Markets and Marketing

Meaning of market
Market is used to refer to a place where buyers and sellers meet to affect purchases and
sales. It is a place where goods are bought and sold. But in real sense, the term market
means the sum total of the environment in which resources, activities and attitudes of buyers
and sellers affect the demand for products and services. Buyers and sellers affect the
demand for products and services,

Market is a mechanism by which products and services are exchanged, sold or transferred.

A market is a set of all actual and potential buyers of a product.

Concepts of Market:

Place concept: To the common man, market is a place where products and services are
sold. Place refers to a physical location where buyers and seller meet.

Area Concept: Market means a geographical area where products and services are sold and
exchanged. Eg: European Common Market.

Demand Concept: It refers to the aggregate demand for a product or service.

Exchange Concept: It means an organisation through which exchange of an item takes

place, eg. stock exchange, commodity exchange etc.

People Concept: According to this view, market consists of buyers and sellers, and all those
middlemen who assist in buying and selling.

Types of Market:

Traditional and Non-traditional

Traditional: three aspects-

on the basis of geographical area: Local market, regional market, national market,
international market

on the basis of volume of business: Wholesale market, Retail Market

on the basis of subject of exchange:

Commodity market: sells commodities at regulated rules.
Capital Market: This is a specialised market for providing long-term finances to business
enterprises. Eg- stock exchange.
Money Market: Specialised market for providing short-term finance to business enterprises,
eg- banks.

on the basis of position of buyers and sellers:

Primary market: market where they sell raw material to wholesaler
Secondary market: market where wholesaler sells product to retailer.
Terminal market: market where retailers sell to consumers.

on the basis of nature of transactions:

Spot market: transactions happen on the spot, physically from seller to buyer.
Future market: transaction for transfer to happen in the future with the intent of wanting the
price to fluctuate to extract a profit.

on the basis of nature of goods:

Producer’s market: market where goods are purchased for use in further production
Consumer’s market: market where goods are purchased for personal use.

Non-traditional market
Catalogue market:
It is a type of market that house catalogues for the consumer to see and analyse to select a
potential product beneficial for the consumer. Catalogue showrooms, attract consumers and
lower costs. They increase margins.

In-House Market:
Door-to-Door people visit the consumer’s place and offer products to them Before visit, the
initial contact is made by an email or telephone. This is an effective method, but, it is a very
tedious and time-consuming process, costly as well.

Mail Order Market:

The seller mails price lists and other publicity material to the buyer, based on which
consumers place orders,

Automatic Vending machines:

Brands of products of daily use are sold through vending machines, they are installed at
workspaces, schools and public places.

Telemarket:
The product is advertised and demonstrated on television and in the newspapers.
Telephones and televisions have become popular mediums for direct marketing, telephone
shopping is very efficient and cost-effective.

Network Market:
Marketer recruits independent business people who act as distributors. These distributors
hire sub-distributors who employ people to sell the product in the homes of customers. The
customer saves time and cost involved in shopping.

Definition and Meaning of Marketing:

Marketing includes all activities involved in the creation of place, time and possession
utilities. Marketing consists of those activities which effect transfers in ownership of goods
and care for their physical distribution.
Marketing is the process of discovering and translating consumer needs and wants into
products and services, creating demand for those products and services and then in turn
expanding this demand.

Marketing is the process of getting potential clients or customers interested in your products
and services. The key word in this definition is "process." Marketing involves researching,
promoting, selling, and distributing your products or services.

This discipline centers on the study of market and consumer behaviors and it analyzes the
commercial management of companies in order to attract, acquire, and retain customers by
satisfying their wants and needs and instilling brand loyalty.

Explain characteristics of marketing:

1) Marketing is an integrated process: it is a coordination of several processes.
2) It is a system: comprising several sub-systems
3) It is a part of total environment: operates within the framework of total environment
which comprises economic, social, legal, political, international and other forces.
4) It is creative: it creates time, place and possession utilities.
5) It is Goal-oriented: seeks to achieve benefits of both buyer and seller, results in a
mutually beneficial relationship by satisfying wants of customers and generating
revenue for seller..

Basis of distinction Market Marketing

Meaning It means an exchange of It means all the activities

product or service between involved in planning, pricing,
a buyer and seller. promoting, and distributing
want satisfying products and
services.

Nature It is an interaction It is a process

Scope It is a narrow concept It is a wide concept

Stages of Marketing:

Production-oriented stage: 1869-1930, in this stage motto was to sell what can be produced
as there was acute shortage of goods and there was no need to create demand. Making a
product was the main focus and communication with buyer was not given importance. This
stage was based on Say’s law - supply create its own demand.

Sales-oriented stage: 1930-50, the great depression caused firms to rethink their business
strategies. The focus shifted from production to selling. How to sell became the motto along
with sell what you have. Producers began to realise customers would not buy unless met
with substantial selling and promotional efforts. Demand had outstripped supply
Product-oriented stage: 1950-60, in this stage, marketers believed that customers will buy
the product if the quality is good. The focus shifted from promotion to product improvement.
Firms made efforts to improve product features and performance. However, overemphasis
on product quality may overlook other aspects which influence satisfaction of consumers.

Marketing-oriented: 1950-60: Emergence of keen competition and consumer awareness

forced producers to rethink over the philosophy of marketing. They realised that business
policies and programmes should be built around the goal of consumer satisfaction. As a
result, marketing became the heartbeat of business and marketing considerations the key to
business planning and decision making.

Societal marketing: 1980—: With growing population, poverty, pollution and resource
shortages, the marketing concept was expanded to include social welfare. Under the societal
marketing concept, firms are expected to ascertain the needs, wants and interests of target
markets and to deliver the desired satisfactions more effectively and efficiently than
competitors in a way that preserves or enhances the well-being of not only the consumers
but of the society as a whole.

Meaning and nature of product

A product means anything tangible that can be offered to a market for attention, acquisition,
use or consumption that can satisfy a want or need. It consists of physical objects and
tangible attributes such as color, package, manufacturer’s name, retailer’s prestige, etc. A
product is both what a seller sells and what a buyer buys.

Features of product:
i) Tangibility: A product is tangible, it is made of certain physical attributes such as size,
shape, etc. It can be seen, touched and felt.

ii) Associated Attributes: In addition to physical features, a product has certain attributes
which help customers to distinguish it from other products. Eg: brand name, warranty etc.
iii) Life Cycle: Every product has its life cycle which consists of introduction, growth, maturity
and decline stages.

iv) Exchange Value: A product has some value which can be measured in terms of money.

v) Need Satisfaction: Every product is meant to satisfy some human need.

Products may be classified as follows:

1. Consumer products: these products are meant for final consumption and not further
used for sale.
- Three types of consumer products:
- Convenience product: purchased frequently with minimum efforts. They are
meant for personal convenience. Eg: newspaper, toothbrush etc.
- Shopping products: These products are purchased after a comparative
analysis of quality, price, warranty, etc. of competitive brands. Eg: electronics.
 - Speciality products: These are purchased with special effort and serve a
special purpose that needs to be customised. Eg: jewellery, computers.

2. Industrial products: These products are purchased with the incentive to use in a
commercial setting, for production or even for help with an industry. They are used in
production of other goods. Raw material components and machinery is an example.
- Raw materials: These include natural and farm products such as cotton, milk.
- Supplies: These include nuts, bolts, fuel etc.
- Accessory equipment: These include typewriters, calculators, small lathes,
portable drills etc.
- Installations: These include heavy machinery, factory sites, trucks etc.

Meaning and nature of Service: Service means an intangible act or performance that can
satisfy some human needs and can be offered for sale. The functions performed by docs,
lawyers, teachers etc.

The main features of service are as follows:

1. Intangibility: services are intangible as they cannot be seen or touched, no physical
shape and hence invisible.
2. Perishability: Services cannot be stored for future use.
3. Inseparability: Services are produced and consumed at the same time. The service
cannot be separated from the service provider.
4. Variability: Services can be rarely standardised or made uniform. For eg. the quality
of service which a waiter provides in a hotel or restaurant may differ from customer to
customer or from one time period to another.

Services may be classified into the following categories:

a) Financial services: eg. banks
b) Insurance service: eg: insurance company
c) Transport service:
d) Warehousing service:
e) Communication service: courier service, telephone service
f) Personal service: tailoring, laundry

Difference between Product and service:

Basis of distinction Product service

Tangibility Fully tangible Intangible, may have

a) Can be felt and physical evidence and may
touched also not.
b) Can be fully a) Cannot be touched.
standardised. b) Cannot be
standardised.

Inseparability of buyer and Fully separable, remote Not separable, remote

seller transactions are possible. transactions not possible.
 Quality Can be measured and Difficult to control and
controlled measure.

Inventory Can be stored for future use Cannot be stored for future
use

Sensitivity to time Low sensitivity, e.g. a soap Highly sensitive, e.g., a

can be bought in advance of doctor’s services are
need. needed when there is a
patient.

Risk Product can be replaced. Service delivered cannot be

replaced.

Customization Increases costs and restricts Increases customer delight.

sales.

Market relationship Product and brand are focus A very important link.
of transaction.

Brand Main strategy in product People are equally

marketing. important.

Perishability Usually durable Usually perishable

Ownership Transferable Not transferable

Reasons for increasing importance of services:

1) Economic planning: gov of india launched five year plans in 1951 to achieve rapid
growth of the country.

2) Increasing Urbanisation: There has been a shifting of population from rural to urban
areas. Urbanisation leads to rise in demand for infrastructure services such as
communications, public utilities, and distribution services.

3) Media: Television, internet and other media has led to an increase in tourism.
Tourism in turn has promoted all types of activities such as hotel, restaurants, travel
agents, therefore, expanding world trade has also had a demonstrating effect.

4) Rise in per capita income: growing per capita income had led to demand for new and
better services, interior decoration, garden car, beauty parlour etc. More leisure time
creates demand for recreation entertainment services.

5) Women workforce: higher percentage of working women has created demand for
babysitting.

6) Greater life expectancy: Increase in lifespan has led to greater demand for health
care and related services. Greater concern for ecology and resource scarcity
requires time sharing, pollution control and other services.
Marketing Mix - 4Ps

Meaning of Marketing Mix

In order to satisfy the needs and wants of its customers, every business firm must develop
an appropriate marketing mix. Marketing Mix refers to the combination of four basic
elements which constitutes the core of a company’s marketing system.

Four elements are

Product
Price
Distribution system (place)
Promotional activities
used to satisfy the needs of an organisation's target market/s and at the same time
achieving its marketing objectives.

An appropriate marketing mix helps the enterprise to meet the present and future needs of
an identified market and achieve its profit goals.

Elements of Marketing Mix:

Marketing mix is a systematic combination of four elements -
Product
Price
Place
Promotion
Each of these elements contains sub-factors of its own.

Product mix:
It refers to a combination of various features relating to a product or service to be offered for
sale. It involves decisions concerning the quality, size, range, package, label and warranty.
This mix is directed towards a target audience. Consumer consider a product “ a bundle of
satisfaction” rather than a physical item. Eg: the buyer of a washing machine from speed,
comfort, and trouble-free operation rather than just a box of metal, plastic and electrical
components.

Price Mix:
Price mix involves decisions regarding the basic price of the product, discount, allowances,
credit and terms of payment, etc. price means the money value that the customer has to pay
in exchange for the product. Price mix is decided by keeping in view the cost of producing
and marketing the product, purchasing power of the target group of customers, degree of
competition in the market, the profit margin desired by the seller, discounts and allowances
to be offered to dealers and customers as incentives.

Place or physical distribution Mix: Place or physical distribution mix consists of all the
activities involved in transferring ownership and physical possession of the product to
consumers. Its purpose is to make the product or service available to customers at the right
time and at the right place. It includes: a) channels of distribution, b) physical distribution

Physical distribution includes activities concerned with moving products and services from
manufacturer to consumer.

Channels of distribution are the routes through which goods move from producer to
consumer. A firm has to decide whether to sell directly of to sell through middlemen, The
number and type of middlemen have also to be decided.

Promotion Mix:
Promotion Mix consists of all the activities aimed at persuading customers to buy a certain
product by promoting it. Its elements are:

Advertising: It includes activities concerned with providing product information to

consumers through newspapers, radio, television, it is paid for by the seller.

Personal selling: It refers to face-to-face communication between a seller or his

representative and the buyer. Salesperson of an enterprise assist and persuade the
prospective buyers to buy the product.

Sales promotion: It means increasing sales through short-term promotional activites

such as displays, demonstrations etc. These are aimed at supporting advertisement
and personal selling.
 Publicity: It means the mention of a company, brand or product in newspapers or
journals or anywhere where it can be noticed by majority of its target audience,
publicity is not paid for by the seller but rather it is just the natural placement of a
product in a consumer’s mind and psychological thoughts and impressions.

Marketing Mix at a glance

Product Mix a) Product range

b) Quality of the product
c) Brand name
d) Packaging and labelling of product
e) After-sale services
f) Warranty against defects

Price Mix a) Price to be charged

b) Discounts and allowances to be
offered
c) Terms of credit

Place Mix a) Channels of distribution

b) Distribution policy
c) Transportation
d) Warehousing
e) Inventory control

Promotion Mix a) Advertising

b) Personal selling
c) Sales promotion
d) Publicity
e) Public relations

Product mix:
Product mix refers to the features of the product or service offered for sale:
- Range of products to be offered for sale - a firm may decide to sell a line of products
or individual products.
- Brand name of product
- Package of Product
- Label on package or product

Width of a product mix implies the number of product lines which a firm offers to sell.
Depth of product mix refers to the number of products in each product line.
Factors affecting Product mix:
a) Needs and preferences of consumers.
b) Policies and actions of competitors.
c) Financial resources of firm
d) Marketing policies and programmes of the firm
e) Technological developments.

Packaging: Prackaginf refers to the wrapping, creatine, filling ot compressing of goods to

protect them from spoilage, pilferage, breakage or leakage etc. Various kinds of goods are
placed or packed into appropriate containers for protection and convenient handling.

Packaging also involves appropriate packages for products. It is concerned with the
determination of convenient size lots in which the product is to be put in the market, and
creation of proper packages for different lot sizes. Aside from a protective measure it also
acts as a selling price.

Packaging provides several benefits:

- Protects from damage
- Helps identify the product
- The package lends individuality and prestige to the product.
- The package also provides aesthetic satisfacito. If its eye-catching and pleasing.
- It should build customer’s confidence by telling s true story of a product.

Labelling
Labelling implies putting identification marks out labels on the package. A label is an
important feature of a product as it provides useful infromation

a) Name and address of the producer/seller.

b) Weight and measurement of product
c) Maximum title price after you.

Brand label demonstrates the brand of the product.

Descriptive label provides written information about the basic material, weight, contents,
performance etc. of product.

Product Life cycle (PLC)

It is the life cycle of a product. It may be short of some products and long for other products,
It’s life cycle begins when it is launched into the market for sale.

Product Life Cycle introduction stage: it is the stage in whcih, the product is born, this form
informs the market about the existence and features of a product,

- Proper advertisement is needed, guaranteed publicity of a product.

- Attractive gifts to customers as an introductory gift
- Selective distribution and attractive discounts to dealers
Growth stage: the demand and sales grow rapidly, distribution is widened, competition
increases and prices fall. Focus shifts from buy my product to buy my brand.
Strategies to adopt during growth stage:
- Heavy advertising to create band image
- Expanding distribution channels to make the product available wherever demanded.
- Keeping the price at competitive level.

Maturity stage: During this stage, sales continue to grow at a decreasing stage. Competition
increases further and markets get stabilised. Due to competition prices are reduced but
promotional epensiture remains high. As a result profits decline and marginal products are
forced to go out of the market and new products are introduced. There is no possibility of
increase is sales and sales curve is falling off.

Strategies to lengthen maturity stage:

- Differentiating products from competitio products.
- Focussing on brand image
- Intorducing reusable packaging.
- Finding new uses of the product.

Decline Stage: This stage is characterised by either product’s gradual displacement by new
and superior products or change in customer’s buying behaviour. Sales fall down sharply
and promotional expenditure has to be reduced drastically to minimise loss. The product is
heading on a path out of the market:

Strategies to avoid sharp decline in saled:

a) New features may be added to product
b) Economy models of packs may be introduced to revive the market.
c) New and attractive packaging may be used to attract customer.
d) Selective promotion may be adopted to reduce distribution costs.

Abandonment of product:
Most firms shift their attention to other products, gradually phasing out the declining product.
They abandon the product in order to make better use of their resources. Some companies
try to postpone abandonment by introducing new special features.

Product life cycle offers the following advantages:

When the product life cycle is known the firm can prepare an effective product plan
Management can take advance steps before declining the product
The maturity stage can be extended by finding news uses of the product.

Technological innovations can be adopted to improve the quality, features and design of the
product.

Price-
Price denotes the money value of a product or service. It is the amount of money a seller is
asking for the product or serve he offers for sale. Or the amount which the buyers are willing
to pay. It reflects the worth of a product.
Pricing is the process of translating the value of a product or service in terms of money. It
involves the base price of a product and the terms and conditions of sale: transportation
costs, mode of payment, discounts and allowances, etc.

Prices are important from the perspectives of the customers and society. To the consumer,
price determines his purchasing power and standard of living. Without pricing there can be
no marketing as a sale takes place only when the buyer and seller agree on a price.

Pricing requires the consideration of various tangible and intangible and interrelated factors.

Pricing strategies
- Skimming prices
- Penetrating prices
- Cost plus pricing
- Parity pricing

1. Skimming: A very high price is set so that in the initial stages the cream of demand
may be skimmed and the investment made in the product quickly realised. Later the
price is reduced to allow other members of society to afford it. This is effective as
- Price is less likely to affect the sales volume
- High prices will provide funds to expand into big volume segments of the
market.
- Strategy can be used to feel the market by lowering the price later.
- By setting a high initial price the manufacturer can resist demand to the level
he can comprehend.

2. Penetrating prices. This involved setting a low price to make a brand quickly popular
and undercut the prices of other countries to create a name for itself. This is an
aggressive pricing strategy/
- The quality of products sold is highly sensitive to price.
- Substantial economies in unit cost can be achieved by operating at large
volumes of production and sales.
- There is strong competition in the market
- The public is likely to accept the new product
- Nirma is an example

3. Cost plus pricing: the basic idea underlying this approach is that the selling price of a
product must cover its full cost and yield a reasonable profit margin. This is also
known as Mark up pricing.
Selling Price = Total cost per unit + Desired Profit per unit

Advantages:
Cost plus pricing is the most widely used technique of pricing. It is a safe approach to
pricing. It ensures full coverage of costs and helps in achieving a reasonable return
on capital employed. The method is logical and can be defended on moral grounds. It
discourages cut-throat competition in market.
 Disadvantages:
- Difficult to determine cost plus pricing due to common overheads and joint
products.
- This method ignores the nature and level of demand. The resulting price may,
therefore, be out of line with market conditions.
- It fails to reflect competition in the market.
- The mark-up on the cost of the product is not fixed.
- The method makes for rigidity in pricing and may restrict the size of the firm
below the optimum level.

4. Parity pricing: Under this pricing strategy, a business firm adjusts its own price policy
to the general pricing structure in the industry. It involves charging according to what
competitors are charging. Also known as “going rate pricing” or competition based
pricing.
Appropriate as:
- It is difficult to measure costs, parity pricing may be the logical first step in a
rational pricing strategy.
- When price leadership is established, charging according to what the
competitor is charging would be the only safe option, charging less would
lead to a price war.
- Where competition is very severe and competitive products are homogenous.
- It may be less troublesome and less costly than an individualistic pricing
strategy.

Place Distribution channels:

Distribution of products is an important element of marketing mix. Distribution element
involves two broad functions, namely: a) the choice of distribution through which the product
shall flow from the manufacturer to ultimate users, and b) physical distribution comprising
transportation and storage of goods.

A channel of distribution or trade channel is the route or apth along which a product flows
from the point of production to the point of ultimate consumption or use. A distribution
channel may consists of both the producer and the final user of the product along with
mercantile agents and merchant middlemen engaged in the transfer of title to goods and
services.

Choice of suitable distribution channel is an important policy decision due to several

reasons. First, the channel selected for the product has a vital effect on pricing, promotion
and other elements of marketing mix. Secondly, distribution channel influences the sales
volume and profits of their firm. Thirdly, the choice of marketing channel involves long-term
commitments of the firm and it is very difficult to exchange the channel.

A channel of distribution represents three types of flows:

a) Product flow downwards from producer to consumer
b) Cash flows upwards from consumer to producer as payment for product.
c) Marketing information flows in both directions.
Channels include:
Manufacture-consumer- this is a direct channel, it is very fast and economical. The producer
has direct contact with the consumer and full control over the distribution of his product. This
is the shortest and simplest channel involving direct sale of goods and services by producer
to consumer. But, Large investment is required to create facilities for direct selling.
Therefore, this channel is only popular among well and established firms.

Methods of direct selling are door-to-door, Retail outlets, Catalogue selling, Telemarketing.

Manufacturer-retailer-consumer- under this channel the manufacturer sells one or more

retailers the product who in turn sell to the ultimate consumer. This is popular when the
retailers are big and buy in large quantities. The channel is often used for the distribution of
consumer durables and products of high value. Automobiles, home appliances etc. This
channel relieves much of the selling burden.

Manufacturer-wholesaler-retailer-consumer- This is the normal channel it is suitable where

the producer has limited finance and a narrow product line or where the wholesaler are
soecialised and provided strong promotional support. Small producers and small retailers
find this channel most convenient especially in case of products with widely scattered
markets. Producers of industrial goods may use an industrial distributor who serves as a
wholesaler for this channel.

Manufacturer-Agent-Retailer-Consumer- When retailers are few or geographically

concentrated distribution through agents may be economical than through wholesalers. Eg,
a manufacturer may employ selling agents and brokers to sell his products to retailers.
Sometimes, even the retailer is bypassed and the agents sell directly to institutional buyers
like consumer cooperatives, business firms, educational institutions etc. This channel is
commonly used in textile, agricultural products etc.

Manufacturer-Agent-wholesaler-retailer-consumer- This is the longest channel, it i sussed

when the manufacturer wants to be fully relived of the problems of distribution. The producer
hands over his entire output to the selling agent who distributes it among a few whole salers.
Each wholesaler sells it to retailer who in turn sell it to consumer. For sale of industrial
goods, industrial distributor is employed because of the storage facilities provided by him.

Promotion and Promotional techniques:

Promotion is the process of communication with the potential buyers involving information,
persuasion and influence. It includes all types of personal and impersonal communication
with customers. It is the process of pursuing a customer to buy a commodity or act
favourably upon an idea that has commercial significance to the seller. It is a vital element of
the marketing Mix. The need for promotion has increased due to competition, changing
tastes, and preferences of customers, widening markets and growing distance between
manufactures and consumers.

Ultimately. When a product is developed, its price is decided and its distribution channel is
selected, the prospective customers must be informed of its availability and they need to be
persuaded to buy it. All the activities involved in informing and persuading the customers are
collectively known as promotion in marketing. Sales promotion, advertising, personal selling
and publicity are used for promotion.

Advertising:
Advertising is any form of nonpersonal presentation and promotion of ideas, goods, services
by an identified sponsor. It consists of all activities involved in presenting openly a sponsored
message regarding a product, the message is an advertisement. It is disseminated through
one of more media and is paid for by the identified sponsor.

Features:
Non-personal: It is non-personal as no face-to-face contact in involved between the
advertiser and the customer.

Mass communication: It is a method of mass communication directed to a large audience.

Paid communication: Some money has to be paid for every advertisement and the advertiser
has to pay for the space or time hired for disseminating the message.

Identified sponsor: An advertisement is issued by an identified sponsor.

Information and persuasion: The purpose is to inform customers about some product or
service and to persuade them to buy it.

Types of advertising:
- Product advertising
- Institutional advertising
- Informative advertising
- Persuasive advertising
- Reminder advertising
- Concept advertising

Product advertising: The main objective of product advertising is to promote the sale or
reputation of a particular product, brand or service. It is sponsored by manufacturers, traders
and other organisations to promote the uses, features, benefits and image of their products
and services.

Institutional advertising: The aim is to build a favourable image of the organisation rather
than to promote the sale of a product or service.

Informative Advertising: contains information about a service or product, it makes consumers

aware of its existence and features.

Persuasive advertising: This is designed to persuade the consumers to buy a product or

service or to support an idea:

Reminder advertising: It attempts to remind a consumer about the product/service or idea.

Concept Advertising: This is also known as ‘primary demand advertising’ or ‘pioneering
advertising’. The purpose is to stimulate demand for a new type of product.

Advantages of advertising
- Advantages to manufacturer
- Advantages to consumers
- Advantages to society

Advantages to manufacturers:
- Creates demand
- Provides economies of scale
- Creates goodwill
- Helps establish direct link between manufacturer and consumer
- Helps meet competition

Advantages to Consumers:
- Makes shopping easier
- Educates consumers
- Reduces prices by increasing sales volume
- Wider choice

Advantages to society:
- Generates employment
- Raises the standard of living
- Sustains the press
- Adds to art and culture
- Promotes healthy competition.

Criticism of advertising:
- Higher Prices
- Creation of Monopoly
- Wastage of resources
- Deceptive and untruthful
- Extravagance
- Vulgarity

Distinction between advertising and publicity:

Basis of Distinction Advertising Publicity

Sponsor The identity of the sponsor Identity of sponsor is not

is clearly known. clear.

Source The message originates The message originates

from the advertiser. from the media.
 Payment The advertiser has to pay The individual or firm
the media owner. involved does not have to
pay.

Control The sponsor has control Media has control over the
over the contents and content and timings.
timings of the message.

Nature of Message Persuasive message Informative message to

designed to persuade inform the public.
customers to favour a
product, service, or idea.

Features of a good advertisement:

Attention Value: it must be able to attract customer’s attention. Unless the advertisement
draws their attention, it will go to waste. Eg: catchy and short headlines, visuals, asking a
question.

Memorising Value: A lasting impression on a person’s mind.

Suggestive Value: The copy should suggest the advantages and uses of the product.
Emphasis on its superiority and necessity.

Educational Value: A good advertisement should educate the people by providing

knowledge relating to the mode of using the product, precautions, sources, services etc.

Conviction Value: It should convince people about the claims made for the product and
service. A simple and honest statement of facts inspires confidence in the product.

Advertising Media:

Newspaper and its advantages:

- Wide circulation
- Coverage cost per reader is low
- Continuity in the advertisement as it can be repeated.
- Regional newspapers can be used to focus on selected area

Disadvantages
- Short life
- Most people ignore ads
- Limited scope for artistic sense
- Illiterate people cannot be reached

Radio and its advantages:

- Wide coverage
- Illiterate people can also be reached
- The message can be repeated several times during the day
- People can listen to the radio, which requires no effort.
Disadvantages:
- Costlier than newspaper
- Short life
- Lack of flexibility and selectivity

Television and its advantages:

- More effective due to combined effort of picture and sound
- Message can be repeated
- Selectivity in terms of time
- Illiterate people can also be reached

Disadvantages:
- More costly than newspaper and radio
- Short life
- Message has to abide to limitations and regulations

Films and its advantages:

- Very effective due to picture and sound
- Wide coverage
- Selectivity

Disadvantages:
- Very expensive
- Considerable wastage as very few people are present during intervals.
- Lack of flexibility and timeliness.

Direct Mail advantages:

- Selective medium and selective audience
- Very inexpensive
- Personal appeal
- Ensures secrecy
- Read at their convenience
- Long life

Disadvantages:
- Limited coverage
- Not suitable for unbranded and non-standardised products
- Many people do not pay attention to the email
- Difficult to prepare and update mailing list
- Illiterate people cannot be covered.

Social Media and its advantages

- Ads can be targeted at certain people
- Provides great visibility to company
- Very wide reach
- Less costly than traditional media
 - Interactive
- More detailed
- Very quick
- It is easy to measure the effectiveness of the ads.

Meaning of Sales promotion

Sales promotion means short-term incentives of non-recurring nature used to stimulate
consumer purchasing and dealer effectiveness. The main purpose of sales promotion is to
obtain spot buying by offering non-recurring and non-routine incentives.

Sales promotion refers to all those activities other than advertising and personal selling that
stimulate consumer purchasing and dealer effectiveness. It includes activities such as
distribution of free samples, premium or bonus offers, free coupons, prize contests,
demonstrations, incentives to dealers and sales-force for achieving a specified sales target,
etc.

Advantage:
- Low unit cost: the cost of sales promotion per unit is quite low.
- Sales support: Sales promotion provides strong support to personal selling and
advertising. It serves as a bridge between it.
- Faster product acceptance: Sales promotion makes a product acceptable to the
customers faster than other techniques.
- Effective control: Management can have an effective check on the results achieved
through sales promotion schemes, The costs incurred in and the benefits derived
from these schemes can be analysed.
- Best for new products: Sales promotion efforts are best suited for new products.
Sales promotion provides access to a large market and personal contacts with
consumers and dealers.

Main methods of sales promotion:

1. Samples
2. Trading stamps
3. Coupons
4. Premium or Bonus offers: with pack premium, reusable container, A free in the main
premium (with proof of buying)
5. Discount offers
6. Demonstrations at fairs and exhibitions

Distinction between Sales promotion and Advertising

Point of Distinction Sales promotion Advertising

Meaning Marketing activities which Any paid form of impersonal

stimulate consumer buying presentation and promotion
and dealer effectiveness. of a product, service, or idea
 by an identified person.

Time Horizon Short-term perspectives Long-term perspectives

Aim To increase immediate sales To build the image of the

or dispose of old stock producer and his product.

Media Free samples, coupons, Newspaper, radio,

premium offers, displays television,
and exhibitions, etc. Films, Mail, Social Media.

Nature Limited period, non- Regular and recurring

recurring

Emphasis Supplement to advertising Informs, persuades and

and personal selling pushes reminds buyers, attracts
product towards buyers. customers towards the
product.

Scope Individual communication Mass communication

Definition and merit of brand and branding:

Brand means any identification mark (such as trade, name, mark, symbol, picture, design,
colour etc,) used to identify the product of a seller and to differentiate it from the products of
competitors. A registered brand is known as a ‘trademark’.

Branding is the process of assigning a distinctive name to the product by which it is to be

known and remembered. It is the process by which a product is branded. It is a general term
covering various activities such as giving a brand name to a product, designing a brank mark
and popularising it. A brand is a name, term, symbol or design or a combination thereof used
to uniquely identify the goods or services of a seller and to differentiate them from those of
competitors.

A trademark is a legal term and refers to the brand which is registered under the Trade and
Mercantile Marks Act, 1958. After registration, a brand enjoys legal protection and becomes
the exclusive property of the owner.

Advantages of Branding:
a) Branding helps consumers to identify and recognise a product.
b) Branding is a means of differentiating the product from the competitor’s products.
c) Branding is the basis of advertising and other techniques of mass-selling.
d) Branding helps to minimise selling costs by reducing dependence on middlemen.
e) Branding ensures uniform standards of quality and design to consumers.
f) Branding leads to standardised prices

Essentials of a good brand:

- Brand name to brief and simple
- Easy to pronounce and spell and remember
- Attractive and appealing to the eye.
- Brand should be suggestive of the utility of the product.
 - Distinctive and difficult to imitate
- Registration and legal protection.

Brand promotion:
Brand promotion means informing, reminding and persuading present and potential
customers to purchase a particular brand. It is primarily the responsibility of the concerned
manufacturer though wholesalers and retailers may also undertake brand promotion.

The purpose is to build a market for the product and to meet competition. Through regular
advertisements of a brand a business concern tries to develop a positive image of the
product and brand loyalty.

Brand loyalty means that some consumers continue to prefer a brand due to faith in its
superiority. The power and value which a brand adds to the product is known as brand
equity.

Methods of Brand promotion:

1) Advertisements
2) Quality control
3) Publicity
Meaning of Sales:
Sales refer to the exchange of goods and services for money. It is a process whereby the
seller transfers ownership in goods and services for a price.

Selling is the hallmark of business and no revenue comes unless sale is made. But
marketing is much more than selling. One of the essential techniques of selling is
salesmanship or personal selling.

Selling is the personal or impersonal process of assisting or persuading a prospective

customer to buy a commodity or service and to act favourably upon an idea that has
commercial significance to the seller.

Selling comprises all those personal and impersonal activities involved in finding, securing
and developing a demand for a given product or service, and in consummating the sale of it.
Selling requires persuasion. It involves identifying customers, creating demand, persuading
them to buy and transfer ownership for a price.

Selling is a process in which a demand for a given product or service is developed to

promote the sale of it, to develop this demand - selling requires persuasion, identifying
customers to push them to buy and transfer ownership for a price. This act has a commercial
significance to the seller.

Main features of selling are as follows:

- Selling involves persuading and convincing people to buy.
- Selling also involves winning the confidence
- Selling converts goods and services into cash.
Methods used in selling:
a) Selling by inspection
b) Selling by description
c) Selling by sample

Difference between marketing and selling:

Basis of distinction Marketing Selling

Scope Total system consists of A part of marketing involves

planning, pricing, promotion, persuasion and directing
and distributing products. flow of products to
customers.

Beginning Begins much before goods Begins after the goods are
are produced to understand produced.
the needs and preference of
customers.

End Continues even after sale so Comes to an end with the

as to provide after-sale delivery of the goods to
services and to judge customers.
reactions of customers.

Orientation Customer-oriented, the aim Product-oriented the aim

being to satisfy the needs of being to satisfy the needs of
buyers. the seller.

Focus On long term growth and On short-term maximisation

profitability of business. of profits.

Means used Integrated approach Persuasion and promotion

Objective Profits through customer Profits through sales

satisfaction volume.

Principle Caveat vendor - let the Caveat emptor - let the

 seller beware. buyer beware.

Marketing is a wider term and includes selling. Marketing consists of interacting business
activities performed to plan, price, persuade and distribute want satisfying goods and
services to present to potential customers. Selling involves obtaining orders from customers
and transferring ownership to them. Selling in one of the functions of marketing.

Marketing involves the design of the products acceptable to customers and transfer of
ownership from seller to buyer. On the other hand, selling involves procuring orders from
customers and delivering the products to them. Selling is product-oriented, while marketing
is customer-oriented. Selling begins after the production, because it is concerned with the
sale of goods already produced. Marketing begins before the production cycle in order to
identify customer’s wants.

Meaning of Personal selling:

Personal selling or salesmanship is the process of assisting and persuading a prospective
buyer to buy a product or service in a face-to-face situation. It is the act of persuading people
to purchase goods and services which will provide them lasting satisfaction. It involves
winning the buyer’s confidence and creating a regular and permanent customer.

Salesmanship consists of winning the buyer’s confidence for seller’s goods and thereby
winning a regular and permanent customer. It is the art of so presenting an offer than the
prospect appreciates the need for it and that mutually satisfactory sale follows.

Features of Salesmanship or personal selling:

1. Personal
2. Selective
3. Oral
4. Long Lasting relationship
5. It is an art
6. Mutual Benefit (customer and salesman)

Personal selling is however a very costly and time consuming process. It also involves the
problems of selecting, training, and motivating competent salesmen.

Distinction between advertising and personal selling:

Basis of distinction Advertising Personal selling

Nature A mass selling method One to one selling method

Contact Impersonal - no face to face Personal - face to face

contact. contact.

Cost Less costly More costly

Flexibility Less flexible More flexible

 Sale Cannot result in immediate Can result in immediate sale
sale

Customer satisfaction Cannot remove doubts of Can remove doubts of

customers customers

Coverage Wide Narrow

These steps of personal selling can be summed up in the acronym AIDCAM

Which stands for Attention, Interest, Desire, Conviction, Action and More sales.

Qualities of a good salesman:

1. Good Physique: presentable, mentally fit, good health, cheerful etc.
2. Cheerful: smiling face and pleasing manners, social, friendly, polite and courteous.
3. Sincere: Loyal and disciplined
4. Sensitive: To needs and expectations of customers.
5. Knowledgeable: Up-to-date knowledge of his firm, product market, competitors and
customers.

Distinction between Sales and Selling process:

1. Sales refer to the total amount of goods and services sold by a firm during a given
period of time, on the other hand, selling process is a series of steps taken by a
salesperson to sell goods and services,
2. Sales is the end of the process of selling
3. Selling process is an ongoing activity while sales is known at the end of the period.
4. Sales is a quantitative term whereas the selling process is not a quantitative term.
Generally Accepted Accounting Principles (GAAP)

Entity Concept
Duality concept
Matching Concept
Money-Measurement concept
Going Concern concept
Banking:

A bank may be defined as a company which collects money from the public in form of
deposits and lends the same to borrowers. It is an institution that provides facilities for safe
keeping, lending and transfer of money. A bank is an institution which accepts deposits from
the public and advances loans. It purchases and sells money, and transact other related
business. A bank is different from other financial institutions which may accept deposits and
make advances but they cannot create credit.

Banking means the accepting, for the purpose of lending or investment, of deposits of
money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft,
order or otherwise.

Banks are sometimes described as dealers in money and credit because banks accept
deposits, it purchases money at a certain rate of interest. When it lends money, it sells
money at a higher rate of interest. The difference is its profit.

Banking is a relationship oriented industry:

1) Based on mutual trust between bank and customer
2) A depositor directly interacts with the employee of the bank.

Bank is an organisation whose principal operations are concerned with the accumulation of
the temporarily idle money of the general public for the purpose of advancing to others for
expenditure.

Types of Bank:
Central Bank - A Central bank is the apex bank which supervises and controls the entire
banking system of a country. It regulates the money and credit in a country with close
cooperation with the government. A central bank is so called because it occupies a central
position in the banking sector of the country.

Commercial Banks- A commercial bank is an institution which accepts deposits of money

from the public and provides loans and advances to businessmen and others. It also
performs other related functions. In India, commercial banks are organised as joint stock
companies.
Basis of Distinction Central Bank Commercial Bank
 Position or status It is the apex institution of a It is one of the banks in a
country’s banking system. country.

Ownership It is owned by the It is generally owned by the

government. shareholders.

Aim Its aim is to serve the Its aim is to earn profit

country’s interest.

Number There is only one central There are several

bank in a country. commercial banks

Main client It is a banker to the It is a banker to the general

government. public.

Issue of notes It has the monopoly over It cannot issue notes.

issue of notes.

Relationship with other It controls all other banks It functions under the control
banks of the central bank

Competition It does not compete with any It competes with other

commercial bank. commercial banks.

Public dealings It does not deal with public It deals with public directly.
directly.

Foreign exchange It is the custodian of foreign It is only an authorised

exchange reserves of the dealer in foreign exchange.
country.

Lender of last resort It serves as a banker to It does not serve as a

other banks by keeping their banker to other banks.
reserves.

Credit control It controls credit in the It creates credit for

country. customers.

Chief executive Governor Chairman

Functions of Central Bank:

- Issue of currency notes
- Banker to the government
- Banker’s Bank
- Credit control
- Custodian of foreign currency reserves
- Maintenance of Exchange Rate
- Clearing House Facility

Credit control by Central Bank:

Credit control means the regulation of credit by the central bank for achieving the desired
objectives. It involves expansion and contraction of credit. The control over credit is
necessary for preventing too much money supply in the economy and to prevent price rise

Objectives of credit control are:

- To stabilise the general price level in the country.
- To keep exchange rate stable
- To promote and maintain a high level of income and employment.
- To maintain a normal and steady growth rate in business activity.

Methods of Credit Control:

Two categories: Quantitative credit control and Qualitative credit control

Quantitative Credit Control:

Bank Rate policy:

Bank rate is the rate at which the central bank rediscounts the first class securities of
commercial banks. Bank rate determines the market rate of interest at which commercial
banks grant loans to borrowers. Whenever the central bank wants to reduce credit in the
market it raises the bank rate. When central bank credit becomes more expensive, the
commercial banks increase their bank rate. This discourage borrowers from borrowing loans
which decreases credit in the market. To increase credit, the bank rate is decreased.

Open Market Operations:

The open market operation means the sale and purchase of securities by the central bank in
an open market. When the central banks wants to reduce the volume of credit, it sells
securities in the market. Sale of securities props up cash reserves of commercial banks
towards the central bank. Similarly, when the central bank wants to expand credit, it buys
securities in the open market, this increases the money supply in the banking system. In
comparison with bank rate policy, the open market operations are a more direct and effective
method of credit control.

Cash Reserve Ratio (CRR):

Commercial banks are required to keep a specified percentage of their cash reserves with
the central bank. An increase in cash reserve ratio reduces the capacity of commercial
banks to grant credit. On the other hand, a decrease in cash reserve ratio expands the credit
granting capacity of commercial banks. It is the ratio of cash to deposits.

Statutory Liquidity Ratio (SLR):

Commercial banks also have to keep a certain percentage of their demand and time
liabilities in liquid form consisting of cash and government securities. When the central bank
wants to reduce the volume of credit it raises the statutory liquidity ratio. As a result,
commercial banks have to keep more liquid assets and their capacity to grant credit is
reduced. Similarly, the central bank can expand credit by reducing the statutory liquidity
ratio.

Qualitative credit control:

Margin Requirements: commercial banks have to keep a margin between the amount of
loan granted and the market value of the security against which the loan is granted . For
example, they may be asked to grant loans upto 80 percent of the security or asset. When
the central bank raises margin requirements the volume of credit is reduced. In the same
manner lowering of margin requirements leads to expansion of credit.

Credit rationing: The central bank fixes a limit to the credit facilities available to commercial
banks. The available credit is rationed among them according to the purpose of credit. This
method is used in exceptional situations of monetary stringency. Moreover, this method
cannot be used for credit expansion.

Moral suasion: Under this method, the central bank requests and persuades the commercial
banks not to grant credit for speculative and non-essential activities. It is an informal and
non-statutory method. But commercial banks honour the authority of the central bank. The
central bank may also issue directives to commercial banks to refrain from certain type of
lending.

Publicity: The central bank issues reports and review statements of assets and liabilities.
These publications keep commercial banks aware of conditions in the money market, public
finance, trade and industry in the country. They adjust their credit activities accordingly.

Functions of Commercial Banks:

Two functions: Primary and secondary functions

Primary functions
- Accepting deposits: Commercial banks receive deposits from public for the purpose
of making investments and granting loans. People deposit their savings for the sake
of safety and for earning interest. Depositors can withdraw their money either in the
form of cash or through cheques. Fixed deposits, savings deposits, recurring
deposits and current deposits are main forms of deposits.

- Lending money: in the following ways

a) Overdraft - overdraft means an arrangement under which a current account holder
is allowed to withdraw more than the balance to this credit upto the specified limit.
Overdraft is allowed for a certain period with interest.
b) Cash Credit - the bank advances cash loans to the borrower against some
tangible security or personal guarantee. The borrower can withdraw upto his cash
credit limit. Interest is charged on the withdrawn amount, it is for a longer period than
overdraft.
c) Discounting for bills - businessmen receive bills of exchange from their customers
who buy goods on credit. Commercial banks pay the amount on a bill before the date
of its maturity after deducting discount (interest) charges. On the date of maturity the
bank gets payment of the bill from its acceptor. If is the bill discounted is
dishonoured, the bank receives the payment from the customer who discounted the
bill.
d) loans and advances - The bank advances a fixed amount in lump sum to the
borrower for an agreed period. The borrow may withdraw the whole amount at once
or as per his needs, but interest is charged on the whole amount sanctioned.
 Commercial banks grant both short-term and medium-term loans. Loans are granted
against the security of assets or on the personal security of the borrower.

Difference between Cash Credit and Overdraft

Basis of distinction Cash Credit Overdraft

Eligibility Persons/organisations not Only current account

holding current accounts are holders are eligible for
eligible for cash credit. overdraft.

Period A longer period A few days

Nature A revolving credit Not a revolving credit

arrangement arrangement

Secondary functions:
- Agency functions: as an agent of its customers, a commercial bank performs the
following functions;
a) Collecting receipts
b) Making payments
c) Buy and sell securities
d) Trustees and executors
- General Utility functions: Commercial banks also perform several general utility
functions which are given below:
a) Issuing credit instruments: Banks issue letters of credit, drafts and travellers’
cheques to their customers.
b) Underwriting Capital issues: Banks underwrite the shares and debentures
issued by companies.
c) Safe custody of Valuables: Banks provide safe deposit vaults for storing these
valuables.
d) Advice and information: Banks offer advice on financial matters. They provide
information about credit-worthiness of customers to enable them to obtain
credit facility from suppliers.

Types of Bank deposit accounts:

- Fixed Deposit account: FIxed deposits are made for a fixed period of time and cannot
be withdrawn before the expiry of the period. A fixed deposit is also known as a time
deposit or long-term deposit. A higher rate of interest is payable on a fixed deposit.
The depositor can withdraw the money along with the interest on the maturity value
of the maturity date. No pass book or cheque book are issued to the deposit-holder.

- Savings deposit account: Any person can open a savings account with the minimum
specified amount. In this account, small savings are deposited by middle and low
income people. Deposits can be made any number of times in a week. But there is a
restriction on the number of withdrawals in a week. A passbook and cheque are
issued to the account holder. The main purpose of a savings deposit is to develop
the habit of saving among the public. No overdraft is allowed on a savings deposit
account.
 - Recurring deposit account: Is this account, the account holder is required to deposit a
specific amount every month. After the expiry of the specified period, the depositor
gets back his money together with the interest there on. A passbook is issued to the
depositor but no cheque book is issued.

- Current account: Current account is generally opened by business firms. Money can
be deposited into and withdrawn from this account any number of times. Pass book,
cheque book, and overdraft facilities are available on a current account. Bank pays
no interest but rather makes a small charge on the current account.

Comparison between Types of Bank Accounts

Basis of Comparison Fixed deposit Savings deposit Current Account

account account

Object To earn interest. To develop habit of To carry on business

saving dealings

Period of deposit Fixed period No fixed period No fixed period

Frequency of Only one at a time Any number of times Any number of times
deposits

Number of On maturity date Restriction on No restriction on

withdrawals number of number of
withdrawal withdrawals

Cheque book facility Not allowed Yes, allowed allowed

Interest HIgh rate Low rate No interest, but a

bank charge

Overdraft facility Not available Not available available

Operating a bank account:

1) Pay in slip book:
A pay in slip book contains a number of printed slips with perforated counter-coils.
This slip is to be filled in at the time of depositing cash and cheques. The pay-in-slip
contains information relating to the date of deposit, name of depositor, the amount to
be deposited, the name and number of back account, the details of cash or cheque.
After filling the pay-in-slip the depositor hands over the same to the bank clerk along
with cash or cheques to be deposited.
 2) Cheque Book:
This book contains a number of printed blank forms of cheques with their counterfoil
consecutively numbered. An account holder can draw money from his account
through cheques. A cheque may be drawn payable to ‘self’ or payable to third
parties.

3) Pass Book:
The pass book is an extract or copy of the customer’s account in the bank’s ledger as
on a particular date. The customer brings in the pass book to the bank from time to
time. The bank clerk records all transactions made by the customer is the pass book
during this period. The pass book shows all withdrawals and deposits made by the
customer. The balance of the customer’s account on a specific date is also shown.

Advantages of Bank Account

- Safety of money
- Payment facility
- Collection facility
- Habit of saving
- Loans and advances
- Safe custody of valuables

Three parties to a cheque:

i) Drawer - the person who is ordering the amount to be paid
ii) Drawee - the person who is receiving
iii) Payee - the person paying, can be drawer also

Characteristics of a cheque are as follows:

Written instrument:
A cheque is an instrument in writing. It may be written by hand or typewritten or printed.
Banks do not accept checks written in pencil.

Order:
A cheque is an order by the drawer of the cheque

Unconditional:
The order to pay the amount must be without any condition.z

Certain Amount:
Amount to be paid must be clearly specified.

Certain Payee:
The cheque must be payable to someone (a bearer of the cheque)

Advantages of cheques:
- Convenience
- Safety
- Easy transfer
- Receipt
 - Credit
- Saving of currency notes

Disadvantages
- Creditor may refuse to accept
- A dishonest person may forge or alter
- Cheque is not convenient means of receiving payment
- Risk of loss when a cheque is mislaid or stolen.

Difference between Open cheque and Crossed Cheque:

Open cheque Crossed Cheque

No lines are drawn on this cheque Two parallel lines are drawn on the face of
this cheque

The payment of this cheque is made at the The payment of this check is not made at
counter of the bank. the counter of the bank but rather some
other bank.

Bank Draft:
A bank draft is a type of cheque drawn by a bank, either on its own branch or on another
bank in favour of a third party. It is payable to the person named in it or to his order. A Bank
draft is the most convenient and safe means of sending money from one place to another. It
is safe because its amount is credited to the account of the person named in it. The person
who wants to purchase a draft fills in the prescribed form available with the bank. The form
fully filled in along with the amount of the draft plus commission is paid to the bank, who
issues the draft. He then sends the draft to the receiver by post or courier. The receiver can
get the amount of the draft from the concerned bank.

Basis of distinction Cheque Bank Draft

Drawer Drawn by a person Drawn by a bank

Bearer A cheque can be drawn A draft cannot be made

payable to the bearer. payable to the bearer.

Charges The person who receives Commission is paid in

payment has to pay advance by the sender of
collection charges. money.

Dishonour Funds in the drawer’s Cannot be dishonoured

account are insufficient

Stop payment Payment of a cheque can be Payment of bank draft

stopped by giving a bank a cannot be easily stopped.
 written notice.
When can a bank refuse payment of a cheque:
- The funds to the credit of the drawer are not sufficient to make payment of the
cheque
- Cheque is postdated or presented before the date it bear
- Cheque is three months old and “stale”
- Cheque is altered and alterations are not signed
- Signature of the drawer does not match with the specimen signatures.

Cost means the ‘price paid for something’ or the ‘sacrifice made to acquire something’. In
management terminology, cost is the ‘expenditure incurred to generate revenue’. It is the
money value of resources used to produce a product or service.
The term cost may be defined as the money spent or liability incurred for acquiring goods or
services.
It is the sum of three groups or components: the purchase or transfer price of material, the
cost of the hire of labour, and the value of other disbursements made or expenditure
incurred in achieving the desired product or result.

Elements of Cost:
01. Material Cost: Material cost refers to the cost of substances from which the product is
made. Materials enter into the production process and form part of the finished
product.
a. Direct Material: All materials which become an integral part of the finished
product and which can be easily measured and directly charged to the
product are called direct material.
1. Any raw material
2. Material purchased for manufacturing
3. Primary packing material eg: bottles of Coke or pepsi.
b. Indirect Material: Indirect Material are those materials which cannot be
directly assigned to the specific product but which can be apportioned. Eg: Oil
and waste, nails and grease. Such materials do not form an integral part of
the finished product.

02. Labour Cost: the cost of human effort required for converting the material into the
finished product is called labour cost. It is the aggregate amount of remuneration paid
to workers, supervisors and managers. Labour can be direct or indirect.
a. Direct Labour: The Labour which can be wholly and directly identified with a
particular product is called direct labour, eg. wages paid to machine operator
or carpenter.
1. Labour engaged in actual production
2. Labour engaged in aiding production by supervision etc.
3. Inspectors, analysts, etc. specially required for such
production.
 b. InDirect Labour: Indirect labour means the labour which cannot be wholly and
directly identified with a particular product. It is the labour employed for
performing tasks incidental to manufacture.

03. Expenses: Costs incurred other than on material and labour for production and
distribution and for management of the organisation are called expenses. Expenses
may be direct or indirect.
a. Direct expenses: The expenses which can be wholly and directly identified
with a particular product are called direct expenses. Hire charges of a
machine used for a particular job, rent of the room in which a specific product
is being produced, lighting expenses of such a room are examples of direct
expenses.
b. Indirect Expenses: Indirect expenses are those expenses which cannot be
wholly and directly identifies with a specific product or job. These expenses
include factory expenses, office expenses and selling expenses.
Overhead or indirect expenses are the expenses which are not directly attributable to
a specific job or cost centre. Overheads include all expenses other than direct expenses.
These are incurred for the general organisation and control of the organisation.

Cost Unit, Cost Centre and Cost Sheet

Cost Unit:
Cost unit is the unit of measurement in terms of which cost is identified. It may be defined as
a unit of product or service or time in relation to which cost may be ascertained. Per metre of
cloth, per tonne of steel, per unit of electricity, per kilometre of travel and per hour are
examples of cost unit.

Cost centre:
A cost centre means a work unit, a location, a person or a group of these for which costs
may be ascertained and used for the purpose of cost control. It is the subunit of an
organisation for which cost is allocated separately. It is an activity or group of similar
activities for which costs are accumulated and collected. Division, department, section are
typical examples of a cost centre. For example, a factory or a branch may be used as cost
centres.

Cost Sheet:
Cost sheet is a statement which shows the various elements of total cost. It is an analysis
and classification of expenses on different items during a specified period of time.

Cost may be defined into the following categories:

On the basis of nature:
1. Direct Cost
2. Indirect Cost
On the basis of behaviour:
1. Fixed cost
2. Variable cost
3. Semi-fixed Cost
On the basis of nature:
1. Direct Cost: Direct costs are those costs which can be easily, directly and wholly
related to a particular cost unit or cost centre. These consists of direct material cost,
direct labour cost and direct expenses. Materials used in production of a specific unit,
wages paid to workers directly engaged in manufacturing and exercise duty are
examples of direct cost.
2. Indirect Cost: Indirect cost are those which cannot be identified easily, directly and
wholly with a particular cost unit or cost centre, These comprise indirect materials,
indirect labour and indirect expenses. Fuel, wages of storekeeper, rent are examples
of indirect costs, Indirect costs are also known as overheads or common costs.

Basis of Distinction Direct Cost Indirect Cost

Relationship Direct and wholly related to Not directly and wholly

a particular unit or centre of related to a particular unit or
cost. centre of cost.

Components a) Direct materials a) Indirect Materials

b) Direct Labour b) Indirect Labour
c) Direct expenses c) Indirect expenses

Examples Sugarcane used in a sugar Fuel, wages of store-keeper.

mill, wages of sugar
workers.

On the Basis of Behaviour:

Fixed Cost: Fixed costs are those cost which remain fixed in amount irrespective of changes
in the volume of output during a given period of time. Such costs do not change with
changes (increase or decrease) in the level of activity upto a certain limit. Rent, insurance,
depreciation of plant are examples of fixed costs.
Variable cost: Variable costs are those costs which vary in amount with changes in the level
of output or activity. Such costs increase and decrease in the same proportion in which the
level of output increases or decreases. Variable costs vary in total amount but remain
constant per unit of production. Thus, there is a linear relationship between the volume of
production and total variable costs. The behaviour of variable costs in shown in the graph.
Sugarcane used to produce sugar is an example of variable cost.

Semi-Fixed or semi-variable cost:

Semi-fixed costs are those costs which vary but not in direct proportion to changes in the
volume of production. They are a combination of fixed and variable costs. In other words,
semi-fixed costs are partly fixed and partly variable. Such costs are neither perfectly fixed
nor absolutely variable. The fixed component of such costs represents the cost of providing
capacity and the variable component is caused by using the capacity. For example, the rent
of a telephone is a fixed cost whereas the charges for calls made during a month are a
variable cost.

Basis of Distinction Fixed Cost Variable Cost

Behaviour Fixed costs remain constant Variable costs vary in

within a given range of proportion to changes in the
activity and a given time volume of output.
period.

Basis Fixed costs are time-based. Variable costs are activity

based.

Total and per unit cost Fixed costs are fixed in total Variable costs are fixed per
but vary per unit. These unit but vary in total. These
decrease with increase in increase with increase in the
the volume of output. volume of output.

Control Fixed costs are not Variable costs are

controllable in the short run. controllable in the short run.

Importance of Human Resources

Human Resource may be defined as the number of persons working in an organisation
together with their knowledge, skills, experience, attitudes, motivation and potential.

Features:
a) People Oriented
b) Science as well as Art
c) Development Oriented
d) Individual Oriented
e) Pervasive Function
f) Future Oriented

Role of human resource management:

- Significance for an enterprise
- attracting and retaining required talent
- developing necessary skills
- securing cooperation among employees
- utilising human resources

- Professional significance
- Providing maximum opportunities for personal development
- Maintaining healthy relationships between work groups
- Allocating work properly

- Social significance
- psychological satisfaction and suitable environment
- Maintaining a balance between the jobs available and the job seekers
- eliminating waste of human resources.

- National Significance
- Effective management of human resources helps to speed up the process of
economic growth which in turn leads to higher standards of living and fuller
employment.

Functions of Human Resource Management

Procurement Function
- Recruitment (process of searching)
- Selection (process of choosing)
- Placement (process of placing)
- Induction

Development Function
- Training
- Career planning and development
- Performance and Potential appraisal

Compensation Function:
 - Job Evaluation (process of determining the relative worth of a job)
- Wage and Salary Administration (providing suitable wage)
- Bonus (making incentives)

Integration Function:
- Motivation of employees and development of sound human relations

Maintenance Function:
- Concerned with promoting physical and mental health of employees,

Recruitment is the process of searching for and identifying the prospective employees and
encouraging them to apply for jobs in the enterprise. It is the process of discovering and
attracting capable applicants for vacant jobs lying in an organisation.
It is the development and maintenance of adequate manpower resources.

Direct method of recruitment:

- Field Recruitment
- Walk-in-interviews
- Tele recruitment
- Poster and Billboards

Indirect methods of recruitment:

- Advertisements in newspapers, magazine, journal.
- Public employment exchanges
- Placement agencies
- Trade union

Internal sources of recruitment:

- Transfer
- Promotion
- Demotion
- Ex-employees

Advantages:
- Economical
- Familiarity
- Experienced staff
Disadvantages:
- Limited choice
- Inefficiency
- Inbreeding of ideas (cap on fresh ideas)
- Incomplete source (cannot meet all job vacancies)

External sources of recruitment:

- Advertisements
- Employment exchanges
- Placement agencies
- Gate Hiring
 - Unsolicited Applicants

Advantages:
- Wide choice
- New ideas
- Complete source (all types of jobs)
Disadvantages:
- Demoralisation (high positions filled with people from outside causes discontent)
- Expensive (involves expenditure)
- Danger of maladjustment (may not be able to adjust in new environment)

Selection means the process of choosing the appropriate candidates out of all recruits to be
selected to fill vacancies in the job to be hired and employed. Selection is said to be a
negative process as the number of rejected individuals is much higher than the number of
chosen individuals.

Methods of selection:
- Preliminary interviews
- Application form
- Employment tests
- Selection Interview

Types of Interviews:
- Structured or Patterened interviews
- Unstructured or non-directive interviews
- Group interviews
- Panel or Board Interview
- Stress Interview

Training is an organised process for increasing the knowledge and skill of an employee for
doing a particular job. It is a process by which employees acquire knowledge, skills and
aptitudes for performing a specific job.

Importance of training:
- Increased Productivity
- Less supervision
- Higher Morale
- Reduced turnover and absenteeism
- Expansion and Growth

Types of training:
- Orientation Training
- Job training
- Refresher training
- Safety Training
- Promotional Training

Methods of Training:
- On-the-job training
- Coaching/mentoring
- Job rotation
- Apprenticeship Training
- Under Study

- Off-the-job Training
-