INTRODUCTION:

An entrepreneur is considered a human agent who mobilizes capital, exploit natural

resources 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.
Problem Solving Cycle

Contact with
problem

Clear understanding
Success Failure of problem

Information
seeking
Evaluation Definition of
Creativity objectives

Action Elaboration of
strategies

Allocation of
resources
2. Goal Setting
Goals should be smart:

S pecific
M easurable
A mbitious
R ealistic
T ime bound

Goal Achievement: example of obstacles

Goal: To arrive for the training course at 9 o’clock.
Strategy: Take the 8:40 bus at the .... bus station.
Obstacle (Monday It´s 8:20! The damned clock didn´t ring!
morning):
Motivation: If I don´t hurry up, I’ll have to pay the fine.
Priorities: I have to go out without having breakfast.
Obstacle: Brrr! Bus strike!
Alternative: I’ll take a taxi.
Additional Everybody is trying to take a taxi!
information:
Resources: Oh, God! I forgot the money at home!
Motivation: Ok, I can´t 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 to
walk!
 Handout

GOAL SETTING

A. Modes of Formulating Goals

1. Doing - activities considered important

I want to do... or I will work on...

2. Owning - possession of something

I 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 mobile or to represent a certain
status.

3. Changing oneself – setting personal standards in position, expertise, status.

I want to become...

B. Goal Setting Process

1. Describe long and short-term goals!

S specific
M measurable
A ambitious
R realistic
T time-bound

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!
C. Classification of Goals

1. Career satisfaction, work, profession.

2. Family, home.

3. Social, interpersonal relations outside home (cultural, social, political, professional

associations, 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 Setting Exercise

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

A. What I want to achieve in...

- one year?

- five years?

- ten years?

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

SMART

Let’s start with your short-term goal to be achieved in one year:

Turn over to the next page!

B. Short-Term Goal (one year)

Mention here again (from page 1):

1. How will this goal contribute to what you want to achieve in life?

2. How will you achieve your goal?

Activities Resources Required Time Frame

3. How will you measure or monitor your progress?

Specify standards of performance and measurement criteria!

4. What problems/obstacles do you anticipate?

Personal Environmental

C. Medium-Term Goal (five years)

Mention here again (from page 1):

1. How will this goal contribute to what you want to achieve in life?

2. How will you achieve your goal?

Activities Resources Required Time Frame

3. How will you measure or monitor your progress?

Specify standards of performance and measurement criteria!

4. What problems/blocks do you anticipate?

Personal Environmental

D. Long-Term Goal (ten years)

Mention here again (from page 1):

1. How will this goal contribute to what you want to achieve in life?

2. How will you achieve your goal?

Activities Resources Required Time Frame

3. How will you measure or monitor your progress?

Specify standards of performance and measurement criteria!
4. What problems/obstacles do you anticipate?

Personal Environmental

4.

PERSONAL ENTREPRENEURIAL CHARACTERISTICS (PECS)

Personal Qualities for

Successful Business People
extroversion
ambiguity tolerance
locus of self-control
learning from failures
persistence
responsibility acceptance
moderate risk taking
decision making
self confidence
creativity
opportunity seeking
information seeking
 1. Creativity

Creativity means bringing into existence an idea that is new to you. Innovation is the
practical application of creative ideas. Creative thinking is an innate talent that one is born
with and a set of skills that can be learned.
The main features of creative thinking which can be trained are:
1. Thinking simple: Don’t look for complicate solutions and don’t be ashamed to
think simple. The most important inventions of making are simple, like e.g. the
wheel.
2. Thinking beyond the borders: Our thinking constantly is limited by our habits,
Education, Knowledge, Experience and Culture. Creativity only is possible when
going beyond these limitations.
3. Openness for impossibilities / Craziness: Often our thinking doesn’t go further,
because we think that something is impossible. Creative thinking means to open
our mind for things which are at the first glance impossible. Ideas coming out
thereby may be understood as “crazy”.
4. Persistence in situations where the first thought is “impossible” or, after some
time of creative thinking “that’s it”. The real innovative area only starts after having
developed 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 ideas
that anyone could have is not unique.

Enabling Creativity – Killing Creativity

Starting point:

 creativity is not only innate - it can be acquired and trained

 creativity requires enabling environment and processes - so it can be supported

 the level of creativity is different between cultures, persons, and over the history, - so
varying factors influence it

Various different abilities and skills are enabling creativity and define the level of
creativity that a person can achieve:
 divergent thinking:
 unconventional thinking:
 thoughts mobility:
 originality:
 opportunity awareness:
 elaboration:
 rich vocabulary:
one is not satisfied just by one solution
one is not afraid of really new ideas
the wealth of ideas and the easiness to create
ability to develop something unique
ability to see potential rather without implicitly
thinking
skill to work out ideas, finish them
skill to have wide choices of and precision in
expression
 power of concentration: ability to address full mental capacity 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  linked
 sequential  simultaneous
 targeted  systemic
 logical  intuitive
 detailed  holistic
 organised  visual
Most of revolutionary new ideas are born is the right hemisphere. Hence, appreciating and
emphasizing 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);
 the creative process basically involves 4 steps, involving both sides:

Creative Process
1. Preparation  raising problem awareness
“left”  situation analysis and
comprehension
2. Incubation  relaxing, distraction
“right”  unconscious processing
3. Inspiration  sudden idea generation
“right”  intuitive way-out
4. Verification  examination of ideas
“left”  screening, filtering, prioritising
 later: evaluation

In most enterprises the

“culture” focuses on the 1st and
Where Innovative Ideas are Generated 4th step. Steps 2 and 3 are not
supported, and regarded as
childish, unprofessional, waste
during leave in nature of time and money.
13% 28% Studies reveal that most
on business innovative ideas are not
journeys created within the business
11% itself

within others outside

company 25%
23%
The lack of innovative culture could be assessed by observing, if the following
sentences are rather often be found or not:
Killer phrases of unnovative culture

 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 won’t work

 if you don’t like it like this why don’t you go

Unnovative culture can be caused by blockages:

social blockage psychological blockage

 too many committees
 too much routine work
 bureaucratic rigidity
 rivalries
 lack of appreciation
 traditions and taboos
 too demanding targets
 striving for the absolutely true
and best
 tendency towards usual
procedure
 inhibition to speak
 disappointment and resignation
 easy personal satisfaction
 lack of self confidence

3M, a company known by creative culture and demanding management has set the
following support mechanisms:

 15 % rule: every employee can address up to 15% of the time to a project of his/her
choice;

 25% rule: each business area must make > 25% of turnover with products that are
not older than 5 years;

 genesis grants: risk venture capital funds of up to 40.000 US$ for checking out
ideas and prototypes;

 shareholding: since 1937 employees are participating in companies profit making.

Rules for Creativity and Brainstorm
Processing and Generalizing

1. Features of Creative Ideas

a. simple

b. beyond limits

c. associative

d. surprising

2. Character of Creative Environment

a. motivating

b. stimulating

c. challenging

d. full of light

e. without external disturbance

3. Character of Creative Person

a. courageous

b. open

c. open-minded

d. persistent

e. crazy

f. perceptive

g. self-confident

h. curious

4. Rules for Creative Work

a. do not yet evaluate

b. every idea is welcomed

c. avoid repetitions

d. affirm good ideas

Macro and Micro Screening

Funnel model

Brainstorming 100 – 500 ideas

Macro Screen 5 ideas

Micro Screen 1 idea

Suggested Idea

Further Processing:
 risk analysis
 SWOT
 business plan
loops back to Micro-Screen if needed
Definitions of the parameters applied in Microscreening

Solvent demand

If there is no assurance of an adequate market, there is no sense going to business. The

market 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 his
costs 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 served 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 increase significantly or substantially in
the future;
g) supply of the product is presently served through smuggling.

Availability 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 project
are available;
b) supply of skills is relatively steady and stable so as not to jeopardise the project in
case of sudden or unforeseen labour changes, unusual turnover, or unexpected
problems;
c) cost of labour is projected to be fairly steady and predictable.
Availability of technology / 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 project
not viable;

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

f) seasonal availability of the required M/C.

Availability of raw 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;
Competitors (ATTENTION! Deduct score from total!)

More there are competitors offering the same kind of goods or services, less likely is the
survival of the entrepreneur planning to go into the respective business. That’s why the
score obtained (5 for many competitors, 0 for none) is to be deducted from the total
obtained so far. Based on this, the participants can calculate their ”corrected total”.

Critical Success Factor

After the above mentioned parameters have been evaluated and rated, the participant goes
into a finer cross-checking of the key variables affecting the success or failure of the project
idea. 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 that
certain factor is missing, is inadequate, or is not properly taken into account, it can indicate
that 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 refined
or 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 good maintenance of high
ocean (lake) water quality or the availability of petrol (diesel) throughout the year might be
decisive for the success of tourism projects. If absent, the project is bound to die very soon.
 Solvent Availability of qualified Availability of Availability of raw
Parameters demand personnel technology / material Competitors
equipment
ALTERNATIVE IDEAS TOTAL
(+) (+) (+) (+) (-) (=)
Weight
SWOT

SWOT Analysis is a technique to identify Strengths, Weaknesses, Opportunities and

Threats 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 are
considered.

The SWOT technique can be applied to the functional areas of an enterprise as well as to
products and services. Do not confuse strengths with opportunities and weaknesses with
threats. First of all, list out all the points in subsequent headings, 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 taking advantage of
opportunities and hedging on the threats. For the purpose of product development, points
mentioned under strengths and weaknesses should provide ample guidelines for the
entrepreneur to evaluate or decide what changes should be made on the selected
product.

COMPONENTS OF SWOT ANALYSIS

Strengths

What are the strengths of the business at the present moment? This should be thoroughly
analysed, 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 product
could be identified along the following lines :

- Cheap raw materials

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

Strengths should be enhanced.

Weaknesses

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
Weaknesses should be eliminated as far as possible. Weaknesses associated with product
identification/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 those

chances that are stored-up in the coming future and can be used to maximise the business
advantage. For example :
- No comparable products on the market
- New products being developed.
- Plant capacity increasing next year
- Growing 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 which
the small business has at the moment, while opportunities indicate the possibility of
advantages which the business can make use of in the coming future.

Threats

Threats are normally beyond the control of the business but influence its success or failure.
Examples of threats are :
- Rising costs
- Government 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.
Generally, you should cover the following aspects while making a SWOT analysis for a
enterprise/product :

MARKETING MIX AND MARKETING STRATEGY

The marketing mix is the integrated approach towards Marketing. The Marketing Strategy
has the task to ensure the achievement of the business sales target (x % share of the
market for the products / services a, b, c within y time). The elements of the marketing
mix, as instrument of the marketing strategy must be necessary and sufficient to achieve
the targets. Nevertheless

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

1.1. program policy

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

1.2. product strategy

1.2.1. product design
1.2.2. branding
1.2.3. packaging
1.2.4. additional services

2. PRICE

2.1. price policy

2.1.1. competition by pricing
2.1.2. specific price segment targeting
2.1.3. market

2.2. price decision based on

2.2.1. demand
2.2.2. costs
2.2.3. competitors

2.3. price conditions

2.3.1. discounts
2.3.2. payment targets
3. PLACE

3.1. location
3.1.1. access to and for the target market
3.1.2. strategic position in the market and with competitors

3.2. infra-structure
3.2.1. premises
3.2.2. supplies
3.2.3. transport and communication

3.3. distribution
3.3.1. channels
3.3.1.1. direct
3.3.1.2. indirect

3.3.2. target
3.3.2.1. intensive
3.3.2.2. exclusive
3.3.2.3. selective

4. PROMOTION

4.1. public relations

4.2. advertisement
4.2.1. methods
4.2.2. tools

4.3. incentives
4.3.1. events
4.3.2. promotion

5. PERSON / PERSONNEL

5.1. capacity
5.1.1. different levels
5.1.2. different tasks

5.2. quality
5.2.1. selection qualification

MARKETING

Marketing is an important operating arm of a business enterprise. Its activities begin even
before the product or service is produced and continue after the sale is made. This paper will
provide an overview of the marketing function. Starting with basic definitions of marketing
and 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
and marketing research, and concludes with a treatment of the 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 the exchange of desired objects by
two parties. Such exchange could be product for product (as in trade by barter), or product
for money in its various forms. For marketing or exchange to take place, it is necessary that
there be:

1. two or more parties who have unsatisfied wants;

2. some products or services and money to exchange; and
3. 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 economic
goods and services for the ultimate purpose of satisfying human needs. What activities are
implied in the above definition? They are many, but will be discussed under 'marketing
functions'.

Market as product buyers

A market for a product or service consists of individuals or organisations that have

purchasing 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 organisations

such as business firms, non-profit institutions such as schools and hospitals, or the
government - federal, state or local.
2. To be included in the market for a product an entity must have purchasing power, that
is money in its various forms - cash, cheque, credit.
3. Current buyers and potential buyers are included in defining a market. Thus, for a
product being newly introduced in an area, the market consists entirely of potential
buyers. A major challenge to marketing is to convert potential buyers to actual buyers;
in short to create a customer.

A third meaning of market is the verb sense, that is 'to market a product'. It suggests the
performance of activities needed to bring an existing product to buyers, a meaning clearly
related 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 important
functions which are activities that must be performed to move products from producers to
consumers. From the literature ten such activities may be identified as follows.

1. Product development Marketing advises on what to produce; the quality, style,

design, brand name and packaging - all based on consumer and market research.
2. Pricing Marketing plays a large role in setting prices, whether at, above or below the
competitor's prices, and in determining a system of discounts for the middlemen who
handle the product.
3. Buying This involves selecting from an assortment of goods, determining quantity and
quality, selecting sources of supply and negotiating the terms of purchase. (This is
sometimes called purchasing or procurement.)
4. Advertising is the impersonal presentation of goods through the mass media - radio,
television, newspapers, etc. Advertising agencies may assist marketing in
performing this function.
5. Personal selling This is selling done through person-to-person contact. A large
number of salesmen are engaged in outside sales work or in retail sales in shops and
market-places. The sales force must be properly selected, trained and motivated to
perform.
6. Sales promotion and merchandising This involves the development of such tools as
point-of-purchase displays, window displays, free samples of the product, exhibitions
at trade fairs, news releases, price reductions during special 'sales' and so forth.
7. Physical distribution Marketing arranges for the physical handling of goods: storage,
transportation and proper inventory management.
8. Market research Marketing must gather and analyse information about demand,
consumer wants, competition, government policies, new products and general
changes in our social structure. This function underscores the fact that marketing
begins even before the product is produced.
9. Credit management and financing Credit is often used in serious business
transactions where firms buy and sell on credit. In addition, various types of financing
provide permanent as well as temporary capital for the marketing process.
10. Post-sale transactions Marketing must arrange to handle customer complaints after
the sale, and provide for after-sales service, especially for machines, equipment and
consumer 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 now

consider the place or role of marketing in the wider economy.

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

Value added by marketing

This concept is similar to the more familiar concept of value added by manufacturing. It
measures the monetary value of the purely marketing activities that occur from the point
when the product is produced to the time of purchase by the ultimate user. Production in
agriculture and manufacturing or processing creates form utility, that is the tangible product
purchased by buyers. Marketing adds value to the product by creating three kinds of utilities.

1. Time utility that is reflected in the storage of the product immediately after production
and 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. Possession utility that is reflected in the transfer of title and in providing information
about the product so that the buyer may use or enjoy it to the best advantage.
Using the definition of value added as the gross value of outputs minus the value of inputs,
we may define the value added per unit by marketing as the retail price minus producer's
price per unit.

It is sometimes difficult for people to appreciate the above values created by marketing. The
main reason is that marketing costs are often perceived as too high due to the inefficiencies
of the marketing system and occasionally also due to the unscrupulous practices of certain
middlemen. A second reason is psychological: marketing does not change the physical form
of the product, and the utility or value it creates is intangible. And something intangible may
be 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 and
Reed Moyer. Overall, marketing fulfils the critical function of integrating the economy into
society to serve human needs. Specifically, marketing contributes to material progress in the
following ways.

1. Marketing efforts enable the expansion of markets; this in turn calls for more
production 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 the
technology itself.
5. By linking local communities to the outside world, acquainting people with the
processes of the exchange economy and promoting the habits and attitudes
appropriate to it.

The development of marketing strategy

Any organisational entity that engages in marketing activities to serve a customer group with
a product or service is a marketer. We now consider how a marketer plans his marketing
programme. This is part of the overall job of marketing management, which is concerned
with the tasks of setting marketing goals, analysis of market conditions, planning the
marketing 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 market analysis, which is a
detailed inquiry into market conditions - buyers (size, location, quantities purchased, attitudes
and preferences, etc.), competitors and middlemen carrying the product. The marketer then
chooses a target market to cultivate and develops his marketing strategy by making
decisions regarding the product, the price, the distribution and the promotion in order to
satisfy the needs of the target market and provide the best chances of achieving the stated
marketing goals.
The combination of controllable variables - product, price, distribution and promotion - which
spells out the marketer's strategy is called the marketing mix. The kinds of decisions to be
made for each component of the mix are as follows.

1. Product assortment: design, quality, branding and packaging; product additions,

modifications and deletions.
2. Price Setting base price; middlemen's margins, allowances, discounts; freight
payments and geographic considerations, product-line pricing; charging established
prices.
3. Distribution Selecting channels of distribution; selecting and managing distributors
or middlemen to carry the product; establishing a logistics system for storing, handling
and transporting the product.
4. Promotion to stimulate market interest in the product by determining the relative
contributions 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 Marketing: A Managerial Approach uses a useful
mnemonic - '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 integrated one in
which the decisions on the four variables make sense in relation to one another. Thus, a high
quality product would ordinarily carry a high price, be distributed through retail outlets having
a quality image and the advertising would be in appropriate media that could display the
superior features of the product.

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

Problem

Suppose that market analysis indicates promising opportunities for the marketing of bottled
palm wine, where it is assumed that the technology for the preservation of palm wine has
been 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 wine
tappers are getting older and young men in the rural areas are not available, or if available
not interested in learning the skill of wine tapping, the product is getting more and more
scarce and its price is virtually exceeding that of beer. The bottler of palm wine, under the
present 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.
Marketing mix 1

One strategy is to make the product of very high quality, and package it in a distinctive bottle
that does not look like the beer bottle. For pricing, the price is set higher than beer but not as
high as imported foreign wines. For distribution, the kind of high volume distribution channels
utilised 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 now
apparent that, given the decisions made already on the other components of the marketing
mix, the promotional job is to present the bottled palm wine as a prestige drink that is
surrounded by tradition and certainly superior to beer; a product that one should use in
traditional and other important ceremonies as well as for quiet enjoyment. Advertising copy
that will properly portray this image could include traditional ceremonial settings, and drinking
with cow horns and calabash cups instead of glasses. Actually, the product is positioned to
compete 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 a
moderately 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 example
through palm plantation development and improved tapping methods, is to position bottled
palm wine as a direct substitute for beer. The product will be of good quality but will not be
fancifully packaged; in fact, beer bottles could be used. The emphasis will be to reduce the
costs of production as much as possible. The price will be competitive with beer, that is, it will
not exceed the price of beer.

Distribution channels will be similar to those used for beer distribution, that is there will be
appointment of major distributors and attaches as well as direct supply to major customers
such as hotels and clubs. Promotion will portray the product as more satisfying and
nourishing 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 man'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 details
remain to be filled in for actual implementation. It cannot be determined ahead of time which
strategy will be more successful than the other, especially as the effects of uncontrollable
variables 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 always
kept in view, and every effort is made to give value and satisfaction to the customers while
pursuing its own goals such as profit, it is said to be guided by the philosophy of the
marketing concept. Such expressions as 'the customer is king' or that 'marketing should
begin and end with the consumer' or being 'customer oriented' are all statements expressive
of the marketing concept.

The marketing concept is quite an idealistic philosophy, especially in places where various
basic 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
unconcerned about customer needs or complaints. The marketing concept is likely to be
applied more seriously when there is a strong competition in the market; the marketer who
creatively caters to customer needs is likely to win a differential advantage over less
imaginative competitors and thereby realism more sales and profits.

Environmental constraints: variables not controlled by the marketer

We have seen that a marketer controls the variables - product, price, distribution and
promotion - to determine his marketing mix, and that he should execute his plans with the
philosophy 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 ordinarily
controllable by the marketer and are therefore classified as environmental constraints. They
include competitors, the state of the economy such as growth or recession, consumers and
their unpredictable behaviour, suppliers and middlemen, business-related laws and
regulations, technology, the physical environment such as natural resources and climate and
the larger society with its culture. These complicate the marketer's tasks enormously and
lead 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 environment
in turn is affected by marketing. For example, consumers' needs, values and preferences
determine 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 marketing
effort. 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 the
information gathered into the design and execution of his marketing strategy and tries,
through promotional methods such as advertising, to influence consumer attitudes and
behaviour 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 his
marketing 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 and
be concerned about the satisfaction (or lack of it) of the consumer.

Buyers may be conveniently divided into household buyers and non-household buyers. The
latter group includes industrial, commercial, institutional (schools, hospitals, etc.) and
government buyers. Forces that influence buying decisions
The forces that determine what, when, where and why consumers buy and the prices they
are willing to pay are varied and interrelated in a complex manner. These may be
conveniently organised into three groups.

1. Economic determinants of demand.

2. Internal psychological variables.
3. Social and cultural influences.

Economic determinants of demand

The key economic factors that influence buyer behaviour are income, availability of credit,
expenditure patterns, prices of the product and prices of complementary and substitute
goods and elasticity of demand. Total household income less all taxes is called disposable
income. The portion of disposable income that is left over after expenditures on food,
housing, clothing and other necessities is called discretionary income, which is available for
expenditure on luxuries and other non- essentials.

There are two kinds of elasticity of demand: income elasticity of demand and price elasticity
of demand. Income elasticity of demand is defined as the percentage change in the quantity
of a commodity consumed divided by the percentage change in income. To take demand for
food as an example, it turns out that income elasticity of demand for food is lower for rich
families than for poor families. This is so because if incomes are already high, further
increases will not influence food consumption substantially, but if incomes are low, a large
share of additional incomes will be spent on food.

Price elasticity of demand is defined as the percentage change in quantity demanded

divided by the percentage change in price. When this quantity is greater than unity demand
is said to be elastic, and if less than unity demand is inelastic. The marketer is interested in
the effect of price changes on total revenues. When demand is inelastic, price changes will
result in less than proportional changes in quantity sold, thus revenues may not be eroded if
price goes up. As an example, the demand for drugs and medicines is usually price inelastic,
because the need to secure health is essentially insensitive to price or cost.

Internal psychological variables

An important factor in the buying decision is the buyer himself. Why does he want to buy the
item? Is the type of person he is related to the desire to buy the item? How does he receive
and organise information about the item? How does he feel about the item in terms of likes
and dislikes? What does he know and remember about the item? These questions are
probing the effects of the internal psychological forces of motivation, personality, perception,
attitudes and learning, respectively. For any given buying situation, one force may be
dominant or multiple forces may be at work.

We should particularly emphasis the role of attitudes and preferences in purchase decisions.
An attitude is a learned predisposition to react to an object in a certain way - positively or
negatively. It describes one's feelings in terms of liking or disliking the object. A preference is
the condition of liking one object better than another. A positive attitude will lead to the
purchase of an item, but a negative (or neutral) attitude will not. A major task of advertising is
to induce positive buyer attitudes towards the product. Behaviour itself may affect attitude
even as attitude affects behaviour. A person may not have been interested in a particular
product and may have had no attitude towards it, but on trying it he develops an attitude -
positive or negative. Or a person may have had a negative attitude before trying a product
and then modifies the attitude to positive after trial. This is the main reason why the giving
out 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 he
belongs to or aspires to belong to (called reference groups). Family members, friends,
neighbours and work associates are familiar examples of people who influence us. Social
conformity is strong in buying decisions. It is sometimes surprising how many things we own
are also owned by people we associate with. Purchase decisions for certain product
categories, especially those that are 'conspicuously consumed', are particularly prone to
social influence. Example can be found in clothes and fashions for young people on whom
peer group pressure is strong, cars for men, clothes and jeweller for women and home
furnishings and durable goods for households on which friends, relatives and neighbours
exert considerable influence.

Going 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 and
language. 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 pork
products or alcoholic drinks. More importantly for marketing, culture and tradition determine
the openness of a people to new ideas and their willingness to try new products and
services.

Market segmentation

Markets consist of buyers who differ in many ways and who may therefore be classified into
sub-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 from
use 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 the
existence of market segments and make one product offer to the entire market, or to
recognise the existence of sub-markets and design into the product those features that meet
the 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 the
demands of the segment(s).

Obviously, any market segment isolated should represent substantial demand before it
would 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 decide
to challenge the competition in their entrenched segments.

Information for decisions: marketing research

Adequate information is the life-blood of decision making and management. Companies

normally develop their own regular system of gathering marketing information. In many
countries, there appears to be a heavy dependence on field reports filed by sales
representatives concerning market conditions, competitors' actions, middlemen and
consumer reactions to companies' products and marketing policies. In many cases a
separate research department does not exist, little or no research budget is provided and
work is rarely farmed out to outside research organisations. Such outside research firms are
few today because the demand for their services is low. Benefits of research

Various benefits can be derived by taking marketing research seriously

even if it is done on a modest budget.

1. Marketing research is the primary tool for conducting market analysis where as much
information as possible is gathered about consumers (e.g. their needs, attitudes and
preferences, 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 his
marketing mix - product, price, distribution, and promotion. Research can tell what
products are needed, which product features are popular, which price ranges are
acceptable to buyers, which retail outlets are favoured by buyers, through which mass
media the buyers are likely to be reached and so forth.
3. When the marketing plan is launched, research is needed to monitor results and
investigate various kinds of problems relating to the marketing effort. For example,
research is needed to measure the effectiveness of advertising or to determine the
reactions of middlemen to a new product.

Costs of research

Marketing research may be a costly undertaking if properly done. The value of information
obtained should always be balanced against the cost of acquiring it. Cost elements include
personnel 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 decision
that may benefit from it must be made quickly. Indeed, the problem of time availability is a
serious one, because many marketing decisions must be made quickly and yet good
research 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 to
guide marketing managers in marketing planning and problem solving. It is a systematic
process 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 research task. But it
is 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
discussions with the sponsor of the research in order to understand the latter's problems and
marketing objectives. The context or environment in which the problem is embedded is
examined 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 secondary data
which are data that existed prior to the need to solve the problem, and primary data which
are fresh data collected specifically to solve the problem. Secondary data sources include
internal company records on the product's sales, costs, customers and other marketing
variables; outside sources such as publications by government agencies (especially the
responsible Office of Statistics) and private bodies; relevant research both inside and outside
the company; informal interviews with informed people both inside and outside the company.

If the problem was properly identified in the first step, the analysis in step 2 may be sufficient
to solve it, in which case further formal research would be unnecessary. (This has been
shown 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) and
very likely suggests the need for formal research.

Formal research

Formal research entails the collection of primary or fresh data to solve the problem or meet
the information need. The most frequently used formal research method is the marketing
survey.. Major activities in survey design and execution involve questionnaire construction,
the actual data collection (through mail survey, telephone survey or personal interviews) and
the editing and coding of returned questionnaires. The population of respondents from whom
information is to be obtained could consist of individual consumers, households or
organisations. Although a selection of a representative sample from the relevant population
is made, sometimes it will be wise to do a census, that is to include every member of the
population, 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 large
numbers 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 frequency
counts, 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 they
would definitely not buy.'

When the researcher completes his data analysis and interpretation of results, he prepares
his recommendations for the sponsor of the research. A written report embodying the
recommendations should, as far as possible, be free of technical jargon, be in clear style and
use charts and tables where necessary. It should be reasonably brief and above all include
specific action implications for the sponsor. Examples of concrete recommendations are:
'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 force
operations 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 will
be 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 now
elaborate on the key decisions only.

Product decisions

The product or service is the offer that the marketer makes to buyers and it is of central
importance in the marketing effort. A product may be defined as a bundle of physical and
psychological satisfactions that a buyer receives from a purchase. It includes not only the
tangible 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 to
buyers. The name should be distinctive and easy to pronounce, and it should capture the
essential product idea. The name should be registered as a legal trade mark, thus protecting
it from use by competitors. It is a fact that many small and medium manufacturers do not
bother to put any brand names on their products, and some unscrupulous ones assign
names that sound almost identical to the names of well-known successful products. These
suggest 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 should
quickly be corrected.

Packaging has the basic function of protecting the product, hence the package must be
durable enough to survive handling during distribution. It should be aesthetically pleasing
and 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 by consumers (consider the
convenience of the aerosol spray can that revolutionised the packaging of certain liquid
products). The package label, apart from providing certain kinds of information that may be
required by law such as net weight, volume and ingredients, may be used by the producer to
promote the product if a well-designed promotional message is inscribed on it.

Building the product mix

The product mix is the composite of products being marketed at any point in time by a
company. When products are closely related, especially with regard to end use, they
constitute a product line. An example of a product line is a CD.player, a HiFi amplifier, and
speakers. A product line may be narrow (that is limited) or broad depending on whether the
associated products are few or many. Two of the common ways to build up a product line
are:

1. by adding differential features to a basic product design in order to appeal to different

market segments (market segmentation strategy); and
2. by adding products that are complementary, that is, used together. Sometimes a
manufacturer will market brands of a product that are virtually identical except for
brand name and packaging, although advertising will claim unique differences. This
strategy is called multi- branding and is commonly observed in consumer packaged
goods 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 provide
the necessary information for the decisions.

Product innovation

A 'new' product is one that is new to a company, but not necessarily new to the market
where 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 the
marketing mix that generates revenues; all the other components - the product, the
distribution, 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, and
4. legal constraints.
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 discussing
or understanding the costs that occur for a product or service. He/she has a certain price in
mind. If the offer meets this idea the transaction can take place. Of course the so-called
price-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 rise
significantly above costs and the customer may try to reduce water consumption but cannot
avoid paying the price. Other example: training courses. The potential client can avoid
attending a desired course if the price is beyond his willingness or ability to pay by choosing
another 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 variable costs or
direct costs.

Just to remember: Costs that do not vary in the short run are called fixed costs. Variable
costs 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 costs
include general administrative salaries, research and development, general marketing
expenses, depreciation on machines and equipment, rent and interest payment on
mortgages. These costs are incurred whether or not the firm produces and sells anything
and 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 service
supplier gets for his services; it does not include any mark-ups or allowances to compensate
middlemen for distributing the product. A widely used method of pricing (i.e. setting the price)
is the full cost method, also called cost plus method. The rationale for full-cost pricing is that
all products/services should bear their full share of costs. Any product's price, therefore,
must cover all allocated costs plus a 'reasonable' mark-up or margin for profit and risk. The
formula 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 prices
on the market but rather the market dictates a price by the willingness of the customer to pay
and / or the pressure by competition. Subsequently two other methods are more important
for pricing:

The competitors’ price is the one that occurs after a certain time as the dominant price on the
market. Given a sufficient level of competition, the price will slowly go down to the level
where profitability is just feasible without huge profit margins and then stabilise there. Only
new technology, production processes, sudden shifts in demand or new competitors will
move prices again. It is an illusion for newcomers that they could survive in such markets by
offering cheaper prices (i.e. probably not cost recovering).

The demand price is the one which the average target customer is willing or able to pay. It
requires a good deal of survey intelligence to assess this information but will enable the
entrepreneur to achieve remarkable profit margins.
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 not
suggested what the retail price should be and merely asks the distributors or wholesalers to
pay his producer price per item. To cover their costs and provide for profit, the distributors
will add their profit mark-up percentage or margin to their cost before selling to retailers; and
the retailers in turn will add their own mark-up before selling to the final buyer. Thus, a chain
of mark-ups exists in the channel of distribution. Each middleman uses a pricing formula
identical to the mentioned equation, where ATC represents his unit cost of the product. In
some cases the producer may recommend a retail price for his product and then allow
middlemen discounts based on that retail price. This type of discount is called a trade or
functional discount; it covers the middleman's and eventually the retailer’s operating costs
and profits and represents his inducement or rebate for performing important functions in the
distribution channel. For example, suppose the recommended price for a standard- sized
can of paint is 100 per unit. Granting a discount of 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 retail
value 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 distribution
channel is defined as the combination of institutions through which a producer markets his
products to the ultimate buyer. By institutions we mean middlemen such as wholesalers,
distributors, retailers and agents. These middlemen perform important functions such as
contacting 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 their customers)
and providing 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 decides
to sell directly to consumers, he uses a direct channel. This may take the form of having
sales 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 presentation of the
product to consumers, the producer uses direct channels by eliminating all
middlemen.
3. Product characteristics, e.g. a bulky product like coal may use direct channels to
minimise handling.
4. Market characteristics, e.g. frequent and/or impulse purchase by buyers would
suggest the use of intensive distribution, every available channel is used.
5. Manufacturer characteristics, e.g. only a manufacturer with adequate financing can
own 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 the
distributor, his selling ability, inventory and storage space and his personal qualities. The
producer may adopt a variety of measures to build enthusiasm and excitement among the
revellers, such as providing sales training for distributor personnel, providing useful tips on
purchasing and stock control and supplying sales promotion aids such as printed material on
the products and point of purchase and showroom displays. Proper management of
distributors includes a periodic evaluation of each distributor's sales performance in relation
to previous periods or other distributors, and ensuring 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 materials
from suppliers to the production line, and of finished goods from the end of the production
line to the customers. A number of associated activities must be performed and these may
be grouped under the four main categories of:

1. transport;
2. inventory;
3. warehousing (including materials handling); and
4. 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 must
be made regarding the mode of transportation to use for each type of shipment. Inventory is
of central importance in distribution system design. Since the cost of carrying inventory is
high, procedures for proper management of inventory must be installed.

Warehouses (or depots) store inventories. Decisions must be made as to how many
warehouses are required, where they should be located and what products should be
stocked in what quantities. Materials handling involves the movement of goods within the
plants and warehouses. Suitable equipment (such as fork-lift trucks, conveyors, pallets) must
be 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 present
stock position of each item at each stock location.

The promotional programme

Advertising is defined as any form of non-personal communication through the mass media
that 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 the
marketer. Sales promotion 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'
conducted by retail stores at festival periods such as Christmas, the giving away of free
samples of the product, and price reductions on goods.

Personal selling refers to the use of salesmen to push the product or service. The sales force
must be selected, trained, motivated (especially through a good compensation plan) and
controlled for effective performance.

Publicity is information about a company and its products that is conveyed to the public by
the mass media because such information is newsworthy and the company pays nothing for
it. Public relations efforts of the marketer are concerned with building and maintaining good
relations 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 selling for
another, the two are often employed simultaneously, the relative emphasis depending upon
circumstances. 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 not
spend much on advertising and some do not advertise at all. Yet the trend is changing as
more 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 is
the rapid growth of the number of advertising agencies.

There are two basic objectives of advertising, namely:

1. to inform the target audience about the product or service; and

2. 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 advertising
campaign the marketer may choose a more concrete goal such as 'to increase consumer
awareness of the product by thirty per cent'.

The key advertising decisions are:

1. setting the advertising budget;

2. creating advertising copy; and
3. selecting media and vehicles and allocating from the budget to them.

The advertising budget should not be based on a percentage of sales – since this would
mean: you spend more when sales are doing well and you decrease when sales are going
down. It may be keyed to a level comparable to what the competitors are spending.
Advertising copy is defined as the words and picture or illustration that make up the
advertisement and the way they are laid out to create a total impression. Through the copy
the advertiser says what he wants to say (called the theme or message) in the way he wants
to say it. Various advertising media are available such as radio, newspapers, magazines,
television, outdoor advertising and cinema films. Each medium has its advantages in
reaching particular types of target audiences. After selecting the suitable media, the next job
is to decide how much time or space to purchase in each vehicle (e.g. daily advertisements
of ten or twelve lines in the newspaper medium) and how these insertions will be spread
over 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 the
services of his chosen advertising agency. The advertising agency advises clients on
advertising strategy, creates advertising copy, supervises advertising production and buys
media time and space. The larger agencies provide many other services, such as advising
on marketing planning and sales promotion, designing and producing brochures and point-
of-sale displays, advising on publicity and public relations and conducting marketing
research.

Total Project Cost

Notes on working capital

Frequently, entrepreneurs complain of inadequate working capital. Behind this term, they
want to say that their businesses cannot immediately convert their assets into cash when
they 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 the
buyers. But production of goods will have to continue and the cycle repeats itself. The
money spent in producing only comes back after the buyers fully pay for them. Working
capital sees to it that the business can survive this period, and ensures that day-to-day
production continues undisturbed.

Working Capital is the difference between current assets and current liabilities which is
normally measured in terms of raw materials purchase, payment to creditors, labour,
work-in-process, overheads, and finished goods stocks. Current assets are those which
can be easily converted into cash in the short run. Similarly, current liabilities are debts
which 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, the
liabilities side consists of: (a) amount due to be paid to workers, (b) money owed to
creditors, (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 mean
cash.

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 as
they are not idle. Businesses need only sufficient cash to meet the immediate obligations.
No more! Hence, the need to calculate the exact cash requirement.
Table : Computation of Total Project Cost

Equity Loan Total

A.Fixed Assets
Land
Building
Machine
Furniture
Vehicle
Total Fixed Assets
B.Working capital (WC)
Cost of materials
Cost of labor
Cash overhead cost
Marketing cost
Administrative cost
TWC
C.Pre-operating expenses
TPC=A+B+C

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