FUNCTIONS OF BUSINESS MANAGEMENT

THE CONCEPT OF MARKETING AND ITS ROLE IN BUSINESS

Marketing has been defined as:

“The process of studying the wants and need of others and then satisfying those wants and needs with quality goods and services (i.e. products) at a competitive price” (Nickels, McHugh, McHugh 1991). 

Therefore marketing involves the entire process of providing products to consumers and isn’t solely concerned with a firms advertising or promotional activities.

The job of the marketer revolves around the following:

  • Understanding the needs of consumers.
  • Determining and creating wants – desires for specific satisfaction of deeper needs.
  • Satisfying and managing demand – wants for specific products that are backed up by an ability and willingness to buy them.

Evolution of the Marketing Concept

Marketing has been an important part of business for many years though its focus has changed over the years. Part of this change involved adopting different concepts, from the Production concept, to the Product Concept, to the Selling Concept, to the Marketing

Concept and to the Societal Marketing Concept

Production Concept: Companies pursuing this strategy believe consumers prefer products that are widely available and inexpensive. Their focus involves exploiting economies of scale.

Product Concept: This holds that consumers will favour those products that offer the most quality or performance.

Selling Concept: This holds that if consumers are left alone they will not ordinarily buy enough of the organisations products. These companies see their task as persuading customers to purchase their products through promotion and personal selling

The Marketing Concept: The Marketing Concept holds that the key to organisational success lies in determining the needs and wants of the target market and delivering products that meet these needs more effectively and efficiently than competitors. The Marketing Concept comprises the following four main pillars:

  • Market Forces
  • Customer Orientation
  • Co-ordinated Marketing
  • Profitability

 

The Societal Marketing Concept

The societal marketing concept is concerned with ethical and sustainable marketing. The aim is to satisfy market demand but do so in a way that maintains or improves societies well- being. Marketers need to balance three considerations in setting their marketing policies:  company profits, customer wants and society’s interests.

THE ELEMENTS OF THE MARKETING MIX

Any product you purchase today is made available to you through a marketing process that included 4 vital ingredients, and is based on a quality and customer focused foundation. The producer designs a Product that satisfies customers needs, sets a competitive Price, has the product in a Place that is convenient for the consumers to buy (or consume) and Promotes it. These four factors are known as the Marketing Mix or 4 Ps. See Figure 10.1.

Product

Designing products of a high quality and high perceived value-added is a vital part of any business. Marketers must communicate with consumers and constantly adapt the products to meet changing market demands.

Product Mix, Lines and Offers

Businesses will normally have a range of products to satisfy different segments of the market. A Product Mix is the combination of products offered by a business.

A Product Line is a group of products that are physically similar or are intended for a similar market

A Product Offer consists of all the tangible and intangible benefits consumers evaluate when deciding whether or not to buy a product. In addition to the product itself, this evaluation may also include the products price, packaging, shop surroundings, the image created by advertising, the reputation of the producer, the brand name and the level of customer service.

Product Differentiation

Product Differentiation is an attempt to create the impression in the mind of the consumer that a given product is distinctive from others.

Consumers will perceive the importance of various products and services according to their needs. It is important therefore that a business is careful when selecting the target audience for its marketing efforts.

Consumer Goods and Services

The strategy that a marketer will adopt will vary according to the type of end market. Generally there are two types of end market, namely Consumer Markets and Industrial Markets.

Within consumers markets there are three categories of goods and services based on purchase habits and buyer preferences:

  • Convenience Goods and Services: These relate to products that a consumer wants to purchase regularly and with a minimum of effort. Location, brand awareness and image are very important. Examples include confectionery, newspapers and cigarettes.
  • Shopping Goods and Services: These relate to products that the consumer buys only after comparing value and price from a variety of goods. Marketers emphasise price and quality differences. Examples include clothing, footwear, electrical appliances and Personal Computers.
  • Speciality Goods and Services: These relate to products that have a special attraction to consumers, who are willing to go out of their way to obtain them. Examples include cars, sports and leisure facilities, jewellery and holidays.

Industrial Goods and Services

Industrial goods and services are products that are used as inputs to other products. Within industrial markets there are generally three categories:

  • Materials and Parts: These relate to finished products that are used as inputs in the production process of other products. Examples include engines in cars and hard disks in computers.
  • Capital Equipment: This relates to products required to produce or manage the production of other products. Equipment includes manufacturing equipment, delivery vans etc.
  • Supplies and Services: These relate to products that are used to support the production of finished goods. Examples include office stationary, insurance and accounting services.

The Product Life Cycle

Every product has a life cycle, from introduction to growth to maturity and finally decline (figure 10.2). The length of a product life cycle varies from product to product. The concept of the Product Life Cycle can be used to assist managers to develop appropriate strategies for managing products depending on the stage that the product is at in its development. As the product moves through its cycle, the strategies relating to competition, promotion, place/distribution, pricing and market information must be periodically evaluated and possibly changed.

INTRODUCTION

The introduction stage is the most risky and costly. The public must be informed about the product through a promotional campaign, and perhaps given incentives to buy the product. Costs during this phase include research and development, market research, and product launch costs. The level of competition would generally be low at this stage.

GROWTH

As the product becomes known, sales will increase and consequently profits. Competition may emerge as competitors are attracted by the growth of sales. This is a critical stage for the product’s survival because competition will increase greatly and will affect the product’s life expectancy. Aggressive promotional pricing, including price cuts is typical at this stage. The goal is to establish the products position and to strengthen it by encouraging brand loyalty. During this stage, the product offerings may have to be expanded, and segmentation may be used to achieve greater penetration. Gaps in the marketing channels should be filled during the growth stage, and the company may move from an exclusive to a more intensive distribution. Later on, advertising expenditure may be lowered slightly from the high levels of the introductory stage, but still needs to be substantial.

Maturity

Maturity sees the sales curve peak and should level off before it starts to decline. For those products with a large market share this is generally they most profitable stage. There will be severe competition, with many brands in the market. Competitors emphasise improvements and differences in their product. Many of the weaker competitors are likely to be squeezed out at this point. For those remaining, they must make fresh promotional and distribution efforts to ensure brand visibility is maintained. It will often require modification to the product and marketing mix. Product modification covers quality, enhanced functionality and modifications to the appearance and style of the product.

DECLINE

Demand falls as the product becomes obsolete. The choices for the company are to phase out the product or drop it immediately. If the company has continued to develop products there will be a new product ready to replace it.

The produce life cycle has implications for all firms. No business can afford to stand still even if its position is the market is strong at present. Unless a company continues to improve upon its existing products and plans for their replacement, that company will eventually be overtaken by its competitors. Consequently, companies should have many different products at various stages of the life cycle, thus ensuring the continued growth of the company.

Branding

A brand is defined as a name, symbol or design that identifies the goods or services of one seller and distinguishes them from those of competitors.

A brand name is defined as the part of the brand consisting of a word, letter, or group of words and letters comprising a name that differentiates the goods or services of a seller from those of competitors. Brand names of goods become known to consumers through advertising. Some well-known brands names include Apple, Coco Cola, and Microsoft. The main advantages of branding are:

  • Helps product identification
  • It can be used to communicate benefits to the consumers
  • It gives the consumer reassurance that they know what they are buying
  • Helps create loyalty, defends against competition,
  • It can help positioning a product in the marketplace
  • IT can enable premium pricing and can increases power over retailer
  • Facilitates advertising and promotion

A trademark is a brand that has been given exclusive legal protection for both the brand name and graphic design.

PACKAGING

An important aspect of the brand image of a product is the packaging that is used. The three functions of packaging are: • Protection of the product,

  • The promotional opportunities that the packaging itself offers,
  • The opportunities for innovation and product improvements/ modification.

Price

The main issues around price include how price can be used as a competitive tool, what are the determinants of price and what pricing methods can be used.

Price as a Competitive Tool

Price is a critical element of the marketing mix as it is the only element that produces revenue. Many firms base their pricing policies on cost factors alone and neglect to take account of dynamics of the market place where a product might be successful at a particular price but not at another. Also firms that base their prices on the cost of manufacture often neglect the cost of things such as after sale service. Price can be used as a competitive tool in the context of an overall market strategy

Determinants of Price

The price of a product is influenced by both external and internal factors.

INTERNAL FACTORS

  • The Cost of Production: The costs of producing a product or service set the floor price for a product or service. An organisation must recover the costs if it wants to stay in business in the long term.
  • The Organisation’s Objectives: The objectives of the organisation will also influence the price charged. For example the organisation may charge a high price to maximise profits, or they may decide to charge a low price initially to gain market share.
  • Positioning Strategy: The Company may be pursuing a low price strategy or a differentiation strategy where it will charge a high price for perceived quality such as BMW and Rolex.

EXTERNAL FACTORS

  • The Customer: The customer effectively determines the highest price that can be charged for the product. Companies should carry out market research to establish the disposable income of target customers and how much they are willing to pay for a particular product or service
  • Competition: The level of competition in the market place will impact the level of prices. In a highly competitive market place, prices will tend to be lower but in a market with few competitors an organisation can charge a higher price.
  • Economic conditions: If the economy of a country is booming, then prices will tend to be higher while in a recession prices will generally fall.
  • Government Regulations and Control: Governments actions can affect prices in a number of ways. In some countries the prices charges for utilities such as electricity and public transport are subject to government regulations. Governments can also affect the prices charged for products and services by increasing taxes and duties.

Pricing Methods

Depending on the firms marketing objectives there are several different pricing strategies that can be adopted including:

  • Cost plus pricing: This is the most common approach to pricing and is based on product cost plus a variable mark up.
  • Price Skimming: This involves setting a higher price at the early stages of the product life cycle.
  • Price Penetration: This involves setting the prices at a very competitive level to increase market share.
  • Price Bundling: This involves grouping together two or more products and offering them at a price less than the sum of their individual prices. This may be used to stimulate sales in a product that is selling poorly.
  • Target pricing: The price of a product is determined on the basis of a target profit margin.
  • Perceived values pricing: This involves pricing the product based on the value or performance it offers the buyer and may involve a premium on the price.
  • Competition oriented pricing: There the price of the product is determined with reference to what the competition is charging.

Promotion 

The third P in the marketing mix is Promotion, which relates to all communications with markets and consumers, including promotional activities, selling and sales, and market research. There are a number of different methods of promotion which include:

  • Advertising
  • Sales Promotion
  • Public Relations
  • Personal Selling
  • Direct Marketing

 

Advertising

This may be defined as the communication of information about a product or service to a particular audience. The main aims of advertising include:

  • To increase the sales of a firm’s products and therefore increase its profits
  • To provide information about products and their uses, including technical information
  • To keep the brand name in the minds of consumers. In some advertisements no particular product is advertised, just the brand name is mentioned
  • To project a good image of the firm to the public. Some advertisements by banks insurance companies etc. often have this aim in mind.

CHOICE OF MEDIA

The advertising media selected by a firm will depend mainly on the following factors:

  • The type of product or service to be advertised
  • The target market for the product
  • The amount of money that is available for advertising
  • The method of presentation needed.
  • The competitors choice of media
  • Geographic coverage

The media available to the organisation for advertising purposes include:

  • Television
  • Radio
  • Magazines
  • Newspapers
  • Internet

TELEVISION

This is a very effective medium of advertising goods and services that have a broad market appeal.

The advantages of television as an advertising medium include:

  • It can reach a large audience with a low cost per contact
  • It offers creative opportunity
  • It enables segmentation of the market – for example a company selling sports gear could run their adds during a sports program

The disadvantages of television as an advertising medium include:

  • There are too many adds and is very easy for consumers to change channel
  • The amount of time is very short so recall by consumers can be low
  • Both the production and broadcast costs are very high

RADIO

Radio is a very widely used medium for advertising and can be effective, particularly in the morning an during the earlier parts of the day when it is not competing directly with television

The advantages of radio as an advertising medium include:

  • The cost is lower than TV – also the cost of production is lower
  • Radio supports high levels of segmentation,

The disadvantages of radio as an advertising medium include:

  • Short exposure time, as advertisements generally have a very short duration
  • Low attention span of most listeners

NEWSPAPERS

Although newspaper readership has declined in recent years, newspapers are still an important advertising medium.

The advantages of newspaper as an advertising medium include:

  • Possible to advertise locally (local paper) and can also include coupons and leaflets
  • Newspapers are a low cost medium and will generally have high credibility particularly if the ads appear in a reputable paper.

The disadvantages of newspaper as an advertising medium include:

  • Major clutter as there are so many papers – also the life span of a newspaper is usually only a single day
  • Newspapers are normally printed on low-grade paper which results in poor quality colour pictures
  • As the numbers buying papers is declining the audience for newspaper advertisements is declining

MAGAZINES

Magazine advertisements are usually targeted at a particular market – the particular grouping who read the magazines. For example the advertisements in a farmers magazine would generally be targeted at farmers, whereas the advertisements in a computer magazine would be geared toward computer users.

The advantages of magazines as an advertising medium include:

  • Magazines offer segmentation possibilities – if you are advertising computer hard disks then you should advertise in a computer magazine
  • Magazines have a longer life span and are generally printed on higher quality paper than newspapers

The disadvantages of magazines as an advertising medium include:

  • They are higher cost than newspaper but also suffer from high clutter and like newspapers magazine sales are dropping

THE INTERNET

The internet is the fastest growing advertising medium. The different methods of internet advertising include:

  • Corporate websites
  • Banner ads
  • Ad-words
  • Social networking sites
  • Email

The advantages of the internet as an advertising medium include:

  • Very high reach – in fact it is global reach
  • Segmentation and targeting are possible, particularly when using adwords
  • It is possible to evaluate the effectiveness of a add (measuring how many people click on it
  • The internet offers interactivity in that the consumer can click on the advert and it automatically links to the firm’s website. The consumer can choose to view pictures

of the product, read specification details or watch a video of the product. They can also enter their email address to receive additional communications

  • It is generally lower cost that other media

The disadvantages of the internet as an advertising medium include:

  • A very high level of clutter with billions of web pages
  • The internet excludes some people who don’t have access. This makes it hard to target some groups, in particular older people.
  • There are security issues associated with the internet

Sales Promotion

Sales promotions are short term methods used by organisations to increase sales of a product.  The main sale promotion methods uses are as follows:

  • Price Reductions – such 10% of or 20% extra free
  • Competitions and Draws – customers can fill out a form on the packaging to enter a draw
  • Free Samples – for example offering a free sample of hair conditioner with a purchase of shampoo
  • Bundling of Products – where two products are bundled and sold together
  • Vouchers and coupons – these can be used to purchase more of the product at a lower price.

Publicity and Public Relations 

Publicity is non personal communication about an organisation and its products and services that is generally not paid for. Public Relations (PR) is the management of internal and external communication of an organisation to create and maintain a positive image for the company.

Publicity events include:

  • Press releases which are aimed at generating interest in the press
  • Publicity ‘stunts’
  • Photo opportunities
  • Speeches and personal appearances by senior management
  • Giving interview on radio and television
  • Writing newspaper articles and books
  • Blogs and social media – these enable the organisation to engage in two way communications

The main objective of public relations is to create and maintain a good impression of the company and its products in the minds of the public.

Personal Selling

Personal Selling involves informing customers and persuading them to purchase products through personal communications in an exchange situation. It also involves promotion of products, plus searching out prospects and providing follow-up services.

Personal selling has advantages and limitations when compared to advertising. Advertising is generally communications aimed at a relatively large target audience, whereas personal selling offers more specific communication aimed at one person or several people. Reaching one person through personal selling costs considerably more than doing so through advertising, but personal selling often has a greater impact on customers. Personal selling also provides immediate feedback, which allows the marketers to adjust the message to improve communication.

Direct Marketing 

This involves selling directly to the end-customer. Direct marketing enable a marketer to deal directly with target customers. Methods of direct marketing include: catalogues, mailings, telemarketing, the Internet, TV shopping, etc. Dell, Ryanair and Amazon are examples of companies that employ direct marketing.

Sales Department 

The sales department has responsibility for selling the company’s products and services. It receives support from all the other departments involved in marketing. The sales departments will work closely with the other departments such as production, and finance and with other groups with the sales and marketing department such as marketing and market research. The head of the sales department is normally the sales manager.

SALES MANAGER

The main duties of the sales manager are the following:

  • Implementing company policy in the sales department
  • Organising the sales force and setting sales targets
  • Preparing sales forecasts and budgets
  • Leading and motivating the sales staff
  • The sales manager is responsible for evaluation and control of the sales force

Market Research 

Market research is used by marketers to improve the effectiveness of all other marketing efforts. It normally involves direct communication with markets and consumers. Market research is defined as the systematic gathering, recording and analysis of data about problems relating to the marketing of goods and services. The two main sources of data are primary data and secondary data. Primary data is information resulting from original research concerning a specific problem. Secondary data is already published research information from journals, trade associations, government bodies, libraries etc, which was collected for a separate purpose.

Place 

A key aspect of the marketing process is the ability to physically get the product from where it is produced to a place where the consumer can view, purchase or consume it most conveniently. This involves setting up the appropriate distribution channels. There are a number of distribution functions; transportation, storage, buying selling etc… The key issues in distribution from a marketing mix perspective are as follows:

  • Utility and Marketing Intermediaries
  • Physical Distribution and Logistics
  • Channels of Distribution

Utility and Marketing Intermediaries

Utility refers to the value of want satisfying ability that is added to goods or services by organisation through making them more useful or accessible to consumers.

Form utility is value added to a product mainly by the producer to make it more useful. Other types of utility are added by the Marketing Intermediaries.

Marketing Intermediaries are organisations that assist in the movement of goods and services from producers to consumer.

Time utility is value added to products by retailers who make them available as they are needed.

Place utility is value added to products by intermediaries who distribute them to where they are wanted.

Possession utility is the value that intermediaries add to products by enabling the transfer of ownership from one party to another.

Information utility is the value added to products by opening two-way flow of information between marketing participants

Physical Distribution and Logistics

Physical Distribution refers to the movement and storage of goods and services from producers to consumer. A business has to handle both inward and outward distribution.

No physical distribution service can simultaneously maximise customer service and minimise distribution cost. The task of the distribution manager is to balance the cost of physical distribution with the provision of a quality service.

The criteria when choosing a mode of transport include speed, frequency, dependability, capacity and availability. Shippers are increasingly combining two or more modes of transportation thanks to containerisation.

Channels of Distribution

Channels of distribution refer to the Marketing Intermediaries such as wholesalers, retailers and agents who together transport and store goods in the path (channel) from producer to consumer.

Wholesalers are marketing intermediaries that sell to organisations and individuals for resale and not to final consumers.

Retailers are marketing intermediaries that sell to consumers and include department stores, supermarkets and convenience stores.

 

The three normal channels of distribution are shown in figure 10.3.

  • Channel 1: This is referred to as Direct Marketing and Non Store Retailing. It is a fast growing channel of distribution and includes telemarketing, Internet marketing, direct mail marketing, vending machines, door to door sales, mail order retailing, and home shopping networks.
  • Channel 2: This is the longest and most indirect distribution channel. It is used with most consumer goods. The manufacturer sells the goods to the wholesaler, who in turn sells to the retailer. The consumer purchases the goods from the retailer.
  • Channel 3: This is an indirect channel of distribution. For example a large hardware store who buys timber directly from the sawmill and sells directly to the consumer or a large supermarket chain who buy directly from the manufacturer.

THE MARKETING OF SERVICES

Difference between Service Industries and Manufacturing Industries

Service industries differ from manufacturing industries in both the types of processes they engage in to produce the services and in the types of relationship they engage in with their customers. The following are the main characteristics that make the management of service organisations different from that of goods producing organisations:

  • Intangibility: Services are difficult to describe, demonstrate, and communicate to the buying public. As a result an organisation’s reputation is very important in service marketing.
  • Perishability: Services are only immediate or single use: Most services are purchased and consumed simultaneously (normally in the presence of the consumer), which means they cannot be held in stock. If there are fluctuations in demand, service firms may have problems matching supply and demand. This aspect of service can be addressed by good demand management
  • Heterogeneity/Variability: Services produce diverse output. There can be a great deal of variability in the output of a service firm or even a single employee, which makes it difficult to establish standards and ensure standards are met.
  • Inseparability: Service is produced and consumed simultaneously. The consumer interacts with and participates in the service delivery system.

The Seven Ps of Service Management Strategy

Earlier in this chapter the four Ps of the marketing mix (product, price, place and promotion) were discussed. However when it comes to marketing services these four parameters were found to be insufficient. As a result three additional “Ps” were added, namely Physical Evidence, Process and Participants. The combined 7 Ps called the extended marketing mix or service mix are as follows:

  • Product
  • Price
  • Place
  • Promotion
  • Physical Evidence
  • Process
  • Participants

Product

The product in a service environment is referred to as a Consumer Benefits Package (CBP), which normally consists of a bundle of products and services. The service marketers must communicate with consumers and adapt the CBP to changing market demands.  Many factors have to be considered at the service level including:

  • The range of services required to satisfy the different segments of the market
  • The intangibles as well as the tangibles consumers evaluate when buying a service
  • Differentiation – how to promote the distinguishing characteristics of the service that the organisation provides
  • Difference between consumer and industrial markets
  • Branding the bundles of benefits provide.

Price

As in a manufacturing environment, many service firms base their pricing policies on cost factors alone without accounting for the dynamics of the market place and the pricing behaviour of competitors. It is important that service firms develop a flexible pricing strategy based on the purchasing power of the target market and the pricing behaviour of competitors.

A service may be successful at a certain price but not at another. The main factors that determine the price of a service include: •     Market structure

  • Economic conditions
  • Competitive conditions
  • Types of customers and their disposable income bracket
  • Strategic objectives of the firm
  • Legal issues
  • Distribution channels

Place

Distribution and location are very important for many firms, in particular retailing, restaurants and financial services. For example the multinational retail giants will generally locate in the high street or may become anchor tenants in new shopping centres. Online shopping and Tele-shopping have become important distribution channels for service providers in recent years as it allows retailers to reach a much larger market without the expense of retail outlets.

Promotion

From a service perspective the advertising and communications strategy is vital in positioning the product/service bundle. In many instances the product/service bundle is purchased and consumed simultaneously which increases the opportunity for personal and direct selling at the point of contact. The key issues to be addressed within promotion include:

  • Promotion and promotional mix
  • Marketing communication
  • Market research

Promotion is defined as an attempt by marketers to persuade others to participate in an exchange with them. The promotional mix is the combination of tools marketers use to promote their services and is made up of the following: •           Personal selling

  • Publicity
  • Public relations
  • Sales promotion
  • Advertising

 

These topics were discussed earlier in this chapter.

Physical Evidence

The physical evidence relates to how the facilities are designed and managed. The key management activities in this instance are as follows:

  • The interior /exterior facility layout with regard to theme, décor, lights, signage.

Service encounter, cleanliness, etc.

  • Employee appearance and hygiene.
  • Equipment/automation convenience reliability, ease of use, attractiveness etc.
  • Adequate exterior capacity such as parking facilities etc.
  • Visible professional credibility e.g. licences etc.

Process

Process refers to the efficiency and effectiveness of the service process involved in delivering the product/service mix. The specific management activities from a process perspective are as follows:

  • The drawing up of detailed operating procedures, manuals and job descriptions.
  • Specifying procedures for customer problem resolution.
  • Training on technical and procedural aspects of the job.
  • Establishing standards of performance for the facility, the process, the equipment, and the jobs that deliver the Consumer Benefit Package.
  • Facility design and layout to enhance customer/item movement through the process.

Participants (People)

The final P in the service environment is the Participants, which refer to the people who actually deliver the service at the point of customer contact. In essence the other 6 Ps play only a support role in a service environment. Whether it is a one-to-one basis, over the phone or via the Internet, the professionalism, politeness and credibility of the Participants are critical.  The key issues to be considered here are the following:

  • The use of employee reward system as a motivational tool.
  • Training on human interaction skills and customer problem resolution.
  • Personal Selling procedures and techniques.
  • Self-service/group participation procedures and norms of behaviour.
  • Simultaneous execution of technical and human interaction skills at points of customer contact.

 

 MARKET SEGMENTATION, TARGETING AND POSITIONING

Markets consist of buyers and buyers differ in one or more ways. They may differ in their wants, resources, locations, buying attitudes, and buying practices. Through market segmentation, companies divide large, variable markets into smaller segments that can be reached more efficiently and effectively with product and services that match their unique needs.  Market research gives an organisation a better idea of the options it can pursue within the market place.

Selecting the market to which it is most suited is often seen as a three-stage process:

  • Market Segmentation: This involves dividing a market into smaller groups of buyers with distinct needs, characteristics, or behaviours who might require separate products or marketing mixes. Segmentation is essentially the identification of subsets of buyers within a market who share similar needs and who demonstrate similar buyer behaviour. It involves developing measures of segment.
  • Market Targeting: This involves evaluating each market segment’s attractiveness and selecting one or more of the market segments to enter.
  • Market Positioning: This involves setting the competitive positioning for a product and creating a detailed marketing mix.

Market Segmentation

Market Segmentation consists of breaking the total market into segments that share common properties such as:

  • Common wants of consumers
  • Purchasing power
  • Geographical location
  • Buying attitudes or practices

The ultimate degree of market segmentation is customised marketing where sellers design a separate product for individual buyers. Airline manufactures such as Boeing customise airplane for different buyers. However for smaller businesses it isn’t profitable in most cases to customise products at the individual level, so manufactures identify classes of buyers who differ in their broad requirements. By focusing on a segment of the market the organisation is able to get a better understanding of those customers specific needs and as a result can develop products that meets those needs better. Market segmentation can be carried out at several different levels:

  • Mass Marketing (No segmentation or undifferentiated marketing): This is where the firm decides to ignore market segment difference and targets the whole market with one offer. This mass market strategy focuses on what is common in the needs of consumers rather than on what is different. Coca Cola use this strategy.
  • Segmented marketing (or differentiated marketing): This is a strategy where a firm decides to target several market segments and designs separate offers (product or services) for each. Most of the major car manufactures would adopt this approach.
  • Niche marketing: Instead of going after a small share of a large market the firm concentrates on a few smaller segments or niches and tries to gain a large share of the niche market. This is an attractive strategy when company resources are limited.
  • Micro marketing (customised products): This strategy involves customising or tailoring products/services and marketing programs to suit the tastes of specific individuals and locations.

Companies developing their strategy for segmentation can choose one of several variables or bases from a wide range of choices, which include the following:

  • Demographics: This method uses characteristics of peoples such as age, gender, family lifecycle (single, married, married no children, married young children, retired, etc.) social class, etc.
  • Geographic: This uses, country, region, area (urban or rural), etc
  • Buyer Behaviour: Occasions (are they regular, occasional buyers); Benefits sought (quality, convenience, speed etc); User rates (light, medium or heavy users); Loyalty status (none, strong, medium); Attitude to product (positive, negative, indifferent). Personality, Motives and Lifestyle: (referred to as psychographic)

Market Targeting

The second step in market selection calls for market targeting. The company now has to evaluate the various segments and decide how many and which ones to serve. In evaluating market segments, a marketer must look at a number of factors:

  • Segment size and growth: Companies must collect and analyse data on current sales, projected sales growth rates, and expected profit margins for the various segments. The company will be interested in segments that have the “right” size and growth characteristics. The largest, fastest-growing segments are not always the most attractive ones for every company. The company must consider competition and whether their company resources are sufficient to pursue the opportunity.
  • Segment structural attractiveness: The Company must assess several major structural factors that affect long-run segment attractiveness. Areas to consider include:
    • Current and potential competitors.
    • The threat of substitute products.
    • Relative power of buyers.
    • Relative power of suppliers.
  • Firm’s objectives, strategies and resources: The company needs to examine its own objectives and resources. The opportunity should provide a good fit. The environmental hazards of pursuing the opportunity must also be considered. “Can the company succeed in gaining this segment?”

Targeting Strategies

The company must also decide on the type of marketing strategy to adopt:

  • Undifferentiated Marketing: This is where a firm decides to ignore individual market segment difference and targets the whole market with one product or service offer.
  • Differentiated Marketing: This is where a firm decides to target a number of market segments & designs a separate marketing mix for each.
  • Concentrated Marketing: This is where a firm targets one or more niche market segments.

Market Positioning

A product’s position is the way the product is defined by consumers on important attributes; i.e. the place the product occupies in consumer’s minds relative to competing products. Because consumers cannot re-evaluate products every time they make a buying decision, they “position” products, services, and companies in their minds. The marketer seeks to position a product so that it is perceived to posse key variables considered important by consumers. The objective is to create and obtain a distinctive place in a market for a company and/or its products. Marketers must therefore:

  • Plan positions to give their products the greatest advantage in selected target markets.
  • Design marketing mixes to create those planned positions.

Positioning Strategy

The following steps should be taken to position a product or service in the market place to gain the best advantage:

Step 1:  Identify possible competitive advantages.

  • The key to winning and keeping market share is to understand customers’ needs and buying processes better than competitors and deliver more value.
  • Competitive advantage over competitors is gained by offering consumers greater value, either through lower prices or by providing more benefits that justify competitive advantage.
  • Competitive advantage can be achieved by differentiating ones products from those of competitors. Differentiation can be based on product features, performance, style and design, or attributes. The whole marketing mix can be used to differentiate a product.

Step 2:

Select the right competitive advantage – criteria for determining which differences to promote.

  • Find USP (unique selling proposition) if possible. Ideally the advantage should be important, distinctive, superior, communicable, pre-emptive, affordable and profitable. Step 3: Communicate and deliver the chosen position
  • Take strong actions to deliver and communicate the desired position to target consumers.
  • The marketing mix must support the positioning strategy
  • The positioning strategy must be monitored and adapted over time to match changes in consumer needs and competitors strategies

Market Planning 

Marketing planning is a systematic process that involves assessing marketing opportunities and resources, determining marketing objectives and developing a plan for implementation and control. The objective is to create a marketing plan. The marketing planning cycle indicates that marketing planning is a circular process.

Marketing plans vary in duration: Short-range plans cover one year or less. Medium-range plans encompass two to five years. Long-range plans extend beyond five years. Marketing plans should do the following:

  • Specify expected results so that the organisation can anticipate what its situation will be at the end of the current planning period.
  • Identify the resources needed to carry out the planned activities so that a budget can be developed.
  • Describe in sufficient detail the activities to take place so that responsibilities for implementation can be assigned.
  • Provide for the monitoring of activities and results so that control can be exerted.
  • Lead to the implementation of the organisation’s marketing strategy.

The three core steps of marketing planning are analysis, strategy and implementation.

Elements of the Marketing Plan

The output of the planning phase is the marketing plan. The plan outlines the process involved in analysing the marketplace, the decisions made by marketers and senior managers in terms of marketing mix and marketing strategy, and the action plans required to implement strategy.

The seven key elements in a marketing plan are as follows:

  • Situational Analysis: This provides background information on the marketing environment, the market itself, competitors and the 4 Ps.
  • SWOT Statement: This identifies the main opportunities and threats that face the firm of the product in question and the strengths and weaknesses of the firm.
  • Marketing Objectives: The objectives of the plan are identified, which include a forecast of sales volume and value, the desired market share and profit objectives.
  • Marketing Strategy: This is the key part of the plan, which details the marketing mix to be employed.
  • Action Plan and Programmes: These identify how the strategy will be implemented in terms of what is going to be done, who is going to do it, what is the time frame involved and how much is it going to cost.
  • Financial Details: The expected financial returns in terms of a Cash Flow statement, a Profit and Loss statement and a Balance Sheet, is put forward.

Product Market Strategy (Ansoff’s Matrix) 

An important planning task is to decide the best approach to positioning a product in the marketplace. Igor Ansoff identified that the basis for strategic advantage lay in the options that arose from combining the product and market mix. He identified the following options:

  • Market Penetration: The objective is to gain market share for the current mix of products and markets by undertaking activities such as improving quality, productivity or increased marketing, and generally involves the organisation in being more aggressive in marketing.
  • Product Development: This strategy involves building on the organisation’s current knowledge and skills to develop new products within the existing market. Drivers for such a strategy include changing customer needs. High risks are involved in terms of pioneering costs and demand uncertainty.
  • Market Development: This approach is based on venturing into new markets with the current product or service. This could include entering new segments as well as increasing the geographical scope, including exporting.
  • Diversification: This involves developing new products for new markets. There are two types of diversification:
    • Related Diversification: This involves moving into a new area of business, but within the existing industry that is served. Advantage is gained through the benefits the relationship to the current business.
    • Unrelated Diversification: Involves development beyond the present industry into areas where there is no apparent relationship to current business. The various product market strategies, also known as Ansoff’s competitive strategies or Ansoff’s matrix or grid is shown in figure 10.5.

 

The Marketing Mix in Market Planning

Taking account of the product market strategy that has been chosen, the marketer must integrate the other elements of the marketing mix into a coherent marketing strategy. The marketing mix will evolve to meet market requirements over the planning period and may also differ according to the market being targeted.

CUSTOMER CARE AND RELATIONSHIP MANAGEMENT

Customer Relationship Management (CRM) is one of the most important concepts of modern marketing. It is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction.

Companies are targeting fewer, more profitable customers. They are beginning to assess carefully the value of customers to the firm. Called selective relationship management, many companies now use customer profitability analysis to target their best customers.

Today’s companies are using customer relationship management to retain current customers and build profitable, long-term relationships with them. On average, it costs five to 10 times as much to attract a new customer as it does to keep a current customer satisfied.

Companies are also connecting more directly with customers. Direct marketing is booming.

Growing Share of Customer

Customer relationship management can help marketers to increase their share of customer customer’s purchases. To increase the share of customer, firms can leverage customer relationships by offering greater variety to current customers. Or they can train employees to cross-sell (related products) and up-sell (higher value products and services) in order to market more products and services to existing customers.

Satisfying the Customer Needs

According to Peppers and Rogers there are four basic steps in CRM:

  • Identify your customers in as much detail as possible, including demographics, psychographics (Interests, Attitudes, and Opinions), habits, and preferences.
  • Differentiate among them (for example, most and least profitable).
  • Interact with your customers (make this interaction more cost effective through automation whenever possible).
  • Customise your offerings to fit each customer’s needs through mass customisation or individual tailoring

Through these four stages, a company is better able to learn and understand its customers and provide more relevant and customised offerings.

Building learning relationships may be easier for companies in some industries than others. Travel agencies know their customers and their preferences. Most large retailers do not— unless they provide their customers with something of value in order to collect customer information, such as supermarket ID cards. In return for completing an application form and letting the supermarket record your purchases against your demographic data, the shopper will often get discounts on items. Once a company learns about its customers, it must be able to tailor its products, services, or promotions to cash in on the learning relationship. Hotels can record guests’ preferences (rooms, newspapers, restaurants, time of servicing the room, promotional specials etc.) and deliver these customised preferences upon check-in or throughout the stay. Other retailers would have a harder time supplying such customer customisation. 

INFORMATION SYSTEMS IN THE SALES AND MARKETING FUNCTION

Sales Order Processing Systems

The sales area is concerned with selling products to customers.  Sales order processing systems are used to capture and process customer orders and produce data needed for sales analysis and inventory control.

Before an order is accepted from a customer the Sales area must check with Stores that the goods requested are in stock and with finance that the customer has a good credit status. If both checks are positive the order is taken and confirmation is sent to the customer

Sales order processing systems can also be used to track the status of customer orders until they are delivered. Computer-based sales order processing systems provide a fast, accurate and efficient method of recording and processing customer orders and sales transactions. They also provide inventory control systems with information on accepted orders so they can be filled as quickly as possible.

Staff using a computerised sale order processing system can also access to information held by other functions. Sales staff can check stock levels and customer account information from their computer screen.  Sales order processing systems enable the status of an order to be checked and also enable reporting to be carried out.

Point of Sales Systems (POS)

Electronic point of sale terminal incorporates a cash register and a terminal connected to a computer. As well as performing the normal functions of a cash register, the point of sales terminal collects data relevant to each sale and sends this data to the shops computer system where it can be used for sales analysis and stock control.

Most point of sale terminals also incorporate a scanning device to read the bar codes of the grocery items. As well as improving the efficiency of the checkout operation, the data collected by the bar code reader enable a detailed receipt to be printed for each customer and sales and management information to be collected.

Most retail POS systems do much more than just “point of sale” tasks. Many POS systems can include fully integrated accounting, inventory management, forecasting and customer relation management (CRM),

Point of sale systems are used in supermarkets, restaurants, and hotels, as well as most types of retail establishment.

Sales Force Automation

Increasingly computers and the internet are providing the basis for sales force automation. In many companies the sales force are being supplied with notebook computers, WEB browsers and sales contact management software that connects them to marketing websites on the Internet and their company’s intranet. This not only increases the productivity of the salespeople, but dramatically speeds up the capture and analysis of sales data from the field to marketing managers at the company headquarters. It allows marketing and sales management to improve the delivery of information and support to their sales people.

For example, sales people can use their PCs to record sales data as they make their calls on customers and prospects during the day. Then each evening the sales representative in the field can connect their computer remotely through the internet to the company’s network. They can then upload information on sales orders, sales calls, and other sales statistics, as well as send e-mail messages and access sales support information. In return the network can down load product data, prospect lists on good sales prospects, and e-mail messages.

Marketing Databases

Many organisations maintain files or databases specifically for information generation purposes. For example an organisation may conduct or commission market research in order to create a marketing database containing information on existing customers and prospective customers.

Data Warehousing

A data warehouse can be defined as any centralised data repository, which can be queried for business benefit.

A data warehouse is a database that stores current and historical data of potential interest to managers throughout the company. This data originates in many core operational systems and external sources each with different data models. The data from the different applications are copied into the warehouse database as often as needed – hourly, daily, weekly, and monthly. The data are standardised into a common data model(s) and consolidated so that they can be used across the enterprise for management analysis and decision-making. The data are available for anyone to access as needed but cannot be altered. Data warehouses are specifically designed to allow the warehouse user to:

  • Extract archived operational data
  • Overcome inconsistencies between different legacy data formats
  • Integrate data from throughout an enterprise, regardless of location, format, or communication requirements
  • Incorporate additional or expert information

The data warehouse concept is shown in the figure 10.6 above. Companies can build enterprise-wide warehouses where a central data warehouse serves the entire organisation, or they can create smaller, decentralised warehouses called data marts.

Data Mining

Data mining is the analysis of data for relationships that have not previously been discovered.

Data mining results include:

  • Associations, or when one event can be correlated to another event (those who purchase a shirt may also buy a tie a certain percentage of the time)
  • Sequences, or one event leading to another later event (a purchase of a camera followed by a purchase of a camera case)
  • Classification, or the recognition of patterns and a resulting new organisation of data (for example, profiles of customers who make purchases)
  • Clustering, or finding and visualising groups of facts not previously known
  • Forecasting, or simply discovering patterns in the data that can lead to predictions about the future 

Customer Relationship Management (CRM) Systems

CRM systems attempt to integrate customer-serving processes in the Marketing, Sales and Service functions. The main CRM components include contact and account management, sales order handling and fulfilment, customer service and support, and customer retention and loyalty programmes.

CRM systems are aimed at helping organisations to acquire and retain as well as sell to profitable customers. Traditionally organisations had different departments dealing with customers in isolation, which created difficulties for the customers and the organisation. For example if the customer wanted to place an order they had to contact function A while if they wanted to request service they were required to contact function B. CRM systems try to coordinate the efforts of Marketing, Sales and Service staff by ensuring all relevant customer activities, and transactions are recorded in a commonly accessible manner

Business Value of Customer Relationship Management Systems 

Companies with effective customer relationship management systems can realise many benefits, including increased customer satisfaction, reduced direct marketing costs, more effective marketing, and lower costs for customer acquisition and retention. Information from CRM systems can be used to increase sales revenue by identifying the most profitable customers and segments for focused marketing, cross-selling, and up-selling.

IMPACT OF E-COMMERCE

The Business Value of the Internet

Most companies are building commercial sites on the Web to achieve business value. The business value of the internet includes:

  • Generate new revenue from online sales.
  • Reduce costs through online sales and customer support.
  • Attract new customers via Web marketing and advertising, and online sales.
  • Increase the loyalty of existing customers via improved Web-based customer service and support.
  • Develop new Web-based markets and distribution channels for existing products.
  • Develop new information-based products that can be accessed over the Web.

Electronic Commerce (e-commerce)

Electronic commerce is more than just buying and selling products online. Instead, it encompasses the entire online process of developing, marketing, selling, delivering, servicing, and paying for products and services purchased over the internet by customers.

Electronic commerce can include:

  • Interactive marketing, ordering, payment, and customer support processes at e-commerce sites on the Web
  • Access to inventory databases by customers and suppliers
  • Access to customer relationship management systems by sales and customer service representatives

Companies involved in e-commerce as either buyers or sellers rely on Internet-based technologies and e-commerce applications and services to accomplish marketing, discovery, transaction processing, and product and customer service processes.

The Internet and other networks provide vital electronic links between the components of a business and its customers, suppliers, and other business partners.  This allows companies to engage in three main categories of electronic commerce applications:

  • Business-to-Consumer (B2C) e-Commerce
  • Business-to-Business (B2B) e-Commerce
  • Consumer-to-Consumer (C2C) e-Commerce

Business-to-Consumer (B2C) e-Commerce

B2C e-commerce involves retailing products and services to individual shoppers. In this form of e-commerce the sellers are organisations and the buyers are individual consumers. The Internet provides companies with new channels of communications and interaction with customers that can be more cost-effective than traditional retailing. Companies can offer:

  • E-commerce Web sites that provide virtual storefronts and multimedia catalogues
  • Interactive order processing
  • Secure electronic payment systems
  • Online customer support

Some examples of successful business to consumer e-commerce Web sites are Dell.com who sell computer equipment directly to consumers and Amazon.com who sell books, eBooks, DVDs, cameras, computers, and a vast range of other items.

Business-to-Business (B2B) e-Commerce

Business-to-business electronic commerce is the wholesale and supply side of the commercial process, where businesses buy and sell goods and services with other businesses.    Many businesses are integrating their Web-based e-commerce systems with supply chain management, customer relationship management, and other information systems.  This ensures that all electronic commerce activities are integrated with their business processes.

Consumer-to-Consumer (C2C) e-Commerce 

In this category of e-commerce, consumers sell directly to other consumers. For example, eBay the giant online auctions site enables consumers to sell to other consumers by the auctioning off of items to the highest bidder.

Benefits and Limitations of E-Commerce

Benefits of E-Commerce

Both organisations and consumers can benefit from e-commerce.

BENEFITS TO ORGANISATIONS

The benefits to the organisation include:

  • Global reach
  • Being able to source cheaper supplies
  • Reduced Cost of doing business
  • Speeds up the flow of goods
  • Improved customer service
  • Enable small businesses compete against large companies

BENEFITS TO CONSUMERS

The benefits to the consumer include:

  • Providing less expensive products and services by allowing customers to do quick online comparisons
  • Enabling customers to shop or make other transactions 24 hours a day
  • Giving customers more choices in terms of products and suppliers
  • Delivering relevant and detailed information quickly
  • Enabling consumers to get customised products such as PCs

Limitations of E-Commerce

The limitations of e-commerce include:

  • Lack of universally accepted standards for quality, security and reliability
  • Difficulty in integrating e-commerce software with some existing applications
  • Unresolved legal issues related to fraud and buyer and seller protection
  • Customer resistance to changing from real to virtual stores
  • Perception that e-Commerce is expensive and unsecured
  • Increasing incidence of internet fraud and other crimes

 

E-CRM

Electronic customer relationship management (eCRM) is an electronic communications approach used by companies to establish, develop, and manage relationships with customers. It helps a company communicate effectively with customers through the Internet. Communications through eCRM range from sales and customer service to electronic customer satisfaction surveys. These communications usually occur through the company’s Web site.

Although CRM and eCRM share the same goals and focus, they have some basic differences. eCRM is essentially an online version of CRM. It provides a company with an additional channel to communicate with their customers. Although eCRM needs more advanced technology than traditional CRM systems, the opportunities presented to customers during one visit to the company’s Web site far outweigh the opportunities they experience through telephone, fax, or mail.

A company can succeed at managing customer relationships most effectively by incorporating a combination of eCRM and CRM strategies throughout the organisation.

ENTREPRENEURSHIP

Enterprise in general relates to generating an idea, identifying the resources required to get the idea up and running as a business venture, and making the venture a commercial reality (Lynch and Roche 1999). The classical definition of entrepreneurship limits itself to individuals who start up new business, large or small. The non-classical definition refers to any activity which creatively develops an organisation, whether from scratch or as part of an ongoing process.

Characteristics of Entrepreneurs 

Much research has been undertaken to identify the basic characteristics and personality traits common to entrepreneurs. However, entrepreneurs generally come from all walks of life; they can be teachers, engineers, business students, farmers, accountants, lawyers etc. There are usually self-confident, sure of their goals and of how to achieve them. They are selfnurturing, and capable of overcoming disappointments. They are usually action-oriented, with high energy levels and with a capacity to work with uncertain situations. Timmons (1994) identified the key traits of the entrepreneur, based on an analysis of 50 research studies. These traits include:

  • Total commitment, determination and perseverance
  • A drive to achieve and grow
  • Opportunity and growth orientation
  • Willingness to take initiative and personal responsibility
  • Persistence when problem solving
  • Low need for status and power
  • Calculatedly risk taking and risk seeking

O’Farrell (1986) identified the following types of new firm founders:

  • The Graduate Entrepreneur: Typically a graduate of engineering or business, she/he is usually involved in high-value-added technology-based goods with export or import substitution potential.
  • The Opportunist Entrepreneur: Usually of a middle class background, this person has typically held a variety of jobs and may have a family background in small business. They tend to have nursed an ambition to found his/her own business for a long time.
  • The Craftsman Entrepreneur: Generally a semi-skilled or skilled background with a technical education or apprenticeship. They will often start a business on a part-time basis with little capital. They will have little business or management experience and is more likely to be limited to one or two products or services.

Entrepreneurs are changing all the time. In the future it is most likely that they will be more educated and younger than previously as more potential new products than ever will be technology based or will rely on the use of technology to produce.

The availability of entrepreneurs and entrepreneurship skill is influenced in part by the economic environment. The provision of low cost enterprise assistance in terms of resources and training by state agencies are mechanisms that have been shown to encourage entrepreneurship. The increased use of outsourcing by organisations has meant that more people have in recent years started to go out on their own, seeking an opportunity to fill a niche in the market.

Stages in the Enterprise Process

The enterprise sets out the staged involved in moving from the initial idea to a commercial venture.  The enterprise process discussed here is adapted for one proposed by Lynch and Roche (1999) and consists of the following six key phases:

  • Generating the Idea
  • Testing and Validating the Venture Idea
  • Writing the Business Plan
  • Assembling Resource and Market Entry
  • Growing the Business
  • Expanding or Exiting the Business

Generating the Idea

Business ideas can come from a wide variety of sources. Vesper (1990) identified a number of sources of venture ideas including the following:

  • Prior Employment: Many new venture ideas come from the experience gained in former jobs. Some employees start their own business to fill a gap they found in the market that in now being served by the industry.
  • Obtaining Rights: Acquiring a licence to produce and sell a product or service developed by others is another way of developing a new business venture.
  • Collaboration or Invention: An inventor or creator of an idea who lacks some necessary skill sales, finance, production etc may be willing to let an appropriate person collaborate with them a new venture.
  • Hobbies: These can be a source of new venture ideas. For example an avid part-time gardener may decide to open their own garden centre.
  • Social and Business Networks Encounter: Social and Business networks play an important role in the commercialisation of new venture ideas.
  • Chance Observation: Sometimes the inspiration for a new product or service will come simply from seeing a need in ones daily life.

Deliberate Search: This approach involves the entrepreneur searching for ideas. The internet is a growing source of ideas with its extensive search capabilities.

Testing and Validating the Venture Idea

Once the new venture idea has been generated, it must be tested and validated to establish its business potential. Before a business plan can be written, market research is undertaken and a feasibility study is carried out.

TESTING THE VENTURE IDEA

The testing phase will attempt to answer the following questions:

  • Will people want the product? Will they buy it? Will it make a profit?
  • What are the setup costs and the opportunity costs? What are the risks?
  • Will the venture generate wealth for the entrepreneur?

VALIDATING THE VENTURE IDEA

If the results of the testing are favourable then additional validation is carried out. The validation will look at the competitive advantages of the venture, the production, marketing, human resource and capital requirements of the venture to establish if it is a viable commercial business opportunity.

The next decision to be made is how to get the product to market. The following are some common routes to market:

  • Develop the new business from scratch.
  • Subcontracting out production – the entrepreneur focuses on marketing and sales          Franchising – The entrepreneur may decide to franchise an existing operation • Acquisition – this is where the entrepreneur buys an existing company.

THE FEASIBILITY STUDY

A feasibility study should be undertaken before preparing a business plan. Its purpose is to determine the feasibility of the business venture.

MARKET RESEARCH

Market research enables the entrepreneur to determine whether there are people willing to buy their product or service. Essentially market research should cover the following areas:

  • Determine the market: Who are the customers? How many are there? Where are they located? What price are they prepared to pay? Is the number of customers increasing or declining?
  • Analyse the competition: What are the strengths and weaknesses of the competition? What products do they offer? For how much? Where do they sell?
  • Assess the environment: How will the economy affect your business? Are there any trends in society that may influence your product e.g. green issues etc?
  • Evaluate the resources required: How much capital will be required? How much working capital will be needed?

Writing the Business Plan

The purpose of writing a business plan is to show how the business is to be setup and managed. It sets targets for each phase of the development of the business, it clearly outlines the financial requirements of the business, and in addition it details the marketing strategy to be adopted.

It is often written with potential investors in mind as well as for the benefit of the entrepreneur. In general a business plan should include the following:

  • An executive summary
  • A description of the products or services to be offered
  • An analysis of the market
  • A detailed marketing plan
  • A comprehensive human resource plan
  • An operations plan and financial plan, including sales forecasts, financial projections, resource requirements etc.
  • A capitalisation plan stating how much money the owner is putting into the business and what other finance is required.
  • Details of the experience and expertise of the owner and/or management team.

In essence the business plan should show that:

  • The venture is financially viable
  • There is a market for the product or service
  • The entrepreneur is able to manage the business

Assembling Resource and Market Entry

When funding has been arranged it is then possible to move the venture forward. It is critical that a realistic timeframes is established for market entry plans. The timeframe for starting the business will depend on the assembly of a number of resources. Factors, which need to be addressed, include:

  • Finding funding sources
  • Finding suppliers and distributors
  • Finding suitable premises
  • Recruiting and organising staff
  • Acquiring machinery and technology
  • Marketing and Venture launch
  • Winning customers

 

Two key aspects for any start-up business are cashflow and credit control. If the money does not come in, there will not be any working capital to fund the next phase of production and marketing.

SOURCES OF FINANCE

The two main sources of finance for an enterprise are debt financing which involves obtaining a bank loan and equity financing where others are given a stake in the business in return for providing capital. Also Government funding in the form of grants are available. The various sources of finance are discussed in details in chapter 11.

MARKET STRATEGY

An important consideration is the market strategy to adopt. The main options (Porters generic strategies) include:

  • A low cost strategy: By adopting a low cost strategy a company may be able to under-cut the competition and gain market share. However the competition can also reduce price and may have the resources to sustain lower prices for a long period of time.
  • A focused or niche market strategy: This is where a company focuses on a segment of the market that has some special needs. This may be a good strategy for a small company. A key consideration here is whether the niche is large enough to support the business.
  • A broad mass-market strategy: This strategy is where the company tries to appeal to the broad mass of customers in the market. The down side of this approach is amount of competition in the market but if a firm is successful they will be able to achieve

economies of scale and will have good growth opportunities

Business Incubation

Business incubators are programs designed to support the successful development of entrepreneurial companies through and array of business support resources and services, developed and arranged by incubator management and offered both to the incubator and through its network of contacts.

 

E.g. of Incubation Services

  • Marketing Services
  • Help with Business Basics
  • Technology Assistance
  • Help with Presentation Skills
  • Help with Accounting/Financial Management

Business Opportunities

Characteristics of good business opportunities, e.g.

  • Something you are passionate about
  • Find a niche market
  • Low start- up costs
  • Low fixed costs
  • Recurring Sales
  • Clear, distinct position in the marketplace
  • Maximise the unique talents of you and your team
  • Create intellectual property Challenges Entrepreneurs Face
  • Internal & External Factors – The way an entrepreneur conducts his/her business. Competitors entering the market , especially if you are within a niche market
  • Negative Mindset – our own fears, excuses
  • Overwhelming feelings – being the captain of your own ship can be difficult when you have to look after all aspects of the business
  • Feelings of wanting to give up – e.g. when you are not seeing results
  • Perfectionism – wanting to make perfect every aspect of the business at once
  • Forgetfulness – so many things that need to be done to the extent that some of the things that need to be accomplished are forgotten Social Entrepreneurship

Social entrepreneurs play the role of change agents in the social sector, by:

  • Adopting a mission to create and sustain social value (not just private value),
  • Recognizing and relentlessly pursuing new opportunities to serve that mission,
  • Engaging in a process of continuous origination, modification, and learning,
  • Acting boldly without being limited by resources currently in hand, and
  • Exhibiting a heightened sense of accountability to the populations served and for the outcomes created.

Entrepreneurship Education & Training

  • Entrepreneurship Education and Training is about the development of personal skills and qualities so that people of all ages gain knowledge and understanding of the way in which the economy works and reacts to market forces.  This involves approaches to the development of:- Creativity
  • Problem Solving
  • Team working
  • Taking calculated risks
  • Communication Skills
  • Leadership
  • Decision Making
  • Time management

Entrepreneurship Education and Training identifies the role of the entrepreneur in society. Entrepreneurship education fosters entrepreneurship, which in turn results in positive outcomes on individuals, firms and society. The growing interest in entrepreneurship education is witnessed by the vast array of publications in books and journals.

Some jurisdictions offer tax incentives to start up enterprises, it is strongly recommended to check with your accountant, revenue authorities about such incentives.

Growing the Business

Once the business is up and running and the initial problems have been resolved, the business needs to consider the next phase of growth and how to achieve it. Options include consolidation in core market, market development, product development and diversification.

These growth strategies are discussed in chapter 10.

Expanding or Exiting the Business

Once a company is successful and the value of the company has increased, there are three basic options open to the owners of the company if they want to realise a profit. The three options include:

  • Flotation: a flotation can help raise cheap capital via the equity market. The company can finance acquisitions by issuing shares, which would enable it to grow more quickly than if it relied on its own resources or bank borrowings.
  • Trade Sale: A trade sale involves the sale of all the company’s equity, the managers retaining no stake. The owner-manager may only want to realise part of their investment so as to allow the refinancing of the company.
  • Sale to Management: This involves the owner selling the business and its assets as a going concern to the existing management team

BANKRUPTCY

Bankruptcy occurs when an enterprise cannot meet its financial obligations – when it cannot pay its debts. Bankruptcy can be either voluntary or involuntary. In voluntary bankruptcy cases, the debtor applies for bankruptcy while in the case of involuntary bankruptcy cases, the creditors start legal proceedings against the debtors.

Different Forms of Business Organisation

There are many ways in which an enterprise can get up and running. The section looks at the five main types of commercial enterprise (as suggested by Lynch and Roche 1999), which are as follows:

  • Sole trader
  • Partnerships
  • Limited Liability Companies (Private and Public)
  • Franchises

Sole-Trader

Sole traders include farmers, tradesmen shopkeepers, and individuals who trade under their own name. As these businesses grow they can become difficult to manage and they may also find it difficult to raise finance. The characteristics of this form of business include: • Unlimited Liability – owner is personally responsible for all the debts of the business

  • Taxation at a Personal Level – and general public does not have access to the accounts of the business

Partnerships

A partnership is defined as an association of persons, not exceeding 20 (10 in the case of banking partnership), formed in order to realise profit through a business venture.

Partnerships are particularly common in profession such as Law and Accountancy,

Limited Liability Companies (Private and Public)

A company is a business organisation in which ownership is transferable through the buying and selling of shares. A limited liability company is one in which shareholders and investors are liable only for debts equalling the sum invested.  This is the most common form of business enterprise for medium and large sized firms.  The main advantage of limited liability companies is the capacity to attract sums of capital from various sources. Other advantages include taxation of limited companies at a specific corporation tax rate usually lower than the rate of personal income tax.

The main disadvantages are that profits are paid out as dividends, and the owners may lose control of the company.

Franchises

A franchise is an arrangement whereby a franchisee is permitted by the franchiser to sell or distribute trademarked goods or services. Example McDonalds (fast food). Franchises are often seen as the simplest way of getting into business, as the entrepreneur or franchisee can draw on the expertise, support and financial assistance of the existing business. Strict rules for every aspect of the business are written into the franchise agreement to ensure the products or services offered remain recognisably those of the franchiser. There is therefore little room for manoeuvre in terms of making the business distinctive. In addition, the cost of securing a well-known franchise can be very high, and royalty payments based on sales can be challenging.

 

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