.

5. Personal development , achievement of highest degree in any field.

6. Religion .

The exercise could be transferred to Appendix.

Goal Setti ng Exe r cise

After having read the goal setting definitions, now make up your mind about your short,medium and long-term goals!

A. Wh at I want to a ch ieve in ...

- one year ?

- five years ?

- ten years ?

G oals must be specific, measurable, ambitious, realistic and time bound, in one word:

S M A R T

Lets start with your short-term goal to be achieved in one year :

Turn over to the next page!


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B . Sh ort- Term G oal (one year)

Mention here again (from page 1):

1 . H o w w ill th is goal c ontribute to wh at you w ant to a ch ieve in life?

2. H o w w ill you a ch ieve your goal?

Ac tivities Resour c es Required Time Frame

3 . H o w w ill you measure or monitor your progress? Specify standards of performance and measurement criteria!

4 . Wh at problems/obsta c les do you anti c ipate?

Personal Environmental


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C . Medium- Term Goal (five years)






4 . Wh at problems/blo ck s do you anti c ipate?


D. Long- Term Goal (ten years)



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4 . Wh at problems/obsta c les do you anti c ipate?


4 .

P ERSONAL ENTRE P RENEURIAL C H ARACTERISTICS ( P ECS )


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rs l Q liti s f r

cc ssf l si ss lextroversion

ambiguity tolerancelocus of self-control

learning from failures persistence

responsibility acceptancemoderate risk taking

decision makingself confidence

creativityopportunity seeking

information seeking


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1 . Creativit y

Creativity means bringing into existence an idea th at is ne w to you. Innovation is thepractical application of creative ideas. Creative thinking is an innate talent that one is bornwith and a set of skills that can be learned.

The main features of creative thinking which can be trained are:1. Thinking simple : Dont look for complicate solutions and dont be ashamed tothink simple. The most important inventions of making are simple, like e.g. thewheel.

2. Thinking be yond th e borders : Our thinking constantly is limited by our habits,Education, Knowledge, Experience and Culture. Creativity only is possible whengoing beyond these limitations.

3. Openness for impossibilities / Craziness : Often our thinking doesnt go further,because we think that something is impossible. Creative thinking means to openour mind for things which are at the first glance impossible. Ideas coming outthereby may be understood as crazy.

4. Persisten c e in situations where the first thought is impossible or, after sometime of creative thinking thats it. The real innovative area only starts after havingdeveloped the typical ideas, those that are easy to catch. Uniqueness is one of the key success factors for people and systems and having just the same ideasthat anyone could have is not unique.

Enabling Creativity Killing Creativity

S tarting point :

a creativity is not only innate - it can be acquired and traineda creativity requires enabling environment and processes - so it can be supporteda the level of creativity is different between cultures, persons, and over the history, - so

varying factors influence it

Various different abilities and s k ills are enabling creativity and define the level of creativity that a person can achieve:

divergent thinking: one is not satisfied just byone solution

unconventional thinking: one is not afraid of really new ideasthoughts mobility: the wealth of ideas and theeasiness to create

originality: ability to develop something unique

opportunity awareness: ability to see potential rather without implicitly thinking

elaboration: skill to work out ideas, finish them


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rich vocabulary: skill to have wide choices of andprecision in expression

power of concentration: ability to address full mentalcapacity to only one task

re-definition: ability for abstract thinking,including analytical thinking

Our brain is divided . To obtain better results in creative thinking, one should be aware,that the brain consists of two hemispheres:

Left right

straight sequential targeted logical detailed organised

linked simultaneous systemic intuitive holistic visual

Most of revolutionary new ideas are born is the right hemisphere. Hence, appreciating andemphasizing activities with right characteristics helps to increase spontaneous creativity.But:

only the combination between left and right leads to viable solutions, in particular in business;

there are structured ways of creating innovative ideas, based on left methods (e.g.Morphologic Box and Progressive Abstraction);


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the creative process basically involves 4 steps, involving both sides:

C reative Pro c ess

1 . Preparation

leftraising problem awarenesssituation analysis andcomprehension

2. In c ubation

rightrelaxing, distractionunconscious processing

3 . Inspiration

rightsudden idea generationintuitive way-out

4 . Verifi c ation

leftexamination of ideasscreening, filtering, prioritisinglater: evaluation

In most enterprises theculture focuses on the 1 st and 4 th step. Steps 2 and 3are not supported, andregarded as childish,unprofessional, waste of timeand money.Studies reveal that mostinnovative ideas are notcreated within the business

itself

Whe r e Innova tive Id e as a r e e n e r a te d

w it i c%

si ssr s

%

ri l%

i t r %

t rs tsi%


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The la ck of innovative c ulture could be assessed by observing, if the followingsentences are rather often be found or not:Killer p h rases of unnovative c ulture

this it not new at all

why shall we do it like this, we have always done it the other way

this cannot work

we have no resources for something like that

to do this we would have to change everything

you are not in charge for such ideas

as specialist I must tell you

no one has done it before like this, so it probably wont work

if you dont like it like this why dont you go

Unnovative culture can be caused by blo ck ages :

so c ial blo ck age ps ych ologi c al blo ck age

too many committeestoo much routine workbureaucratic rigidityrivalrieslack of appreciationtraditions and taboostoo demanding targets

striving for the absolutely trueand besttendency towards usualprocedureinhibition to speak

disappointment and resignationeasy personal satisfactionlack of self confidence

3M, a company known by creative culture and demanding management has set thefollowing support mechanisms:a 15 % rule : every employee can address up to 15 of the time to a project of his/her

choice;a 2 5 % rule : each business area must make > 25 of turnover with products that are

not older than 5 years;a genesis grants : risk venture capital funds of up to 40.000 US$ for checking out

ideas and prototypes;a s h are h olding : since 1937 employees are participating in companies profit making.

R ules for Creativit y and B rainstorm Processing and G eneralizing


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1 . Features of Creative Ideas

a. simple

b. beyond limits

c. associative

d. surprising2. Ch ara c ter of C reative Environment

a. motivating

b. stimulating

c. challenging

d. full of light

e. without external disturbance

3 . Ch ara c ter of Creative Person

a. courageousb. open

c. open-minded

d. persistent

e. crazy

f. perceptive

g. self-confident

h. curious

4 . Rules for Creative Wor k

a. do not yet evaluate

b. every idea is welcomed

c. avoid repetitions

d. affirm good ideas


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Ma c ro and Mic ro Sc reening

Funnel model

Brainstorming

Macro Screen

Micro Screen

Suggested Idea

100 500 ideas

5 ideas

1 idea

Furt h er Pro c essing :risk analysisSWOTbusiness plan

loo s back to Micro-Screen if needed


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Definitions of th e parameters applied in Mic ros c reening

S olvent demand

If there is no assurance of an adequate market, there is no sense going to business. Themarket must be large enough to enable the entrepreneur to capture a substantial market

share and in the process, make an attractive profit from the transaction after deducting hiscosts from sales. Indication of availability of arket includes, among others:

a) existing demand is presently not served at all;b) existing demand is not at present adequately ser ved by existing suppliers;c) existing demand is presently served by imports;d) the product has significant uniqueness or unique selling features;e) supply of similar products/services is not reliable;f) demand for the product/service is expected to inc rease significantly or substantially in

the future;g) supply of the product is presently served through smuggling.

Availabilit y of qualified personnel

Availability of qualified personnel can be gauged by the following factors:

a) different skills (conceptual, managerial, technical and manual) needed by the projectare available;

b) supply of skills is relatively steady and stable so as not to jeopardise the project incase of sudden or unforeseen labour changes, unusual turnover, or unexpectedproblems;

c) cost of labour is projected to be fairly steady and predictable.Availabilit y of te ch nolog y / equipment

Availability of technology can be evaluated in terms of the following indicators:

a) the technology or technologies to be used have been proven;b) reasonably priced technologies are available to produce the product;c) technology is appropriate for the level of production, level of investment and

desired product quality;

d) the project will not suffer from technology obsolescence which will render the projectnot viable;

e) nearness of sales centres for the required machinery / equipment;

f) seasonal availability of the required M/C.Availabilit y of ra w material

Availability of raw materials is indicated by the following considerations:a) raw materials are available in adequate quantity locally;b) there is reliability of supply - whether local or imported source;c) seasonal availability; perishability, quality and variability of raw materials have been

considered and found to be satisfactory;d) price of raw materials is reasonable;e) increase in the price of raw materials in the future is perceived to be reasonable and

predictable;


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C ompetitors (ATTENTION! D educt score from total!)

More there are competitors offering the same kind of goods or services , less likely is thesurvival of the entrepreneur planning to go into the respective business. Thats why thescore obtained (5 for many competitors, 0 for none) is to be deducted from the totalobtained so far. Based on this, the participants can calculat e their corrected total.

C riti c al S u cc ess Fa c tor

After the above mentioned parameters have been evaluated and rated, the participant goesinto a finer cross-checking of the key variables affecting the success or failure of the projectidea. This is called the Critical Success Factor (CSF). CSF means a certain factor particular to the identified project which is very important for the success of that specific project. If thatcertain factor is missing, is inadequate, or is not properly taken into account, it can indicatethat the project may not be feasible in the long run.

A project's CSF can be anyone of the parameters above. However, it must be further refinedor qualified. For example, not just raw materials, but seasonal availability of raw materials,

perishability of raw materials, lack of standardisation of raw materials, unpredictability of availability of supply (perhaps due to import restrictions, infrastructure problem, weather condition, etc.). In other circumstances, prevalence of peace, the goo d maintenance of highocean (lake) water quality or the availability of petrol (diesel) throughout the year might bedecisive for the success of tourism projects. If absent, the project is bound to die very soon.


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Parameters

ALTERNATIVE IDEAS

S olvent demand

Availabilit y of qualified personnel

Availabilit y of te ch nolog y / equipment

Availabilit y of ra wmaterial

( + ) ( + ) ( + ) ( + )

Weig h t


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SWOT

SWOT A nal ysis is a technique to identify Strengths, Weaknesses, Opportunities andThreats of enterprises. The overall objective of the SWOT analysis is to assess a project or

product with regard to the above mentioned factors whereby internal and external factors areconsidered.

The SWOT technique can be applied to the functional areas of an enterprise as well as toproducts and services. Do not confuse strengths with opportunities and weaknesses withthreats. First of all, list out all the points in subsequent heading s, i.e. strengths,weaknesses, etc... for finance, marketing, production, and make a separate analysis of every point that is mentioned. Your analysis should reflect the steps the entrepreneur should take to enhance strengths, eliminate weaknesses while ta king advantage of opportunities and hedging on the threats. For the purpose of product development, pointsmentioned under strengths and weaknesses should provide ample guidelines for theentrepreneur to evaluate or decide what changes should be made on th e selectedproduct.

COM P ONENTS OF SWOT ANALYSIS

S trengt h s

What are the strengths of the business at the present moment? This should be thoroughlyanalysed, for example :

- Cheap raw materials- Adequate supply of working capital- Technical expertise of the owners/workers, etc...

For the purpose of product identification/development, the strengths of the proposed productcould be identified along the following lines :

- Cheap raw materials- Locally available raw materials- Technical expertise of the owner - G ood packaging- Comparatively cheap price- Locally available spare parts- New improvements of the products

Strengths should be en han c ed .

Wea knesses

Weaknesses are generally the set of problems which the business is facing at present or from the time the business was established. Examples of weaknesses are:

- No control over stock- Inexperienced managers/owners- Poor management control- Mismanagement of working capital


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Weaknesses should be eliminated as far as possible. Weaknesses associated with productidentification/development could be :

- Poor design- Inappropriate size- No promotion- No technical expertise of the owner - High price- Low levels of stock at the time of peak sales

Opportunities

Opportunities for a small business in terms of product identification/development are thosechances that are stored-up in the coming future and can be used to maximise the businessadvantage. For example :

- No comparable products on the market- New products being developed.- Plant capacity increasing next year - G rowing demand for similar products- Favourable government policy- Similar products making profit- Scarcity of the product in the locality

Opportunities are different from strengths in as much as strengths are positive factors whichthe small business has at the moment, while opportunities indicate the possibility of advantages which the business can ma ke use of in the coming future.

Th reats

Threats are normally beyond the control of the business but influence its success or failure.Examples of threats are :

- Rising costs- G overnment legislation expected to go unfavourable- Industrial relations troubles, etc.- Sometimes, raw materials shortages- Too many competitors

The purpose of analysing threats is to look for ways of hedging against such threats.G enerally, you should cover the following aspects while making a SWOT analysis for aenterprise/product :

MAR KETING MIX AND MAR KETING STRATEGY

The marketing mix is the integrated approach towards Marketing. The Marketing Strategyhas the task to ensure the achievement of the business sales target (x share of themarket for the products / services a, b, c within y time). The elements of the marketing


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mix, as instrument of the marketing strategy must be necessary and sufficient to achievethe targets. Nevertheless

1 . P RODUCT / program (refers to both, products and services)

1.1. program policy1.1.1. width (how many and which product / service lines)1.1.2. depth (what within a product line is offered)

1.2. product strategy1.2.1. product design1.2.2. branding1.2.3. packaging1.2.4. additional services

2. P RICE

2.1. price policy2.1.1. competition by pricing2.1.2. specific price segment targeting2.1.3. market

2.2. price decision based on2.2.1. demand2.2.2. costs2.2.3. competitors

2.3. price conditions2.3.1. discounts2.3.2. payment targets


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3 . P LACE

3.1. location3.1.1. access to and for the target market3.1.2. strategic position in the market and with competitors

3.2. infra-structure3.2.1. premises3.2.2. supplies3.2.3. transport and communication

3.3. distribution3.3.1. channels

3.3.1.1. direct3.3.1.2. indirect

3.3.2. target3.3.2.1. intensive3.3.2.2. exclusive3.3.2.3. selective

4 . P ROMOTION

4.1. public relations

4.2. advertisement4.2.1. methods4.2.2. tools

4.3. incentives4.3.1. events4.3.2. promotion

5 . P ERSON / P ERSONNEL

5.1. capacity5.1.1. different levels5.1.2. different tasks

5.2. quality5.2.1. selection qualification

MAR KETING

Marketing is an important operating arm of a business enterprise. Its activities begin evenbefore the product or service is produced and continue after the sale is made. This paper willprovide an overview of the marketing function. Starting with basic de finitions of marketingand market and discussing marketing functions and the role of marketing in the economy,the paper proceeds to cover the development of marketing strategy, consumer behaviour


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and marketing research, and concludes with a treatment of t he marketing decision areas -product, price, distribution and promotion.

Marketing is as old as history itself. It embraces the activities we engage in to satisfy our economic needs and wants.The central idea in marketing is the transaction, which is th e excha ng e of desired objects bytwo parties. Such exchange could be product for product (as in trade by barter), or productfor money in its various forms. For marketing or exchange to take place, it is necessary thatthere be:

1. two or more parties who have unsatisfied wants;2. some products or services and money to exchange; and3. some means of communication between the parties involved. We now give a

definition of marketing.

Marketing is the set of activities that facilitates exchange transactions involving economicgoods and services for the ultimate purpose of satisfying human needs. What activities areimplied in the above definition? They are many, but will be discussed under 'marketingfunctions'.

Market as product buyers

A market for a product or service consists of individuals or organisations that havepurchasing power and that are current or potential buyers of the product or service.

We should note three things about this definition.

1. A market could be ordinary people purchasing their needs or it could be organisationssuch as business firms, non-profit institutions such as schools and hospitals, or thegovernment - federal, state or local.

2. To be included in the market for a product an entity must have purchasing power, thatis money in its various forms - cash, cheque, credit.

3. Current buyers and potential buyers are included in defining a market. Thus, for aproduct being newly introduced in an area, the market consists entirely of potentialbuyers. A major challenge to marketing is to convert potential buyers to actual buyers;in short to c r eate a cust om e r .

A third meaning of market is the verb sense, that is 'to market a product'. It suggests theperformance of activities needed to bring an existing product to buyers, a m eaning clearlyrelated to the meaning of marketing. We now take up a discussion of these activities or

marketing functions.

Marketing functions

Within any business organisation, the marketing arm of the company fulfils some importantfunctions which are activities that must be performed to move products from producers toconsumers. From the literature ten such activities may be identified as follows.

1 . P rod uct d evel opm e nt Marketing advises on what to produce; the quality, style,design, brand name and packaging - all based on consumer and market research.


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2 . P r ici ng Marketing plays a large role in setting prices, whether at, above or below thecompetitor's prices, and in determining a system of discounts for the middlemen whohandle the product.

3. Buyi ng This involves selecting from an assortment of goods, deter mining quantity andquality, selecting sources of supply and negotiating the terms of purchase. (This issometimes called purchasing or procurement.)

4. A d ve r tisi ng is the impersonal presentation of goods through the mass media - radio,television, newspapers, etc. Advertising agencies may assist marketing inperforming this function.

5 . Pe r son al selli ng This is selling done through person -to-person contact. A largenumber of salesmen are engaged in outside sales work or in retail sales in shops andmarket-places. The sales force must be properly selected, trained and motivated toperform.

6. Sales promo ti on and me r cha nd isi ng This involves the development of such tools aspoint-of-purchase displays, window displays, free samples of the product, exhibitionsat trade fairs, news releases, price reductions during special 'sales' and so forth.

7. Physical d ist r ibuti on Marketing arranges for the physical handling of goods: storage,transportation and proper inventory management.

8. Ma rk et r esea r ch Marketing must gather and analyse information about demand,consumer wants, competition, government policies, new products and generalchanges in our social structure. This function underscores the fact that marketingbegins even before the product is produced.

9. C r ed it ma nag e ment a nd fi na nci ng Credit is often used in serious businesstransactions where firms buy and sell on credit. In addition, various types of financingprovide permanent as well as temporary capital for the marketing process.

10 . P ost-sale t r a nsacti on s Marketing must arrange to handle customer complaints after the sale, and provide for after -sales service, especially for machines, equipment andconsumer durable goods. This shows that marketing does not end with the ringing of the cash register.

Having looked at marketing as one operational arm of a business organisation, we nowconsider the place or role of marketing in the wider economy.

We shall discuss the value added by marketing and outline how marketing helps to developthe economy.

V alue added by marketing

This concept is similar to the more familiar concept of value added by manufacturing. Itmeasures the monetary value of the purely marketing activities that occur from the pointwhen the product is produced to the time of purchase by the ultimate user. Pro duction in

agriculture and manufacturing or processing creates f orm utility, that is the tangible productpurchased by buyers. Marketing adds value to the product by creating three kinds of utilities.

1. Ti me utility that is reflected in the storage of the product immediately after productionand during distribution until a more convenient time when it is demanded or purchased.

2. Place utility that is reflected in the transportation of the product from the point of production to the place where the final buyers are located.

3. P ossessi on utility that is reflected in the transfer of title and in providing informationabout the product so that the buyer may use or enjoy it to the best advantage.


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Using the definition of value added as the gross value of out puts minus the value of inputs,we may define the value added per unit by marketing as the retail price minus producer'sprice per unit.

It is sometimes difficult for people to appreciate the above values created by marketing. Themain reason is that marketing costs are often perceived as too high due to the inefficienciesof the marketing system and occasionally also due to the unscrupulous practices of certainmiddlemen. A second reason is psychological: marketing does not change the physical formof the product, and the utility or value it creates is intangible. And something intangible maybe hard to appreciate.

The role of marketing in economic development

The role of marketing in economic development has been discussed by a number of marketing scholars and development economists, notably Peter Baner, Peter Drucker andReed Moyer. Overall, marketing fulfils the critical function of integrating the economy intosociety to serve human needs. Specifically, marketing contributes to material progress in thefollowing ways.

1. Marketing efforts enable the expansion of markets; this in turn calls for moreproduction and more jobs are created.

2. By stimulating the accumulation of capital needed for industrialisation.3. By creating a merchant class which in turn is the major source of entrepreneurial and

managerial talent needed to establish and run manufacturing enterprises.4. Marketing brings the fruits of technology in the form of new products and methods into

wide use; this benefits mankind and in turn stimulates further development of thetechnology itself.

5. By linking local communities to the outside world, acquainting people with theprocesses of the exchange economy and promoting the habits and attitudesappropriate to it.

The development of marketing strategy

Any organisational entity that engages in marketing activities to serve a customer group witha product or service is a ma rk ete r . We now consider how a marketer plans his marketingprogramme. This is part of the overall job of marketing management, which is concernedwith the tasks of setting marketing goals, analysis of market conditions, planning themarketing effort, setting up suitable organisation, execution of plans and control of

operations.

Marketing mix : variables controlled by the marketer

A key input into the development of marketing strategy is ma rk et a nalysis, which is a detailedinquiry into market conditions - buyers (size, location, quantities purchased, attitudes andpreferences, etc.), competitors and middlemen carry ing the product. The marketer thenchooses a target market to cultivate and develops his marketing strategy by makingdecisions regarding the product, the price, the distribution and the promotion in order tosatisfy the needs of the target market and prov ide the best chances of achieving the statedmarketing goals.


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The combination of controllable variables - product, price, distribution and promotion - whichspells out the marketer's strategy is called the marketing mix. The kinds of decisions to bemade for each component of the mix are as follows.

1. P rod uct assortment: design, quality, branding and packaging; product additions,modifications and deletions.

2. P r ice Setting base price; middlemen's margins, allowances, discounts; freightpayments and geographic considerations, product-line pricing; charging establishedprices.

3. Dist r ibuti on Selecting channels of distribution; selecting and managing distributorsor middlemen to carry the product; establishing a logistics system for storing, handlin gand transporting the product.

4. Promotion to stimulate market interest in the product by deter mining the relativecontributions to be made by advertising, personal selling and sales promotion (for instance, free samples); choosing advertising message; creating advertising copy,choosing suitable media; managing the sales force.

The concept of the marketing mix was popularised by Neil Borden in 1954. Another author,Eugene McCarthy in his book Basic Ma rk eti ng: A Manag e r ial A ppro ach uses a usefulmnemonic - 'the Four P's' - to denote the four elements of the marketing mix - Product, Price,Place and Promotion - where 'Place' stands for distribution.

The key notion suggested by the word 'mix' is that the plan of action is an integrat ed one inwhich the decisions on the four variables make sense in relation to one another. Thus, a highquality product would ordinarily carry a high price, be distributed through retail outlets havinga quality image and the advertising would be in approp riate media that could display thesuperior features of the product.

Another point to be noted is that when a marketing mix is developed, an alternative mix thatdiffers on all or some of the four decision variables might conceivably be used to meet theneeds of the market and the goals of the marketer. This means that there are different waysto reach a target, but none is guaranteed success ab i n iti o. To illustrate, we consider alternative marketing mixes for the market ing of bottled palm wine.

Problem

Suppose that market analysis indicates promising opportunities for the marketing of bottledpalm wine, where it is assumed that the technology for the preservation of palm wine hasbeen perfected. Sketch two alternative marketing strategies that could be implemented.

General observations

Palm wine is an alcoholic drink which is in direct competition with beer. Because the winetappers are getting older and young men in the rural areas are not available, or if availablenot interested in learning the skill of wine tapping, the product is getting more and morescarce and its price is virtually exceeding that of beer. The bottler of palm wine, under thepresent conditions of scarcity of supply of the raw material, will therefore have the major problem of how to make the price of the finished product competitive with the price of beer.


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Marketing mix 1

One strategy is to make the product of very high quality, and package it in a distinctive bottlethat does not look like the beer bottle. For pricing, the price is set higher than beer but not ashigh as imported foreign wines. For distribution, the kind of high volume distribution channelsutilised for beer is not used; instead the channels for hot drinks and foreign wines is used;this means that the product is displayed on shelves in shops. For promotion, it is nowapparent that, given the decisions made already on the other components of the marketingmix, the promotional job is to present the bottled palm wine as a prestige drink that issurrounded by tradition and certainly superior to beer; a product that one should use intraditional and other important ceremonies as well as for quiet enjoyment. Advertising copythat will properly portray this image could include traditional ceremonial settings, and d rinkingwith cow horns and calabash cups instead of glasses. Actually, the product is positioned tocompete with foreign table wine and not with beer.

It is apparent that the above strategy will not lead to very high volume sales, but with amoderately high price the level of sales could lead to profitable operations.

Marketing mix 2

An alternative strategy, especially if the wine supply problem could be solved, for examplethrough palm plantation development and improved tapping methods, is to position bottledpalm wine as a direct substitute for beer. The product will be of good quality but will not befancifully packaged; in fact, beer bottles could be used. The emphasis will be to reduce thecosts of production as much as possible. The price will be competitive with beer, that is, it willnot exceed the price of beer.

Distribution channels will be similar to those used for beer distribution, that is there will beappointment of major distributors and attaches as well as direct supply to major custome rssuch as hotels and clubs. Promotion will portray the product as more satisfying andnourishing than beer, a product that fits into any occasion - whether traditional or modern.Provided the price is low enough, the wine can be presented as the common ma n's drink,whether in the village or in the city.

We have so far given only the bare outlines of two alternative marketing mixes. Many detailsremain to be filled in for actual implementation. It cannot be determined ahead of time whichstrategy will be more successful than the other, especially as the effects of uncontrollablevariables such as competitive reactions are not known.

Marketing concept If a business conducts its affairs in such a way that the needs of its customers are alwayskept in view, and every effort is made to give value and satisfaction to the customers whilepursuing its own goals such as profit, it is said to be guided by the philosophy of themarketing concept. Such expressions as 'the customer is king' or that 'marketing shouldbegin and end with the consumer' or being 'customer oriented' are all statements expressiveof the marketing concept.

The marketing concept is quite an idealistic philosophy, especially in places where variousbasic products and services are in scarce supply, and the sellers have little interest or motivation in pleasing customers. Further, government monopolies may exist and seem


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unconcerned about customer needs or complaints. The marketing concept is likely to beapplied more seriously when there is a strong competition in the market; the marketer whocreatively caters to customer needs is likely to win a d iffer e ntial a d va nta g e over lessimaginative competitors and thereby realism more sales and profits.

Environmental constraints: variables not controll ed by the marketer

We have seen that a marketer controls the variables - product, price, distribution andpromotion - to determine his marketing mix, and that he should execute his plans with thephilosophy of the marketing concept. In addition, he has to contend with a number of external variables that affect the marketing effort. These variables are not ordinarilycontrollable by the marketer and are therefore classified as environmental constraints. Theyinclude competitors, the state of the economy such as growth or recession, consumers andtheir unpredictable behaviour, suppliers and middlemen, business -related laws andregulations, technology, the physical environment such as natural resources and climate andthe larger society with its culture. These complicate the marketer's tasks enormously andlead to a situation where strategies that were effective yesterday may not work at all today.

It should be noted that while the environmental variables affect marketing, the environmentin turn is affected by marketing. For example, consumers' needs, values and preferencesdetermine what is produced and how it is presented, and the larger society with its culture -customs, languages, religions and so on - casts a pervasive influence on the marketingeffort. Marketers' actions in turn influence society by exposing people to new products,services and ideas, thereby for better or for worse breaking down the traditional modes of behaviour and fostering new attitudes and habits.

Understanding and influencing buyer behaviour knowing your consumer

It cannot be over-emphasised that marketing should begin with a thorough understanding of the consumer himself - his needs, location, preferences, attitudes, perceptions and socio -economic characteristics (age, sex, income, etc.). The marketer then tries to build theinformation gathered into the design and execution of his marketing strategy and tries,through promotional methods such as advertising, to influence consumer attitudes andbehaviour in favour of his product or service.

When a marketer launches his product or service and fails to secure sufficient consumer patronage, it is often a signal that he has not done his homework with regard to consumers'needs, though occasionally it might be due to the inept planning and execution of hismarketing programme.

It is sometimes necessary to make a slight distinction between 'buyer' and 'consumer'because the person who makes the buying decision is not always the ultimate consumer or user of the product. The marketer is immediately interested in understanding the behaviour of the product buyer, but he should also be interested to know how the product is used andbe concerned about the satisfaction (or lack of it) of the consumer.

Buyers may be conveniently divided into household buyers and non -household buyers. Thelatter group includes industrial, commercial, institutional (schools, hospitals, etc.) andgovernment buyers. Forces that influence buying decisions


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positive or negative. Or a person may have had a negative attitude before trying a productand then modifies the attitude to positive after trial. This is the main reaso n why the givingout of free samples of a product is a key sales promotion tool.Social and cultural influences

Man is a social being and his behaviour is influenced by other persons and by the groups hebelongs to or aspires to belong to (called referenc e groups). Family members, friends,neighbours and work associates are familiar examples of people who influence us. Socialconformity is strong in buying decisions. It is sometimes surprising how many things we ownare also owned by people we associate wi th. Purchase decisions for certain productcategories, especially those that are 'conspicuously consumed', are particularly prone tosocial influence. Example can be found in clothes and fashions for young people on whompeer group pressure is strong, cars for men, clothes and jeweller for women and homefurnishings and durable goods for households on which friends, relatives and neighboursexert considerable influence.

G oing beyond personal and group influence, we consider the larger society or culture.People live in a cultural milieu that embraces their history, values, morals, customs, art andlanguage. Culture exerts a broad influence on buying behaviour and determines the kinds of products that may be used by the people. For example, Muslims would not use porkproducts or alcoholic drinks. More importantly for marketing, culture and tradition determinethe openness of a people to new ideas and their willingness to try new products andservices.

Market segmentation

Markets consist of buyers who differ in many ways and who may therefore be classified intosub-markets or market segments on the basis of a suitable characteristic or variable.Variables such as geographic location, age, sex, income, social class, benefits sought fromuse of product or problems faced have been used to segment or subdivide markets.

Assuming that a market can be subdivided, the marketer then decides whether to ignore theexistence of market segments and make one product offer to the entire market, or torecognise the existence of sub-markets and design into the product those features that meetthe unique needs of one, some or all of the identified segments. In the latter case, all other aspects of the marketing mix - price, distribution and promotion - will be geared to thedemands of the segment(s).

Obviously, any market segment isolated should represent substantial demand before itwould be worth giving it special attention. It is apparent that a marketer who wishes to enter a market already crowded with competition should proceed by first doing market

segmentation (if feasible) to determine if there exists a segment ignored by the other competitors. Of course, if the marketer feels that he has a superior product, he might decideto challenge the competition in their entrench ed segments.

Information for decisions: marketing research

Adequate information is the life-blood of decision making and management. Companiesnormally develop their own regular system of gathering marketing information. In manycountries, there appears to be a heavy dependence on field reports filed by salesrepresentatives concerning market conditions, competitors' actions, middlemen andconsumer reactions to companies' products and marketing policies. In many cases a


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separate research department does not exist, little or no research budget is provided andwork is rarely farmed out to outside research organisations. Such outside research firms arefew today because the demand for their services is low. Benefits of research

Various benefits can be derived by taking marketing research seriouslyeven if it is done on a modest budget.

1. Marketing research is the primary tool for conducting market analysis where as muchinformation as possible is gathered about consumers (e.g. their needs, attitudes andpreferences, socio-economic characteristics), competitors (their products, prices, etc.)and middlemen (their types, discounts or margins enjoyed, etc.).

2. The marketer exploits the information gathered from market analysis to plan hismarketing mix - product, price, distribution, and promotion. Research can tell whatproducts are needed, which product features are popular, which price ranges areacceptable to buyers, which retail outlets are favoured by buyers, through which massmedia the buyers are likely to be reached and so forth.

3. When the marketing plan is launched, research is needed to monitor results andinvestigate various kinds of problems relating to the marketing effort. For example,research is needed to measure the effectiveness of adve rtising or to determine thereactions of middlemen to a new product.

Costs of research

Marketing research may be a costly undertaking if properly done. The value of informationobtained should always be balanced against the cost of acquiring it. Cost e lements includepersonnel and materials for field work and data processing and report preparation costs.The option of not doing research should always be considered, especially when the decisionthat may benefit from it must be made quickly. Indeed, the p roblem of time availability is aserious one, because many marketing decisions must be made quickly and yet goodresearch requires ample time for proper design and execution.

The marketing research process

Marketing research may be defined simply as the gathering and analysis of information toguide marketing managers in marketing planning and problem solving. It is a systematicprocess that involves some recognisable steps. Fig. 9.3 shows a condensed statement of the basic steps and the typical activities at each step. Four basic steps are shown.

1 Problem formulation.2 Situational analysis and exploratory research.3 Formal research.4 Solution.

Problem formulation

A clear definition of the research problem is probably the most important re search task. But itis not an easy matter. Frequently, the symptoms of a problem - for instance declining sales -are obvious to all, but the cause or causes are less obvious. The researcher holds


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discussions with the sponsor of the research in order to understand the latter's problems andmarketing objectives. The context or environment in which the problem is embedded isexamined to gain a better insight into the problem. This involves asking about internal(company) and external factors that may bear on the problem.

Situational analysis and exploratory research

The key characteristic of the second stage of the research process is consultation of secondary sources of information. We should now distinguish between sec ond a r y d atawhich are data that existed prior to the need to solve the problem, and pr i ma r y d ata whichare fresh data collected specifically to solve the problem. Secondary data sources includeinternal company records on the product's sales, costs, customers and other marketingvariables; outside sources such as publications by government agencies (especially theresponsible Office of Statistics) and private bodies; relevant research both inside and outsidethe company; informal interviews with informed people both inside and outside the comp any.

If the problem was properly identified in the first step, the analysis in step 2 may be sufficientto solve it, in which case further formal research would be unnecessary. (This has beenshown by a forward dashed arrow from step 2 to step 4 in Fig. 9 .3.) Usually, the analysis of the second stage leads to a better definition of the problem (feedback arrow to step 1) andvery likely suggests the need for formal research.

Formal research

Formal research entails the collection of primary or fresh data to solve the problem or meetthe information need. The most frequently used formal research method is the ma rk eti ng su r vey.. Major activities in survey design and execution involve questionnaire construction,the actual data collection (through mail survey , telephone survey or personal interviews) andthe editing and coding of returned questionnaires. The population of respondents from whominformation is to be obtained could consist of individual consumers, households or organisations. Although a selection of a representative sample from the relevant populationis made, sometimes it will be wise to do a census, that is to include every member of thepopulation, if the numbers are small. This is often the case when organisations are surveyed;consumer surveys, on the other hand, usually involve use of samples because of the largenumbers of consumers.

Solution

The final step in the research process is data analysis and interpretation of results. The

simplest analytical method, especially for surveys, is ordinary tabulation and frequencycounts, followed by calculation of percentages. For example, if respondents were asked if they would purchase a product at a stated price, research might find something like 'forty per cent of respondents said they would definitely buy, while only twenty .per cent said theywould definitely not buy.'

When the researcher completes his data analysis and interpretation of results, he prepareshis recommendations for the sponsor of the research. A written report embodying therecommendations should, as far as possible, be free of technical jargon, be in clear style anduse charts and tables where necessary. It should be reasonably brief and above all i nclud es pecific acti on i mp licati on s for the sponsor. Examples of concrete recommendations are:


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'The company should seriously consider increasing the price of the brand by twenty per cent.' or 'The current budget for advertising should, at a minimum, be doubled.'

Marketing decisions areas

The key areas in which marketing managers have to make decisions correspond to the four components of the marketing mix: product, price, distribution and promotion. Sales forceoperations may be isolated from promotion as a separate area of decision making; if international marketing is undertaken by a company, then all the above decision areas willbe relevant in the context of serving markets outside national boundaries. Having earlier outlined the kinds of decisions made while discussing the marketing mix, we shall nowelaborate on the key decisions only.

Product decisions

The product or service is the offer that the marketer makes to buyers and it is of centralimportance in the marketing effort. A prod uct may be defined as a bundle of physical andpsychological satisfactions that a buyer receives from a purchase. It includes not only thetangible object, but also such supportive elements as packaging, convenience of purchase,post-sale services and others that buyers value.

Branding and packaging

A product should be given a unique brand name to distinguish it from other goods offered tobuyers. The name should be distinctive and easy to pronounce, and it should capture theessential product idea. The name should be registered as a legal trade mark, thus protectingit from use by competitors. It is a fact that many small and medium manufacturers do notbother to put any brand names on their products, and some unscru pulous ones assignnames that sound almost identical to the names of well -known successful products. Thesesuggest lack of confidence in the product's quality by the producer. In any case, a producer who is marketing a successful but nameless product is making a grave error that shouldquickly be corrected.

Packaging has the basic function of protecting the product, hence the package must bedurable enough to survive handling during distri bution. It should be aesthetically pleasingand be distinct enough to stand out when placed side by side with competitors' brands on

the retail shelf. It should also be convenient to handle b y consumers (consider theconvenience of the aerosol spray can that revolutionised the packaging of certain liquidproducts). The package label, apart from providing certain kinds of information that may berequired by law such as net weight, volume and in gredients, may be used by the producer topromote the product if a well -designed promotional message is inscribed on it.

Building the product mix

The prod uct m ix is the composite of products being marketed at any point in time by acompany. When products are closely related, especially with regard to end use, theyconstitute a product line. An example of a product line is a CD.player, a HiFi amplifier, and


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speakers. A product line may be narrow (that is limited) or broa d depending on whether theassociated products are few or many. Two of the common ways to build up a product lineare:

1. by adding differential features to a basic product design in order to appeal to differentmarket segments (market segmentation strategy); and

2 . by adding products that are complementary, that is, used together. Sometimes amanufacturer will market brands of a product that are virtually identical except for brand name and packaging, although advertising will claim unique differences. Thisstrategy is called multi- b r a nd i ng and is commonly observed in consumer packagedgoods industries such as toilet soap and detergents.

The manufacturer's objective is to improve his competitive position by securing larger shelf space in retail stores and thereby taking sales away from other producers' brands.Proper management of an existing product mix includes knowing when to modify products or delete those faring badly in the market -place. Sales figures and consumer research providethe necessary information for the decisions.

Product innovation

A 'new' product is one that is new to a company, but not necessarily new to the marketwhere the generic product may already exist. The management of a true product innovation(that is, a product new to the market) follows six main stages which we simply outline here.1. Idea generation: product ideas may come from many sources - company, salesmen,

customers, competitors.2. Idea screening: selecting the most viable ideas to exploit.3. Business analysis: analysis of sales, costs and profit projections.4. Product development: building and testing prototypes, etc.5. Test marketing: placing product samples in actual retail stores to test consumer

acceptance.6. Commercialisation: full-scale marketing on a national basis.

Pricing decisions

Price can be formally defined as the amount of money needed to acquire given quantity of goods or services. From the point of view of the marketer, price is the one component of themarketing mix that generates revenues; all the other components - the product, thedistribution, the promotion (and the person) - generate costs. The importance of price,therefore, is not to be denied, even though it may not preoccupy the marketer's mind as

greatly as some of the other variables in the marketing mix.

Factors that influence price setting

The most important factors that influence prices are:1. costs,2 . demand,3. competition, and4. legal constraints.


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Costs set a floor below which prices should not fall, but demand and competition, in other words the market, define prices. In general, the customer is not at all interested in discussingor understanding the costs that occur for a product or service. He/she h as a certain price inmind. If the offer meets this idea the transaction can take place. Of course the so-calledprice-elasticity of demand influences the ability of the customer NOT to by a good. E.g.water: supposed the customer has no private access to water he must buy it. If the supplier is in a monopolistic position and governmental control is not applied, the price will risesignificantly above costs and the customer may try to reduce water consumption but cannotavoid paying the price. Other example : training courses. The potential client can avoidattending a desired course if the price is beyond his willingness or ability to pay by choosinganother offer or just skipping the idea.

Costs influence price considerations of a supplier but can finally not determine the price.Some costs vary directly with changes in volume of output and are called va r iable c osts or d i r ect c osts.

Just to remember: Costs that do not vary in the short run are called fixed c osts. Variablecosts and fixed costs are added up to get total costs which, if divided by the volume of output, give average total cost per unit. Variable costs include such items as raw materials,labour, energy to operate production facilities, royalties and sales commissions. Fixed costsinclude general administrative salaries, research and development, general marketingexpenses, depreciation on machines and equipment, rent and interest payment onmortgages. These costs are incurred whether or not the firm produces and sells anythingand are fixed for the planning period.

Setting base price

The base price is the price that the producer receives at the factory gate or that the servicesupplier gets for his services; it does not include any mark -ups or allowances to compensatemiddlemen for distributing the product. A widely used method of pric ing (i.e. setting the price)is the full c ost method, also called c ost plus method. The rationale for full -cost pricing is thatall products/services should bear their full share of costs. Any product's price, therefore, mustcover all allocated costs plus a 'reasonable' mark-up or margin for profit and risk. Theformula for full-cost pricing is: Price = ATC(1 + M) where ATC is average total cost per unit of the product, and M is the percentage for profit and risk mark -up.

As discussed before, the producer or supplier usually is not in a position to establish priceson the market but rather the market dictates a price by the willingness of the customer to payand / or the pressure by competition. Subsequently two other methods are more importantfor pricing:

The c omp etit or s pr ice is the one that occurs after a certain time as the dominant price on themarket. G iven a sufficient level of competition, the price will slowly go down to the levelwhere profitability is just feasible without huge profit margins and then stabilise there. Onlynew technology, production processes, sudden shifts in demand or new competitors willmove prices again. It is an illusion for newcomers that they could survive in such markets byoffering cheaper prices (i.e. probably not c ost recovering).

The d e mand pr ice is the one which the average target customer is willing or able to pay. Itrequires a good deal of survey intelligence to assess this information but will enable theentrepreneur to achieve remarkable profit margins.


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Pricing in the distribution channel

We must now consider how the 'ex factory' price is translated down the distribution channel(i.e. through wholesalers and retailers) to the consumer. Suppose the producer has notsuggested what the retail price should be and merely asks the distributors or wholesalers topay his producer price per item. To cover their costs and provide for profit, the distributorswill add their profit mark-up percentage or margin to their cost before selling to retailers; andthe retailers in turn will add their own mark -up before selling to the final buyer. Thus, a chainof mark-ups exists in the channel of distribution. Each middleman uses a pricing formulaidentical to the mentioned equation, where ATC re presents his unit cost of the product. Insome cases the producer may recommend a retail price for his product and then allowmiddlemen discounts based on that retail price. This type of discount is called a t r ad e or functi on al d isc ount ; it covers the middleman's and eventually the reta ilers operating costsand profits and represents his inducement or rebate for performing important functions in thedistribution channel. For example, suppose the recommended price for a standard - sizedcan of paint is 100 per unit. G ranting a discount o f forty per cent to the retailer and of twenty -five per cent for the wholesaler means that the wholesaler bills the retailer 100*(1 -0.40) =60.00. The manufacturer bills the wholesaler 60*(1 - 0.25) = 45.00. Thus, if the distributor gets a shipment of 100 cans with a market retailvalue of 10,000.00, the invoice of the manufacturer is for 4,500.00.

Channels of distribution and logistics

The task of distribution is to make the goods physically available to buyers. A d ist r ibuti on cha nn el is defined as the combination of institutions through which a producer markets hisproducts to the ultimate buyer. By institutions we mean middlemen such as wholesalers,distributors, retailers and agents. These middlemen perform important functions such ascontacting current and potential buyers of the product, inventory ownership and risk bearing(that is, taking title to goods before they are sold), various kinds of sorting and handling of the product, storage and transportation, extending credit or financing (of thei r customers) andproviding the producer with information about their local market.

Selecting distribution channels

A producer can distribute his product through a variety of channels. If the producer decidesto sell directly to consumers, he uses a direct channel. This may take the form of havingsales people going from door to door to peddle the product, or it may mean that the producer establishes a network of wholly-owned retail outlets.

Five sets of factors affect channel selection.1. The market coverage desired by the producer, e.g. to cover an extensive market area

will need the use of indirect channels for intensive distribution.2. The degree of channel control desired, e.g. to ensure proper pre sentation of the

product to consumers, the producer uses direct channels by eliminating allmiddlemen.

3. Product characteristics, e.g. a bulky product like coal may use direct channels tominimise handling.

4. Market characteristics, e.g. frequent and/or impulse purchase by buyers wouldsuggest the use of intensive distribution, every available channel is used.


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5. Manufacturer characteristics, e.g. only a manufacturer with adequate financing canown its retail outlets, if such direct distribution is called for.

Selecting and motivating distributors

Having selected the types of channels to employ, the producer has to pick particular middlemen or distributors. He uses such selection criteria as the credit-worthiness of thedistributor, his selling ability, inventory and storage space and his personal qu alities. Theproducer may adopt a variety of measures to build enthusiasm and excitement among therevellers, such as providing sales training for distributor personnel, providing useful tips onpurchasing and stock control and supplying sales promotion ai ds such as printed material onthe products and point of purchase and showroom displays. Proper management of distributors includes a periodic evaluation of each distributor's sales performance in relationto previous periods or other distributors, and ens uring that he moves adequate volume of inventory on the full product line offered by the producer.

Physical distribution or logistics

Physical distribution or logistics is concerned with the efficient movement of raw materialsfrom suppliers to the production line, and of finished goods from the end of the productionline to the customers. A number of associated activities must be performed and these maybe grouped under the four main categories of:

1. transport;2. inventory;3. warehousing (including materials handling); and4. communications.

A wide variety of transportation modes is available to move goods - rail, highway, water,pipeline and air, each with different cost and service (speed) characteristics. Decisions mustbe made regarding the mode of transportation to use for each type of shipment. Inventory isof central importance in distribution system design. Since the cost of carrying inventory ishigh, procedures for proper management of inventory must be installed.

Warehouses (or depots) store inventories. Decisions must be made as to how manywarehouses are required, where they should be located and what products should bestocked in what quantities. Materials handling involves the movement of goods within theplants and warehouses. Suitable equipment (such as fork-lift trucks, conveyors, pallets) mustbe available to permit economic handling of goods. Finally, there must be good

communication flow in order to co-ordinate all the logistics activities effectively. For example,a good communications system should be able to make available on demand the presentstock position of each item at each stock location.

The promotional programme

Ad ve r tisi ng is defined as any form of non-personal communication through the mass mediathat is paid for by an identified sponsor. Along with sales promotion, personal selling,publicity and public relations it forms the promotional or communications programme of themarketer. Sales promo ti on is any activity that is used to stimulate sales of a product or service usually occurring once or over a limited period of time. Examples are 'sales'


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conducted by retail stores at festival periods such as Christmas, the giving away of freesamples of the product, and price reductions on goods.

Pe r son al selli ng refers to the use of salesmen to push the product or service. The sales forcemust be selected, trained, motivated (especially through a good compensation plan) andcontrolled for effective performance.

Publicity is information about a company and its products that is conveyed to the public bythe mass media because such information is newsworthy and the company pays nothing for it. Public r elati on s efforts of the marketer are concerned with building and maintaining goodrelations with special publics such as customers and the public at large. And such image-building may use advertising as a tool.

The various components of the promotional programme are not used in isolation. For example, although advertising may be most suitable for one purpose and personal sel ling for another, the two are often employed simultaneously, the relative emphasis depending uponcircumstances. Further, advertising may be used to announce a sales promotion activity.

Advertising

Advertising still is a young industry. With the exception of consumer products companies -especially cosmetics and toiletries manufacturers small and medium businesses do notspend much on advertising and some do not advertise at all. Yet the trend is changing asmore and more companies are realising that advertising can be a positive force in their marketing as competition increases. An indicator of the growing importance of advertising isthe rapid growth of the number of advertising agencies.

There are two basic objectives of ad ve r tisi ng , namely:

1. to inform the target audience about the product or service; and2 . to create or stimulate demand for the product or service through persuasion.

These translate ultimately into sales of the product, but in planning a specific advertisingcampaign the marketer may choose a more concrete goal such as 'to increase consumer awareness of the product by thirty per cent'.

The key ad ve r tisi ng d ecisi on s are:

1. setting the advertising budget;2. creating advertising copy; and

3. selecting media and vehicles and allocating from the budget to them.The ad ve r tisi ng bu dg et should not be based on a percentage of sales since this wouldmean: you spend more when sales are doing well and you decrease when sales are goingdown. It may be keyed to a level compa rable to what the competitors are spending.

Ad ve r tisi ng c op y is defined as the words and picture or illustration that make up theadvertisement and the way they are laid out to create a total impression. Through the copythe advertiser says what he wants to say (called the the me or message) in the way he wantsto say it. Various a d ve r tisi ng me d ia a r e available such as radio, newspapers, magazines,television, outdoor advertising and cinema films. Each medium has its advantages inreaching particular types of target audiences. After selecting the suitable media, the next jobis to decide how much time or space to purchase in each vehicle (e.g. daily advertisements


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of ten or twelve lines in the newspaper medium) and how these insertions will be spreadover the time period covered by the advertising campaign. This is called media scheduling.

In planning and executing his advertising programme, the advertiser relies heavily on theservices of his chosen advertising agency. The a d ve r tisi ng ag ency advises clients onadvertising strategy, creates advertising copy, supervises advertising production and buysmedia time and space. The larger agencies provide many other services, such as advisingon marketing planning and sales promotion, designing and producing brochur es and point-of-sale displays, advising on publicity and public relations and conducting marketingresearch.

Total Proje c t Cost

Notes on wor king c apital Frequently, entrepreneurs complain of inadequate working capital. Behind this term, theywant to say that their businesses cannot immediately convert their assets into cash whenthey need cash. This lack of control in managing working capital is a major cause of business failures of small businesses.

In producing their products, entrepreneurs have to buy materials, pay for their overheads,pay for labour, etc. Then these products are sold either fully or partially paid for by thebuyers. But production of goods will have to continue and the cycle repeats itself. Themoney spent in producing only comes back after the buyers fully pay for them. Workingcapital sees to it that the business can survive this period, and ensures that day -to-dayproduction continues undisturbed.

Working Capital is the difference between current assets and current liabilities whi ch isnormally measured in terms of raw materials purchase, payment to creditors, labour,work-in-process, overheads, and finished goods stocks. Current assets are those whichcan be easily converted into cash in the short run. Similarly, current liabiliti es are debtswhich must be fully paid in the short run.

The assets side of the working capital consists of: (a) cash -on-hand and in-bank, (b)accounts receivable or money owed to the business (also termed as debtor), and (c)stocks of raw materials, work-in-progress, and finished goods. On the other hand, theliabilities side consists of: (a) amount due to be paid to workers, (b) money owed tocreditors, (c) money received in advance for products or services still to be supplied(advance payments), and (d) money borrowed from the bank due for repayment in near future (overdraft or loan). As these items show, working capital does not necessarily meancash.

Cash is needed for settling liabilities when they fall due. Labour, materials, utilities,interests, etc., must eventually be paid in cash. Having a lot of cash is nice, so long asthey are not idle. Businesses need only sufficient cash to meet the immediate obligations.No more! Hence, the need to calculate the exact cash requirement.


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Table : Computation of Total Project Cost

Equit y L oan Total

A. Fixed Assets Land

Building

Machine

Furniture

Vehicle

Total Fixed Assets

B . Wor k ing c apital (WC )

Cost of materialsCost of labor

Cash overhead cost

Marketing cost

Administrative cost

TWC

C .Pre-operating expenses

TP C=A+ B +C

Financing Plan:The securities and collateral to be used to obtain the loan are the following:

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MEE 523-Entrepreneurial Study

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