DELTA STATE UNIVERSITY, ABRAKA

CENTRE FOR ENTREPRENEURIAL STUDIES

ENTREPRENEURSHIP, INNOVATION AND ENTERPRISE TRAINING:

A TRAINING MODULE FOR THE CERTIFICATE PROGRAMME

Contains:

Entrepreneurial Financing and Introduction to Computer

Entrepreneurship, Innovation and Feasibility
Consumer Behavior and Marketing
Entrepreneurial Development and Business Planning
Principles of Motivation and leadership theories
Product costing and Pricing, Problem solving Skills
 TABLE OF CONTENTS/LIST OF CONTRIBUTORS

CES 003: Entrepreneurial Financing and Introduction to Computer -Dr. OKORO, E.G

CES 004: Entrepreneurship, Innovation and Feasibility Study Essential Concepts of

Entrepreneurship - Dr. OKORO, E.G.

CES 006 Consumer Behaviour and Marketing -Dr. OFILI .N.P

CES 007: Business Establishment/Planning and Growth Feasibility Study/Report and Key
Accounting Records for Entrepreneurs - Dr. ODIRI, V.I.O.

CES 008: Principles of Motivation and Leadership Theories - Professor OBI, C.

CES 009: Product Costing and Pricing, and Problem Solving Skills - Dr. OFILI N. P.
 MODULE: CES 003
ENTREPRENEURIAL FINANCING AND INTRODUCTION TO COMPUTER
By DR. OKORO. G. EDESIRI

Learning Objectives
- Overview of Finance
- Meaning of Small and Medium Scale Enterprises (SMEs)
- Financing Sources of SMEs in Nigeria (Long-Term)
- Financing Constraints and Entrepreneurship;
- Computing for Business, e-Business and Development/Implementation of ICT

1. OVERVIEW OF FINANCE

Finance is the oil wheel of any enterprise or business; it is used to acquire the services of skilled
labour, raw materials, modern technology and machinery, for creation of goods and services to
meet the perceived needs of both existing and potential consumers. Therefore, lack of finance
will affect the smooth running of an enterprise and directly affecting the level of profitability.

Remarkably, there are a numerous sources of fund available to the entrepreneur (which is
categorized as Internal or External sources or Short-Term, Medium Term and Long-Term sources)
but the ability to use the right sources at the appropriate stage of the business will lead to wealth
maximization. Long-term financing requirements are for a period exceeding five (5) to ten (10)
years (e.g. equity share capital, preference shares, debenture, loans from financial institutions,
ploughing back of profits/retained earnings, term loans, lease financing, etc.)

Medium-term financing requirements are for a period exceeding one (1) years but not exceeding
five (5) years (e.g. borrowing from commercial banks, lease financing, etc.); and Short-term
financing connotes funds whose tenure do not often exceed one (1) year (e.g. trade credits,
advances from customers, accrued expenses, overdraft, discounting bills, etc.). Emphasis in this
module is on long-term sources of financing for SMEs.

2. MEANING OF SMALL AND MEDIUM SCALE ENTERPRISES (SMEs)

There is no common definition of the term SMEs; the geographical placement of SMEs as well as
country specific legislation influences the numerous SMEs definitions. In the United States, SMEs
are defined by the number of employees (those with fewer than 100 employees are small-sized
enterprises), while medium-sized enterprises often refers to those with fewer than 500 employees.
The Organization for Economic Co-operation and Development (OECD) views SMEs as
enterprises with fewer than 500 employees. For developing countries like Nigeria, SMEs would
generally mean enterprises with less than 50 workers and medium-size enterprises would usually
mean those that have 50-99 workers.

Furthermore, the National Economic Reconstruction Fund (NERFUND) sees SMEs as those in
which non-current assets (fixed assets) and new investments do not exceed N10million. For the
Central Bank of Nigeria, SMEs (for commercial bank lending) are in the industrial sector, which
excludes general commerce, whose total investment does not exceed N2.5million (excluding land
and working capital) or whose maximum turnover is N2.5million annually and N5million
investment and N25million turnover respectively for merchant banks.

Small and Medium Enterprises (SMEs) play key roles in developing countries like Nigeria SMEs
account for more than 90% of all enterprises outside white-collar jobs, constituting a major source
of employment and generates significant domestic and export earnings. SMEs development
emerges as a key instrument in poverty reduction efforts, thus, they contribute to economic, social
development and poverty reduction. Also, SMEs constitute the driving force of industrial growth
and development and this is due to their great potentials in ensuring diversification and expansion
of industrial production as well as the attainment of the basic objectives of development.

Given the great potentials of SMEs to bring about social and economic development, it is of no
surprise that the financing SMEs are of huge concern to the government of diverse countries in the
world. However, financing SMEs is a major catalyst and a key success factor for the development,
growth and sustenance of any economy. Most government and business circles have come to
recognize the importance of financing SMEs and have consequently agreed that their growth
constitutes one of the cornerstones of economic development. Regardless of the numerous factors
that challenge the survival and growth of SMEs in Nigeria, finance has been identified as one of
the most vital factor. Furthermore, having access to finance gives SMEs the avenue to develop
their enterprise and to acquire better technologies for production, therefore ensuring their
competiveness,

3. FINANCING SOURCES OF SMEs IN NIGERIA (LONG-TERM)

The importance of finance to business organization cannot be over emphasised. Business finance
is however, not easy to come by especially in respect of SMEs. Yet they require funds from every
source available to meet their asset needs, working capital needs, and for expansion. There is wide
consensus in Nigeria that government policies are skewed in favour of the formal sector to the
detriment of the informal sector where SMEs are found. This skewness is to the great disadvantage
of SMEs in Nigeria since they are more disposed to the funds of informal sector.

A. Crowd-funding

Crowd-funding is a technique to raise external finance from a large audience, rather than a small
group of specialised investors (e.g. banks, business angels, venture capitalists), where each
individual provides a small amount of the funding requested. In broad terms, crowd-funding can
take the following forms:
(i) Donations;
(ii) Reward or Sponsorship;
(iii) Pre-selling or pre-ordering; and
(iv) Lending

B. Asset-Based Funding

Asset-based finance, which includes asset-based lending, factoring, purchase-order finance,

warehouse receipts and leasing, differs from traditional debt finance, as SMEs obtain funding
based on the value of specific assets, rather than on its own credit standing. The key advantage of
asset-based finance is that SMEs can access cash faster and under more flexible terms than they
could have obtained from a conventional bank loan, regardless of their financial position and future
cash #flow projections.

C. Corporate Bonds Funding

Corporate bonds are debt obligations issued by private and public corporations. By issuing bonds,
the SMEs make a legal commitment to pay interest on the principal, independent of their
performance, and to return the principal when the bond matures. The terms of the contract can
however provide SMEs with the right to “call”, i.e. buy back, the bond before the maturity date.

If it calls the bond, SMEs will pay back the principal and possibly an additional premium, which
depends on when the call occurs in relation to the actual maturity date. Bonds can be classified in
relation to several characteristics, such as maturity, type of interest, credit quality, priority claim,
and collateralisation. The terms and conditions of the bond contract can combine these dimensions
differently, giving rise to a large variety of cases.

With regard to maturity, bonds can be grouped as short-term(less than 3yrs), mediumterm (4-
10years), or long term (more than 10years); the longer the term, the higher the risk for the bond-
holders, hence the higher the interest rate. Interest payments are called coupon payments and can
be at a fixed rate throughout the term of the bond, or at a floating rate, based on a bond index or
another benchmark, such as government bonds.

D. Other Sources of Financing for SMEs

The Small and Medium Industries Equity Investment Scheme (SMIEIS) in Nigeria, the formal
financial institutions have been organized to finance SMEs through venture capital financing in
the form of a SMIEIS fund. This was in response to the Federal government’s desire to promote
SMEs as vehicles for rapid industrialization, sustainable economic development, poverty
alleviation and employment generation. The following are sources of financing of SMEs:
i. Venture Capital
ii. Government Funding: World Bank SME loan scheme; African Development Bank
Export Stimulation Loan (ADB/ESL) scheme; CBN Re-discounting and Re-financing
Facility (RRF); National Economic Reconstruction Fund (NERFUND), Bank of Industry
(BOI); and Graduate Employment Loan Scheme (GELS) initiated by National Directorate
of Employment (NDE).

4. FINANCING CONSTRAINTS AND ENTREPRENEURSHIP

During the last decades, there was increasing awareness on SMEs financing, determined by the
recognition that SMEs are powerful engine of economic development. Studies revealed that the
size of SMEs does matter when it comes to accessing finance. Several reasons, such as opaqueness
and lack of collateral, led SMEs to have limited access to funding. SMEs determine their capital
structure regardless of their sizes. Academic exploration reached remarkable inferences that the
capital structure of larger firms can apply to SMEs.
Notwithstanding the major contribution of SMEs to national economies, the greatest constraints
facing SMEs is sourcing of capital to finance business because of the high cost of borrowing. There
are numerous financing constraints facing entrepreneurs in Nigeria. The financing constraints
facing entrepreneurs or entrepreneurship are briefly discussed but not limited to the following:
(i) Absence of Collateral
(ii) Lack of Information
(iii) Unfavourable Economic Policies for SMEs
(iv) High Risks and Administrative Costs Associated with SMEs

Overall, most SMEs operators prefer to get funds as a loan rather than as equity contribution; they
are averse to going into partnership schemes with banks under the Small and Medium Industries
Equity Investment Scheme (SMIEIS) programme, thus, setting back most SMEs in the country.

5. COMPUTING FOR BUSINESS, e-BUSINESS, AND DEVELOPMENT/

IMPLEMENTATION OF ICT

A business (also known as an enterprise or firm) is an organization engaged in the trade of goods,
services, or both to consumers. It is a general term that refers to any type of business activity on
the internet, including marketing, branding, and research. On the other hand, commerce refers to
the buying and selling of products and services between firms, usually in different status or
countries.

E-commerce thus means buying and selling of products or services over electronic systems such
as the internet and other computer networks. On the other hand, e-business is a broader concept
and describes arrangements where organizations have redesigned their business structures,
processes and services to take advantage of Internet capabilities. The essential features of an e-
business are that it:
 Makes greater use of electronic devices in the processing and communicating of data;
 Allows increased integration of databases and hardware devices;
 Enables users to engage ‘interactively’ with systems and services – for instance, to purchase
goods, check on orders or collaborate in virtual teams or communities.

This module discusses the difference between e-business and e-commerce, relevance of
information and communication technology (ICT) to business, e-business models as well as
development and implementation of ICT for improved business processes and performance.

A. Difference between e-Commerce and e-Business

In both cases, e stands for ‘electronic networks’ and describes the applications of electronic
network technology – including internet and electronic data interchange (EDI) to improve and
change business processes. First, e-commerce covers outward - facing processes that touch
customers, suppliers and external partners, including sales, marketing, order taking, delivery,
customer service, purchasing of raw materials
Second, e-business includes e-commerce but also covers internal process like production,
inventory management, products development, finance, human resources. E-business strategy is
more complex, productivity and cost savings. The key element of e-commerce is information
processing. This information processing activity is in the form of business transactions which
include:
 Transactions between company and the consumer over networks for the purpose of home
shopping and home banking;
 Transactions between trading partners;
 Transactions for information distribution.

There are six types of e-Commerce:

1. BUSINESS - TO - BUSINESS (B2B): It includes the transactions and electronic market
transactions between organizations;
2. BUSINESS TO CUSTOMERS (B2C): These are retailing transactions with individual
shoppers.
3. CUSTOMER TO CUSTOMER: In this transaction customer sells directly to customer’s
example: selling residential properties, cars, etc.
4. NON-BUSINESS E-COMMERCE: An increased number of non-business institutions like
academic institutions, not-for-profit making institutions, religious organizations, etc.
5. CUSTOMER TO BUSINESS (C2B): This category includes individuals who sell products
and services to organizations.
6. INTRA BUSINESS E-COMMERCE: In this category includes all internal organizational
activities, usually preformed on intranets that involves exchange of goods, services are
information

The key elements of an e‐business solution are:

1. Customer Resource management (CRM)
2. Enterprise resource planning (ERP)
3. Supply Chain Management (SCM)
4. Knowledge Management
5. E‐Markets

Furthermore, the three (3) main types of e-business are:

i. Business to Consumer (B2C): The most widely recognized form of e-business, B2C is
the exchange of information, products or services taking place between a business and a
consumer over the internet..
ii. Business to Business (B2B): The largest form of e-business in terms of money spent is
B2B. Business-to-business allows trading to take place between businesses, using a low-
cost sales channel for the sale of goods and services and is responsible for constantly
changing corporate buying habits.
iii. Business to Government (B2G): B2G is the online exchange of information and
transactions between businesses and government agencies, also known as e-government.
B2G allows government agencies and businesses to use electronic means to conduct
business and interact with each other over the internet.

B. Relevance of ICT to Business and Management

Relevance to the Business
i. Global Reach
ii. Reduction in Paper Costs
iii. Reduction in Inventories
iv. Customization of Products or Services.
v. Reduced Production Cycle Time:
vi. Improved Customer Service.
vii. Lower Sales and Marketing Costs
viii. Lower Telecommunication Costs
ix. New Business Partners
x. Faster Access to Information

Relevance to Consumers
i. Increased Choice of Vendors and Products
ii. Convenience of shopping at Home
iii. More Competitive Prices and Increased Price Comparison Capabilities
iv. Variety in Products and Services
v. Greater Customization in the Delivery of Services
vi. Access to Greater Amounts of Information on Demand
vii. Quick Delivery of Digitized Products or Services
viii. Virtual Auctions

C. e-Business Models

E-business model as a system, describes how the pieces of a business fit together with emphasis
on competition and organizational dynamics. The adoption of a successful e- business model may
make it possible to increase competitiveness in the marketplace. New business models have
appeared on the markets, modifying the nature of company internal and external business
processes. These new forms of conducting business have affected traditional management
techniques taught on management courses and no sector has been left untouched. In this new
context, it is important to acknowledge the importance of e-business models. They are the new
keys to increasing a company’s competitiveness in the marketplace by improving its current value
added. The following are the different types of e-business models used:
 Portals
 E-tailing
 Auction
 Value-chains
 Barter
 Buying groups
 Integration
D. Development/Implementation of ICT for Improved Business Process/Performance

E‐business allows for redefinition of value, competitiveness and the very nature of transactions
and it affects all areas of an organization. It is crucial to combine technology and business strategy
while taking into account various stakeholders. An e‐business strategy helps to:
 Identify e‐business concerns;
 Assess information needs;
 Analyze existing systems Improvements required in existing systems;
 Determine the stages of development of solutions; and
 Attain concrete and measurable results.

A number of business and technology-driven requirements are compelling forces that enable
successful development & implementation of integrated end‐to‐end e‐business applications. Some
of these are:
 Efficient business process management technology;
 Efficient B2B communication; and
 Efficient enterprise application integration technology

In order to ensure adequate development and implementation of ICT for improved business
process and performance, the following must be put into consideration:
 Identify/measure quantifiable business objectives
 Ensure organizational/operational flexibility
 Rethink entire company supply chains
 Transform the company to a process‐centric form
 Define Business processes
 Understand Security requirements
 Align business organizations with a flexible IT architecture
 Establish ubiquity within standards

The development/implementation of ICT for improved business processes/performance involves

the following:
Step 1: Identify the project team and stakeholders (planning)
Step 2: Determine the implementation plan and timeline
Step 3: Data cleaning and migration
Step 4: Testing and data validation
Step 5: Execution of the ICT
Step 6: Training and support
 MODULE: CES 004
ENTREPRENEURSHIP, INNOVATION AND FEASIBILITY STUDY ESSENTIAL
CONCEPTS OF ENTREPRENEURSHIP
By DR. OKORO. G. EDESIRI

Learning Objectives
- Overview of Entrepreneurship
- Overview of Innovation
- Essential Concepts of Entrepreneurship
- Eight (8) Concepts of Innovation in Business
- Feasibility Study (Steps and Procedures)
- Relevance of Feasibility Study to Entrepreneurship

1. OVERVIEW OF ENTREPRENEURSHIP

Entrepreneurship defines a creative and innovative process, resulting to wealth generation. The
scholarship for attaining creative and innovative process cannot be attained without a measure of
training and mentoring in courses/programmes in entrepreneurship. Simply put, entrepreneurship
is the science of creativity and innovation. Creativity and innovation in entrepreneurship, centres
on the process of designing novel or new business ideas, and transforming such ideas into tangible
and sealable goods and services.

The basic objectives of entrepreneurship are targeted at creating employment opportunities for the
teeming population, reducing poverty level, enhancing a country’s Gross Domestic Product (GDP)
and per capital income as well as producing goods/services for consumers. In order to realize the
objectives of entrepreneurship, six (6) basic or essential concepts must be taken into cognizance.
In this module, the emphasis is on the essential concepts of entrepreneurship.

2. OVERVIEW OF INNOVATION

The universities, business sector and public sector all play a vital role in the development of
innovation. The key to innovation involves a close collaboration with science, financing and
technology and this has developed a model called Triple Helix Model (THM). The triple helix
model of innovation refers to a set of interactions between academia (the university), industry
and government to foster economic and social development. More often, THM is described as
knowledge-economy or knowledge-society.

Innovation is now days a key ingredient to manage the global competitiveness and companies have
to deal with the creation of new products and service. The term innovation is a word that is derived
from Latin innovare, which means “into new”. The simplest way to describe innovations is doing
something in different ways. Innovation is a word that is often used in the business world; for
some companies, innovation mean something risky, costly and time consuming. Innovation can
also be explained as a new idea, product, device or novelty. It is a mind-set, a way of thinking
beyond the present and into the future. Innovation is vital for SMEs and when used well, it can be
a process, strategy and management technique.
Innovation can at a fundamental level be the process of generating and combining ideas to make a
relationship between present accomplishments and past experiences to solve a future problem.
This is often associated with technological feats and it plays a critical role in the world economy.
Innovation has several significances like solving problems, adapting to change, maximizing on
globalization, facing up the competition, evolving workplace dynamics and customers changing
tastes and preferences.

3. ESSENTIAL CONCEPTS OF ENTREPRENEURSHIP

The essential concepts of entrepreneurship are briefly discussed

i. Change: The term change refers to a process or act through which something becomes
different. As entrepreneurs who are desire of realizing their goals, it is expected that things
must be done to accommodate any changes in the business environment. In this regards,
entrepreneurs should be able to make the form, content, future course, and nature of their
products fit into the current environment in order to attract consumers
ii. Needs: Needs are distinguished from wants. A need refers to something that is required to
survive while wants is something an individual desire but can still survive without it.
Entrepreneurial products and services are designed on the basis of needs of the society and
not wants; hence the products and services must be able to meet or satisfy the needs of
consumers
iii. Solution: This refers to a means of solving problems or dealing with a cumbersome
situation. For entrepreneurs to thrive both now and in the future, they must be able to
provide solution or solve the current needs of the consumers.
iv. Stakeholders: These are members of the entrepreneurial group without whose support the
enterprise would cease to exist. Usually stakeholders are made up of external parties to the
enterprise such as consumers, government, international organizations, creditors, debtors,
among others.
v. Value: An entrepreneur who is unable to create value will be unable to create or generate
wealth that can lead to the enterprise growth, increased profitability and sustainability;
hence value creation is a core concept in entrepreneurship
vii. Context: The context consists of circumstances that influence or are influenced by certain
parameters like attitudes, beliefs, competitors, culture, demographics, goals, governments,
infrastructures, losses, processes, products, projects, sales, seasons, terminology,
technology, weather, etc).

4. EIGHT (8) CONCEPTS OF INNOVATION IN BUSINESS

The concepts of innovation in business are briefly discussed as follows:

A. ASPIRE: How SMEs can aspire:
 Communicate an inspirational vision.
 Set a clear objective for innovation-led growth.
 Align leadership around the criticality of innovation (i.e. secure a commitment from senior
leaders that they will take action)
B. CHOOSE: How to choose:
 Make sure you are clear on the innovation themes you are pursuing.
  Align the portfolio of innovation projects with corporate financial objectives and business
strategy.
 Make sure your initiatives are resourced to win.
 Create a portfolio governance system.
C. DISCOVER: How to discover:
 Systemically scan for opportunities using multiple lenses
 Synthesize information into insight and describe specific problems to solve
 Create differentiated value propositions.
D. EVOLVE: How to evolve:
 Develop market intelligence and explore possibilities.
 Selectively invest in a diversified set of initiatives to explore innovative business models.
 Continuously re-evaluate your position in the value chain
 Consider business models that you can use to deliver value to priority groups of new
customers.
E. ACCELERATE: How to accelerate:
 Install strong project management (the purpose of a strong management structure is to
determine who can say “yes”, not who can say “no”). This starts with appointing a
heavyweight project manager to be responsible for project success.
 Make the innovation teams cross-functional in reality, not just on paper
 Co-locate project teams (invest in a physical space for co-locating cross-functional teams).
 Conduct frequent project reviews
 Keep full focus on the customer value proposition and ensure early market learning
F. SCALE: How to scale:
 Prepare for the launch early in the process.
 Invest in technical launch expertise and product maturity.
 Build operational capacity (i.e. look for your own facilities, supplier, and other partner
facilities).
G. EXTEND: How to extend:
 Create the right mind-set for extending innovation networks.
 Actively manage connections.
 Use strategic networks to source new ideas.
H. MOBILIZE: How to mobilize:
 Define clear roles and responsibilities for driving the innovation agenda.
 Foster a learning organization.
 Do not overemphasize organizational structure.
 Create a supportive culture and reward system

5. FEASIBILITY STUDY (STEPS AND PROCEDURES)

A feasibility study analyzes the practicality of a proposed project and assesses how likely the
project is to succeed. A feasibility study is a report that aims to determine the practicality,
strengths, weaknesses, opportunities and threats (SWOT) of a proposed project or business,
existing systems or corporation as a whole
A feasibility study is designed to discover if a business is ‘feasible’ or if it is not. In short,
feasibility study seeks to answer the question whether a business or project warrant further
investment of time, money and further study or it is on a non-starter. Feasibility study is a
relatively inexpensive way to safeguard any wastage of further investment (will it work or wont
it?).

Feasibility studies demonstrate to a prospective project owner or investor that a given concept or
idea is financially viable and whether further study and/or a business plan is warranted. For a
feasibility study, basic data is obtained via a series of queries, questions and meetings, wherein the
client provides some of the research, data and facts from various sources.

The typical feasibility study consists, among other items, notes on financial projections, a general
description of the business, general details describing how the enterprise/project will be formed,
managed and marketed, statements concerning the competition and a cash flow projection based
on averages.

Further notes can be included as to general details of the project and revelations found during the
research stage. Feasibility study will normally be completed quickly and in very general format
compared to that of a business plan. A feasibility study should answer five (5) questions:
i. Will the business work or not?
ii. Is the business profitable or not?
iii. What will the business basically cost to fund or start?
iv. Is the business worth doing? And
v. Is the business worth commissioning a business plan?

The following are the typical feasibility study (proof of business concept) outline:
 Title Page
 Table of Contents
 Executive Summary
 Product or Service
 Technology
 Market environment
 Competition
 Industry
 Business model
 Marketing and sales strategy
 Production/operating requirements
 Management and personnel requirements
 Intellectual property
 Regulations/environmental issues
 Critical risk factors
 Timing considerations
 Financial Projections (such as Income Statements, Statement of Financial Position, and
Cash Flow projections)
 Break-even analysis
  Cost-benefit analysis
 Capital requirements and strategy
 Final recommendations

Another way to categorize a typical feasibility study outline include:

 Tile Page
 Table of Content
 Executive Summary
 Market Feasibility
 Technical Feasibility
 Financial Feasibility
 Organizational Feasibility
 Conclusion
 Appendix and references

Basically, there are five (5) types of feasibility studies such as Scheduling, Operational, Legal,
Economic and Technical Feasibility. Feasibility study would be completed prior to the business
plan. The feasibility study helps the entrepreneur to determine whether an idea or a business is a
viable option. The business plan is developed after the business opportunity is created via the
Feasibility Study.

The following are the steps/procedures in feasibility study:

 Preliminary Analysis
 Defining The Scope
 Market Research
 Financial Assessment
 Reassessment of the Research and Presenting Findings to Project Stakeholders
 Execution or No-Go Decision

6. RELEVANCE OF FEASIBILITY STUDY TO ENTREPRENEURSHIP

The relevance of feasibility study to entrepreneurs or entrepreneurship is to establish whether or

not a business or project will be able to deliver on its promises in a satisfactory manner and a
reasonable period of time. Feasibility studies are important because they encourage entrepreneurs
to consider all of the factors that go into a project or business start-up. These include but not
limited to areas such as background, project summary, description of operations, market research
and legal and financial documents.

Furthermore, a well-written feasibility study can help entrepreneurs gain the approval they need
to complete the project. By analyzing each of these areas and preparing a plan of action,
entrepreneurs can have the best chance of creating a successful project or business that benefits
the enterprise or broader society. Thus, feasibility study is relevant to the entrepreneur or
entrepreneurship as it enables it distinguishes real economic opportunities from investments that
could fail.
 MODULE: CES 006
CONSUMER BEHAVIOUR AND MARKETING
By DR. OFILI .N. PETER
Learning Objectives
- Meaning of Product
- Total Product Concept
- Importance of Consumer Behaviour
- Factors Influencing Consumer Behaviour
- Vulnerability in Adult Consumer
- Non-Human Animals as Consumers and Consumption Objects
- Marketing Concept and Segmentation Market, Segmentation and Targeting Strategies

1. MEANING OF PRODUCT

Product is one of the most important elements of the marketing mix. Any firm is known by the
product it is offering. The other elements of the marketing mix are based on it. According to Ekeke
(2011) product is the bride of the market place, other elements of the marketing mix dance around
it and prepare it to be acceptable to either consumers or industrial users. It follows that a firm must
have a sound product policy to be able to survive in the market place. A product is anything that
is potentially valued by a target market for the benefits or satisfactions it provides.

A product may be defined as any object that satisfies consumer needs. Kotler (1999) defined
product as anything that can be offered to a market for attention, acquisition, use or consumption
and that might satisfy a want or need. In his own opinion, Nwachuku (2014) defined product as
set of benefits offered for exchange. According to him a product means any marketable thing with
some utility in it, produced either by labour or through series of automated processes. Nwachuku
went further to describe a product as a problems and also in the sense that it solves the customers’
problem and also is the means by which the company achieves its objectives.

Product can be in any form like tangible (something physical you can touch) or intangible (like
service, experience, or belief) It is easy to visualize the products of polynek Ventures but more
difficult to describe those of the Imo state vigilante group. It is more than physical products and
includes services, places, persons and ideas as we saw in chapter two of this book under entities
marketers market. We shall therefore define a product as a good, service or idea consisting of
bundle of tangible and intangible attributes that satisfies consumers and is received in exchange
for money or some other unit of value. Let us now examine the total product concept

2. TOTAL PRODUCT CONCEPT

The total product concept is a theory which tries to explain that a product is not just a tangible item
on the shelf rather it consists of other services offered by the product. The total product concept is
a proposal that consumers will prefer products that have better quality, performance and factors as
opposed to normal product. According to Nebo (2004) the total product concept is the bundle of
total expectations of a consumer or customer about a product. In other words, the total product
concept sees the product as not only the physical product but the totality of the entire attributes
that comes with the product. While the "total product concept" is based upon the idea that
customers prefer products that have the most quality, performance, and features, some customers
prefer a product that is simpler and easier to use. Marketers should strive to understand the
dynamics of the product in order to showcase the best qualities and maximum features of the
product. Marketers should spend a lot of time and research in order to target their attended
audience. Marketers should also look into a product concept before marketing a product towards
their customers.

There are varied opinions among marketing scholars on what should constitute the total product
concept. While a cross section of scholars are of the view that it should consist of five levels- Core
product, basic product, augmented product, expected product and potential product, others say it
is a three level of Core product, augmented product and physical product. Despite the divergent
views, a common denominator in all the arguments is that a -total product concept is the bundle of
services offered by a product or service. We shall look at the levels of product from the
perspectives of Levitt (1960) and Kotler (2008). These levels are also known as customer value
hierarchy as each level is adding more customer value. The various levels of a product is depicted
overleaf.

3. IMPORTANCE OF CONSUMER BEHAVIOUR

It is important for the marketers to understand the buyer behaviour due to the following reasons.
 The study of consumer behaviour for any product is of vital importance to marketers in
shaping the fortunes of their organizations.
 It is significant for regulating consumption of goods and thereby maintaining economic
stability.
 It is useful in developing ways for the more efficient utilization of resources of marketing.
It also helps in solving marketing management problems in more effective manner.
 Today consumers give more importance on environment friendly products. They are
concerned about health, hygiene and fitness. They prefer natural products. Hence detailed
study on upcoming groups of consumers is essential for any firm.
 The growth of consumer protection movement has created an urgent need to understand
how consumers make their consumption and buying decision. Consumers' tastes and
preferences are ever changing. Study of consumer behaviour gives information regarding/
color, design, size etc. which consumers want. in shortconsumer behaviour helps in
formulating; of production policy.
 For effective market segmentation and target marketing, it is essential to have an
understanding of consumers and their behaviour.

4. FACTORS INFLUENCING CONSUMER BEHAVIOUR

There are four main factors influencing consumer behavior: Cultural factors, Social factors,
Personal factors and Psychological factors. We shall drew extensively from Kotler and Keller
(2012) in our discussions
Culture and Societal Environment:
 Culture is the way of life of the people. Culture is crucial when it comes to understanding
the needs and behaviors of an individual. Throughout his existence, an individual will be
 influenced by his family, his friends, his cultural environment or society that will "teach"
him values, preferences as well as common behaviors to their own culture.
 For a brand, it is important to understand and take into account the cultural factors inherent
to each market or to each situation in order to adapt its product and its marketing strategy.
As these will play a role in the perception, habits, behavior or expectations of consumers.
Sub-Cultures:
 A society is composed of several sub-cultures in which people can identity. Subcultures
are groups of people who share the same values based on a common experience or a similar
lifestyle in general.
 Subcultures are the nationalities, religions, ethnic groups, age groups, gender of the
individual, etc.
 The subcultures are often considered by the brands for the segmentation of a market in
order to adapt a product or a communication strategy to the values or the specific needs of
this segment. Many subcultures make up important market segments and marketers often
design products and marketing programmes tailored to their needs.
 For example, in recent years, the segment of "ethnic" cosmetics has greatly expanded.
These are products more suited to non-Caucasian population and to types of skin
pigmentation for African, Arab or Indian population.
 It's a real brand Positioning with a well-defined target in a sector that only offered makeup
products to a Caucasian target, until now (with the "exception of niche brands) and was
then receiving critics from consumers of different origin.
 Brands often communicate in different ways, sometimes even create specific products
(sometimes without significant intrinsic difference) for the same type of product in order
to specifically target an age group, a gender or a specific sub-culture.
 Consumers are usually more receptive to products and marketing strategies that specifically
target them.
Social classes:
 Social classes are defined as groups more or less homogenous and ranked against each
other according to a form of social hierarchy. Even if they are very large groups, we usually
fine similar values, lifestyles, interests and behaviors in individual; belonging to the same
social class.We often assume three general categories among social Glasses: lower: class,
middle classes and upper class. People from different social classes tend to have different
desires and consumption patterns. Disparities resulting from the difference in their
purchasing power, but not only. According to some researchers, behavior and buying habits
would also be a way of identification and belonging to its social class.
 Beyond a common foundation to the whole population and taking into account that many
counterexample naturally exist, they usually do not always buy the same products, do not
choose the same kind of vacation, do not always watch the same TV shows, do not always
read the same magazines, do not have the same hobbies and do not always go in the same
types of retailers and stores.
 For example, consumers from the middle class and upper class generally consume more
balanced and healthy food products than those from the lower class.
 They don't go in the same stores either. If some retailers are, Of course, patronized by
everyone, some are more specifically targeted to upper classes such as The Fresh Market,
Whole Foods Market, etc. While others, such as discount supermarkets, attract more
consumers from the lower class.
  Some studies have also suggested that the social perception of a brand or a retailer is
playing a role in the behavior and purchasing decisions of consumers.
 In addition, the consumer buying behavior may also change according to social class. A
consumer from the lower class will be more focused on price. While a shopper from the
upper
 Class will be more attracted to elements such as quality, innovation, features, or even the
"social benefit" that he can obtain from the product.

5. VULNERABILITY IN ADULT CONSUMER

Age and Way of Life:

 A consumer does not buy the same product of services at 20 or 70 years. His lifestyle,
values, environment, activities, hobbies and consumer habits evolve throughout his life.
 For example, during his life, a consumer could change his diet from unhealthy products
(fast food, ready meals, etc.) to a healthier diet, during mid-life with family before needing
to follow a little later a low cholesterol diet to avoid health problems.
 The factors influencing the buying decision process may also change. For example, the
"social value" of a brand generally play a more important role in the decision for a
consumer at 25 than at 65 years.
 The family life cycle of the individual will also have an influence on his values, lifestyles
and buying behavior depending whether he's single, in a relationship, in a relationship with
kids, etc.. As well as the region of the country and the kind of city where he lives (large
city, small town, countryside, etc.).
 For a brand or a retailer, it may be interesting to identify, understand, measure and analyze
what are the criteria and personal factors that influence the shopping behavior of their
customers in order to adapt.
 For example, it is more than possible that consumers living in Abuja do not have the same
behavior and purchasing habits than the ones in Owerri. For a retailer, to have a deep
understanding and adapt to these differences will be a real asset to increase sales.
Purchasing Power and Revenue:
 The purchasing power of an individual will have, of course, a decisive influence on his
behavior and purchasing decisions based on his income and his capital.
 This obviously affects what he can afford, his perspective on money and the level of
importance of price in his purchasing decisions. But it also plays a role in the kind of
retailers where he goes or the kind of brands he buys.
 As for social status, some consumers may also look for the "social value" of products they
buy in order to show "external indications" of their incomes and their level of purchasing
power

Cultural Trends:
Cultural trends or "Bandwagon effect" are defined as trends widely followed by people and which
are amplified by their mere popularity and by conformity or compliance with social pressure. The
more people follow a trend, the more others will want to follow it.

They affect behavior and shopping habits of consumers and may be related to the release of new
products or become a source of innovation for brands. By social pressure, desire to conformity or
belonging to a group, desire to "follow fashion trends" or simply due to the high visibility provided
by media, consumers will be influenced, consciously or unconsciously, by these trends. For
example, Facebook has become a cultural trend. The social network has widely grown to the point
of becoming a "must have", especially among young people. It is the same with the growth of the
"tablet market". Tablets such as iPad or Galaxy Tab have become a global cultural trend leading
many consumers to buy one. Even if they had never specially felt the need before.

For a brand, to create a new cultural trend from scratch is not easy. Apple did it with the tablets
and its iPad, but this is an exception. However, brands must remain attentive to the new trends and
"bandwagon effects whether to accompany It (create a page on Facebook) or to take part in the
newly created market (create its own tablet)
Lifestyle:
 The lifestyle of an individual includes all of his activities, interests, values and opinions.
 The lifestyle of a consumer will have influence on his behavior and purchasing decisions.
For example, a consumer with a healthy and balanced lifestyle will prefer to eat organic
products and go to specific grocery stores, will do some jogging regularly (and therefore
will buy shoes, clothes and specific products), etc.
 Personality and self-concept:
 Personality is the set of traits and specific characteristics of each individual. It is the product
of the interaction of psychological and physiological characteristics of the individual and
results in constant behaviors.
 It materializes into some traits such as confidence, sociability, autonomy, charisma,
ambition, openness to others, shyness, curiosity, adaptability, etc.
 While the self-concept is the image that the individual has - or would like to have - of him
and he conveys to his entourage. These two concepts greatly influence the individual in his
choices and his way of being in everyday life. And therefore also his shopping behavior
and purchasing habits as consumer.
 In order to attract more customers, many brands are trying to develop an image and a
personality that conveys the traits and values - real or desired - of consumers they are
targeting.
 For example, since its launch, Apple cultivates an image of innovation, creativity, boldness
and singularity which is able to attract consumers who identify to these values and who
feel valued - in their self-concept - by buying a product from Apple.
 Because consumers do not just buy products based on their needs or for their intrinsic
features but they are also looking for products that are consistent and reinforce the image
they have of themselves or they would like to have. The more a product or brand can
convey a positive and favorable self-image to the consumer, the more it will be appreciated
and regularly purchased, the more it well be vulnerable in adult consumers.

6. NON-HUMAN ANIMALS AS CONSUMERS AND CONSUMPTION OBJECTS

 This topics is very clear with the facts that consumptions is not meant for human beings
alone, but non-human animals consumes and also exposed to consumption. In a nutshell
non-human animals also are consumers and are regarded as consumption objects.

 Technology and consumer behaviour: This works in line with perception which helps is
the creation of new products and market opportunities. Through technology and consumers
 behaviour, there would be accumulated competence to provide goods and services in a
more sophisticated manner for consumption. It enhances the product lines and also create
enabling environment for smooth operation for both the producers and consumers too

7. MARKETING CONCEPT & SEGMENTATION MARKET, SEGMENTATION

AND TARGETING STRATEGIES

A. Marketing Concept and Segmentation

 There are plethora of definitions of market segmentation. Let's examine some of them. Kotler
and Armstrong(2010) defined market segmentation as a process of dividing a market into
distinct group of buyers who have different needs, characteristics, or behaviours and who might
require separate products or marketing programmes.

 In the view of Ekeke (2013) market segmentation is the identification of individuals or

organizations with similar characteristics that have significant implications for the
determination of marketing strategy. In a similar vein, Luck and Ferrel (1979) described market
segmentation as a practical smart marketing strategy in which a firm develop some product
offerings designed to appeal to a specific part of the aggregate market.. Market segmentation
is the science of dividing an overall market into key customer subsets or segments whose
members share similar characteristics and needs(small business dictionary)

 From the foregoing definitions, it is clear that market segmentation strategies recognize that
overall markets can be divided into unique and viable segments. Market segmentation comes
about as a result of the observation that all potential users of a product are not alike and the
same general appeal will not interest air prospects. Therefore it becomes imperative to develop
different marketing strategies based on the differences among potential users in order to cover
the entire market for a particular product

 According to Onyeike (2003) market segmentation can be costly because it involves significant
market research but it is particularly important for small businesses which often lack the
resources to target large aggregate markets or to maintain a wide mix of differentiated products
for varied markets. In Onyeike's opinion, market segmentation enables a small business to
develop a product and marketing mix that fit a homogenous part of the total market by focusing
its resources on a specific customer base. In this way a small business may be able to carve out
a market niche that it can serve well than its large competitors.

Product is offered to all customers in a market to one to one marketing-in which a different product
is designed for each individual customer in a market. Most businesses realize that since no two
people are exactly the same, it is unlikely that they will be able to please all customers in a market
with a single offering. They also realize that it is extremely not feasible to create a distinct product
for every customer instead most businesses attempt to improve the odds of attracting a significant
base of customers by dividing the overall market into segments then trying to match their product
and marketing mix(marketing strategy) to the needs of one or more segments.
According to Boone and Kurtz(2010) marketing strategy is an overall, company wideprogramme
for selecting a particular target market and the satisfaction of consumers in that market through a
careful blending of the elements of the marketing mix-product, price, promotion and distribution-
each of which is a subset of the overall marketing strategy. Boone and Kurtz identified market
segmentation, targeting, positioning and the marketing mix elements as integral components of
marketing strategy that can be explored towards consumer satisfaction.

B. MARKETING TARGETING STRATEGIES

The primary objective of market segmentation is to thoroughly examine the disparities in needs
and desires of the different market segments and identity the segments within the product-market
of interest with similar requirements that could be served effectively and efficiently by firm.
Market targeting is the selection of market segments that could be served profitably with the firm's
resources and offerings. Kotler and Keler (2012) identified Market targeting strategies a firm could
draw from as:
- Mass marketing(undifferentiated marketing),
- Differentiated marketing,
- Concentrated marketing and
- Micro(customized) marketing
 MODULE: CES 007
BUSINESS ESTABLISHMENT/PLANNING AND GROWTH FEASIBILITY
STUDY/REPORT AND KEY ACCOUNTING RECORDS FOR ENTREPRENEURS
By DR. ODIRI, V.I.O.

Learning Objectives
- Overview of Business Establishment
- Processes Involved in Business Development
- Business Plan
- Market Analysis
- Organization and Method/Management
- Business Growth
- Feasibility Study and Report
- Outline of a Feasibility Study
- Key Accounting Records for Entrepreneurs

1. OVERVIEW OF BUSINESS ESTABLISHMENT

Business are established in order to use the relevant factor of production to produce goods and
services that satisfy an indentified need, generate revenue and contribute economically to the well-
being of the society. Before trying to establish any business you must.
 Have a mindset of what you want to do, how, where and when you will want to do it.
 Identify opportunities and Select the best that will help you achieve your dreams.

You should be certain that you cannot fail, enjoy the time, freedom
 Have the ability to create problem solving techniques that guarantee success.
 You should be certain that you cannot fail, enjoy the time, freedom and life style you prefer.
 You must have passion for what you want to do.
 Subject your business to thorough analysis using SWOT.

All that culminate into a good business idea should have the following:
 Start with your passion
 Staying through to your vision without giving in to negativity and distraction keeping it
simple

2. PROCESSES INVOLVED IN BUSINESS DEVELOPMENT

 Validate your perfect market- discover a niche

 Create a financial plan that utilize the available resources to you
 Have a step- by step action plan
 Clarity motivation and purpose- Make your action very clear motivating and with a clear sense
of purpose
 Effortlessly grow and succeed
 Access a Network of other successful entrepreneur

3. BUSINESS PLAN
This is a document where a business opportunity or a business already under way is identified,
described and analysed, examines its technical economic and financial feasibility. A good business
plan should have the following components.

Executive Summary: A brief overview of the whole business plan-giving important information
about but your business.

Business Description: This is a written document that generally describes the nature of the
business sales and marketing strategy, financial background, projected income statement.

Creating financial projection is very important for your start up business plan. Financial projection
will contain:
 Sales Forecast
 Expenses budget
 Income Statement
 Balance sheet

4. MARKET ANALYSIS

This is used to determine the different factors and condition inthe market in a particular industry
You must constantly analyze the market to know your competitors’ position in the market.

5. ORGANIZATION AND METHOD/MANAGEMENT

This is where you showcase your team superstars. It will help venture capitalist to know how
competent and capable your business is.
(i) Sales Strategies: This is a plan on how to go about selling product and service to increase
profits.
(ii) Funding Requirements: How much you actually need for the business
(iii) Financial Projection: Your anticipated income for a particular period

6. BUSINESS GROWTH

This is a stage where the business reaches the point for expansion and seeks options to generate
more project. It is a function of the organizational life cycle, industry growth trends and owners
desire for equity value creation

7. FEASIBILITY STUDY AND REPORT

A feasibility study or report is that which you carry out to discover whether the proposed business
is viable or hot whether the business will work or not. A feasibility study will address the following
question:
 Will it work or not
 Is it profitable or not
 How much will It cost to start and run it
  Is it worth doing and is it worth Commissioning a business plan?

8. OUTLINE OF A FEASIBILITY STUDY

Executive summary
Product or service
Technology
Market Environment
Competition
Industry
Business model
Marketing and sales strategy
Production/Operation requirements.
Intellectual Property
Management and Personnel issues
Critical Link factor
Timing considerations
Financial Projections
Income Statement Projection
Cash flow projection
Break even analysis
Capital requirement and strategy
Final recommendations

9. KEY ACCOUNTING RECORDS FOR ENTREPRENEURS

A. Accounting Defined

Accounting is simply the language of financial decisions. One who carries out accounting function
is called accountant. Accounting system is comprised of people who make decisions for business
transaction to occur and the accounts prepare reports to show the result of the business operation.

B. Importance of Keeping Accounting Records

 Requirements by law
 To identify major source of income
 To keep all record of expenses
 To help know the financial position of the organization at a glance
 To prove your financial state to the provider of funds.

A. Accounting Records to the kept by an Entrepreneur

 Statement of the financial position (balance sheet).
 Statement of profit or loss
 Cash flow statement
 Cash from operating activities
 Cash from investing activities
 Cash from financing activities
 Account payable for creditors
 Account receivable for debtors
 Inventory or stock record
 Payroll
 Cash
 Fixed assets
 Bank reconciliation statement
 Petty cash book
 Insurance record

B. Basic Accounting Concepts and Conventions

 Business Entity Concept
 Going Concern Concept
 Realization Concept: When sales are made not when payment a made.
 Cost Concept: Assets to the reported not at cost but realization or revaluation amount.
 MODULE: CES 008
PRINCIPLES OF MOTIVATION AND LEADERSHIP THEORIES
By PROFESSOR OBI CALLISTAR

Learning Objectives
- Essential Principles and Practices of Motivation
- Leadership
- Motivational Skills in Business and Value Addition
- Developing Strategies: Strategic Analysis, Ideation and Choice
- Strategy Formulations and Execution

1. ESSENTIAL PRINCIPLES AND PRACTICES OF MOTIVATION

David McCllelland motivation principles state that “all humans greatest needs influence their
behaviour in all aspects of life”. He noted that each person as a dominant motivator, depending on
their life experiences and cultural background. It is a psychological desire fueled by specific
internal and external incentives. Motivation driven by internal incentive is termed intrinsic
motivation wile that driven by external factors is called extrinsic motivation. Three (3) principles
of motivation has been identified by David McClelland; achievement, affiliation and power.
1. Achievement: The need for achievement is the desire to achieve something you want to do.
The following characteristics are associated with people with a need for achievement;
a. Prefers working alone
b. Takes calculated risks
c. Likes feedback from people regularly
2. Affiliation: These persons often thrive from interpersonal relationships with others. They
enjoy socialization. They aregood at team work. Common traits associated with them are;
a. Wanting to be part of a group.
b. Wanting to be liked.
c. Prefers collaboration over competition.
d. Adheres to the work norms in order to avoid exclusion from others.
3. Power: people with a need for power always have the urge to control and have authority over
others. They possess the following traits;
a. Likes to win arguments or debates
b. Enjoys competitions
c. Appreciates status and recognition.

2. LEADERSHIP

A. Servant Leadership

Servant leadership is a style of leadership that prioritises the growth and well-being of others
especially employees and customers. An individual interacts with others -either in a management
or fellow employee capacity- to achieve authority rather than power; e.g. customer care.

Characteristics of Servant Leadership

a. Seeks to move management and personnel interaction away from controlling activities and
towards a synergistic relationship
b. Aims to develop leadership qualities in others
c. Requires individuals to demonstrate empathy, listening, stewardship and ensures personal
growth of others.

B. Transformational Leadership

Transformational leadership style causes positive change in individuals and social systems with
the aim of developing followers into leaders. It enhances the motivation, morale and performances
of followers through a variety of mechanisms, e.g. being a role model to followers, challenging
followers to take greater ownership of their work, inspiring followers to attain greater heights.

Characteristics of Transformational Leadership

a. Embracing change and anticipating its effect on the organisation with the readiness to handle
the implications of the change.
b. Emotional intelligence, empathy and collaboration are key characteristics. Transformational
leaders are resilient, self-motivated and trust builders, gaining respects from those around
them.
c. Adapt fast to technological changes, e.g. ICT
d. Encouraging participation and communication among workers. Transformational leaders
communicate openly and honestly with followers and this helps to build lasting trust.
e. Inspirational team player who inspires his/her team, ensures their well-being and celebrates
their successes as a team, giving credence to those that performed best

C. Collaboration Leadership

This style of leadership seeks to achieve organizational goals by harnessing and encouraging the
power of diverse teams. It empowers co-workers to use their wide range of knowledge, skills and
experience to work together successfully.

Characteristics of Collaboration Leadership

a. Curiosity. This has to do with making constructive inquires that can inspire colleagues. Asking
the right questions can benefit everyone as it inspires critical thinking.
b. Open mindedness. Collaborative leadership creates opportunity for leaders to listen and learn
from other’s perspectives. This builds trust, and followers are given opportunities to work
together
c. Respect. Collaboration encourages respect for co-workers. This helps to build trust. It also
build open and honest working environment. With trust, the entire team can feel confident
about sharing their ideas without the fear of being judged.

D. Shared Leadership

Shared leadership is when each employee takes ownership and responsibility for the part they play.
It enables employees to shoulder their work with less control from managers and less supervision.

Characteristics of Shared Leadership

a. Collective employees are seen as the leaders of the organisation
b. Decision making is stratified based on skills, capabilities, and team responsibilities
c. It’s best operational model is pooled and interchangeable team.
d. Communication does not flow from top to bottom, rather, it dynamically and interdependently
flows in vertical or horizontal direction.

3. MOTIVATIONAL SKILLS IN BUSINESS AND VALUE ADDITION

Motivational skills are qualities/skills possessed by leaders that allow them to encourage and
inspire members to be team players in order to boost productivity and improve work quality in the
organization. They involve communicating effectively with team members and delegating tasks
regularly to show you trust in their capabilities. The motivational process entails the following;
- Evaluating personalities: Understanding each team member's personality traits elps a leader
to identify which motivational skills work best. For example, some may respond to positive
feedback, while others prefer incentives.
- Sharing expectations: Conveying your expectations of the team helps them determine what
to prioritise and achieve. Clarifying how they can achieve outcomes motivates them because
it eliminates confusion.
- Communicating rewards and consequences: Informing team members of the benefits they
can expect upon completing tasks adequately motivates them. State the consequences of failing
to meet standards to provide additional incentive.
- Giving feedback: Give team member feedback throughout their projects to guide them on
what to maintain and improve. During this stage, asking them if they're experiencing any
obstacles helps them achieve goals.
- Recognising effort: Upon task or project completion, praising team members for their efforts
and successes is an effective motivating tool. Recognising them publicly, for example, in
company-wide emails and memos or on websites and social media, can motivate employees to
improve their work quality.

Effective leaders communicate to their teams effectively to motivate them. They must;
1. Ensure they communicate clearly, concisely, coherently, correctly and courteous.
2. Give clear objectives of what they expect employees to do.
3. Delegate tasks to employees to show they are trusted,and appreciate their work ethic
4. Show empathy as this helps leaders build relationships with team members and
understand their emotions and circumstances.

a. Value Addition

Adding value at work means that every action you take should be to grow the company.
Developing the business includes helping it save resources, identifying areas that need
improvement, and becoming a valuable critical thinker. Adding value as an employee comes with
numerous benefits, including accelerating your career, getting paid more, boosting your reputation.

b. Ways to Add Value at Work

a. Identify your area of interest or specialization.
b. Set a target and ensure you meet the target.
c. Focus on Results
d. Improve Technical & Interpersonal Skills
e. Take Initiative
f. Focus on Your Reputation

4. DEVELOPING STRATEGIES: STRATEGIC ANALYSIS, IDEATION &

CHOICE

a. Strategic Analysis
Strategic analysis refers to the process of conducting research on a company and its operating
environment to formulate a strategy. It is a plan of actions taken by managers to achieve the
company’s overall goal and other subsidiary goals. It can also be seen as a process that can help
businesses and individuals to better understand their goals, what obstacles might get in their way
and how to overcome those obstacles. Specifically, strategic analysis may concern:
 Finding strengths
 Noting weaknesses
 Identifying and understanding competition
 Understanding market changes
 Noticing consumer trends
 Predicting future events based on past and present trends

To develop a business strategy, a company needs a very well-defined understanding of what it is

and what it represents. Strategists need to look at the following:
- Vision – What it wants to achieve in the future (5-10 years)
- Mission Statement – What business a company is in and how it rallies people
- Values – The fundamental beliefs of an organization reflecting its commitments and ethics

b. Types of Strategic Analysis

1. Internal strategic analysis: In this type of analysis, a company may look inward and
evaluate its own performance. Companies may also evaluate recent successes and
failures, investigate their competitive level in the marketplace and examine how they're
meeting consumer demands.
2. External strategic analysis: This focuses on elements outside of the company that may
impact its growth or success. This include Political, Economic, Sociological,
Technological, Legal and Environmental analysis technique

c. Process of strategic analysis

The process of strategic analysis includes;
1. Create a strategic analysis team
2. Examine current internal strategies by reviewing the vision and mission statement of the
company, focusing on factors like financial success, operational success and employee
satisfaction.
3. Formulate a plan of action.

d. Meaning of Ideation
Ideation refers to the process of forming ideas from conception to implementation, expressed
either graphically, written, or verbal and arises from past or present knowledge, opinions,
experiences, and personal convictions.

e. The Ideation Process

1. Clearly define the problem and understand its key underlying factors, such as the business
environments, customer needs, budget constraints, etc.
2. identify the root causes,
3. initiate brainstorming sessions
4. Rework, retest, and fine-tune the ideas until a potential solution is perfected.
5. Implement the idea in the real world, and if it is successful, the ideation process ends.

5. STRATEGY FORMULATIONS AND EXECUTION

a. Formulating a Successful Strategy

Developing an effective strategy requires in-depth knowledge, critical thinking, and careful
planning. One important framework for strategy formulation is the use of value stick. The value
stick is a visual representation of value-based strategy and helps formulate a business model that
factors in pricing, product positioning, and vendor management. It relies on customers' perceived
value of the products or services being sold and determines the organization's prices, costs, and
supplier strategy. Some key terms for formulating a value-based strategy include:
 Willingness to pay (WTP): The price customers are willing to pay for a product or service.
 Price: The price the product is sold for.
 Cost: The cost of manufacturing the product.
 Willingness to sell (WTS): The lowest price a supplier is willing to accept for its services.

b. Transitioning from Formulation to execution

1. Set clear strategic goals which are measurable and aligns with the organization's purpose
and long-term vision.
2. Create a Value Map i.e. a tool that helps organizations determine the needs or desires its
products or services can solve for potential customers.

There are five steps to creating an effective value map:

1. Identify value drivers: Determine 10 criteria customers use when choosing between your
product and other competing products.
2. Rank value drivers: Rank those 10 criteria from most to least important.
3. Rate your company's performance: For each value driver, rate how your company is
performing from a score of one (poor) to five (excellent).
4. Rate your competitors' performance: Repeat this process for two or three of your main
competitors.
5. Review your value map: Ask yourself if your findings accurately reflect the market's
competitive situation, your company's strengths and weaknesses, and if there are actionable
next steps to mend any competitive gaps.
 MODULE: CES 009
PRODUCT COSTING AND PRICING AND PROBLEM SOLVING SKILLS
BY DR. OFILI N. PETER

Learning Objectives
- Identification of Problem, Developing Possible Solution Paths
- Marking Plans
- Elements of Marketing Plan
- Integrity and Rapport Building
- Factors Influencing Pricing Decisions
- Pricing Decisions and Strategies
- Types of Price Discounts
- Other Pricing Objectives

1. IDENTIFICATION OF PROBLEM, DEVELOPING POSSIBLE SOLUTION

PATHS

• An entrepreneur must be able to identify problems and also develop possible solution paths to
follow in solving the identified problems, and also take appropriate cause of action towards
getting result or solving the problem. We have seven key steps to problem solving skills. These
steps are as follows: -
• Step 1: Define the problem: An entrepreneur or a manager must be able to define the problem
and state it as clear as possible.
• Step 2: Analyse the problem: He will look into the problem critically and analyse it. This
analysis will give the entrepreneur further directives on how to get rid of the problem in
analysis the problem will be understood and the vital techniques to get rid of it would be
made available.
• Step 3: Develop potential solution: The solution to the problem must be developed at this stage.
• Step 4: Evaluate the potions: The entrepreneur or the marketer will look at the available options
and critically study them with the hope that the best will be used. Various options will
be made available, but the best will be used.
• Step 5: Select the best option: The best option will be selected ate this stage.
• Step 6: Implement the solution: The implement the solution: The implementation of solution
comer in, thereby giving all the necessary or required support towards the solving of the
problem.
• Step 7: Measure the Result: The result at this step will be measured and a critical study will be
put in place to know whether the problem is solved.

2. MARKETING PLANS

A marketing plan may be part of an overall business plan. Solid marketing strategy is the
foundation of a well written marketing plan. While a marketing plan contains a list of actions, a
marketing plan without a sound strategic foundation is of little use. A marketing plan is a plan
which outlines a company's overall marketing efforts. Masner (1983) defined marketing plan as a
written statement of the marketing aims of a company, including a statement of the products, target
for sales, market shares and profits, promotional and advertising strategies, pricing policies,
distribution channels etc with precise specification of time scales, individual responsibilities etc.
The marketing plan should provide direction for all relevant members of the organization and
should be referred to and updated throughout the year.

The main purpose of the marketing plan is to provide a structured approach that ensures the
marketing manager considers all the relevant elements of the planning process which could
otherwise be missed if a more rushed approach is adopted. The marketing plan can function from
two points; strategy and tactics (Kotler & Keller 2012). In most organizations strategic planning
is annual process, typically covering just the year ahead. Occasionally, a few organizations may
look at a practical plan which stretches three or more years ahead.

To be most effective, the plan has to be formalized, usually in a written form as a "formal marketing
plan". The essence of the process is that it moves from the general to the specific, from vision to
the mission to the goals to the corporate objectives of the organization, then to the individual action
plans for each part of the marketing programme. It is an interactive process so that the draft output
of each stage is checked to see what impact it has on the earlier stages and is amended

3. ELEMENTS OF MARKETING PLAN

• Negotiation: An attempt of two or more countering parties to resolve their divergent goals by
identifying the terms of their interdependence or method of decision making by give-and-take
barging that is used to resolve conflicts.
• Communication: Process or medium by which information is disseminated for reception by
a direct and fence, and so relayed to other persons second-hand. Communication can also be
seen as a process of transmitting meanings between individuals through which the meaning of
the message, intentions, designs, feeling and knowledge are transmitted from one person to the
other. Communication can be carried out through oral, printed, electronic, non-oral, verbal or
non-verbal and other signs. The process by which information is transmitted and understood
between two or more people.
• PERSUATION: This is the process of using persuasive methods or style to compel a listener
or audience to accept rather than just understand-a sender message.
• Adaptability: This is a marketing strategy that assist in adjusting the marketing mix element
to each target market share and return.
• Planning: Mangers, marketers and entrepreneurs must play and plan effectively to be able to
accomplish goals. Planning is the process of setting objectives and working and modalities to
accomplish to set objectives. The success of any entrepreneur depends on the planning ability
• Strategizing: This is the actions entrepreneurs takes to attain the form’s goals. The important
ideas that must be put into play towards realizing the set goals.
• Strategizing: can be referred also to the science and art of conducting a campaign, achieving,
involving significant resources and long run implications.
• Cooperation: In any organization or any Business outfit the manager or entrepreneur cannot
do it alone. Success depends largely on how Cooperating is one of the qualities that assist
managers, entrepreneur or marketers to achieve their predetermined goals. The good ideas of
cooperating can be well analysed when the activities of division of labour is put in place.
4. INTEGRITY AND RAPPORT BUILDING

Response value and profit must be maintained is like with team work all the marketing channel of
the organization. Manages must show carriage, show respect and also exhibit it for everybody to
see and also note. The success of any business depends a lot on the personality and also
commitment of the manager. If you are well committed then you can mentor and build others to
follow suit.

a. Product Costs

The costs of the product, its inputs, including the amount spent on product development, testing,
and packaging required have to be taken into account when a pricing decision is made. So do the
costs related to promotion and distribution. For example, when a new offering is launched, its
promotion costs can be very high because people need to be made aware that it exists. Those
additional cost that are not included earlier are called included cost. Thus, the offering's stage in
the product life cycle can Us price. Keep in mind that a product may be in a stage of its life cycle
in other markets. For example, while sales of the iPhone remain fairly constant in the United states,
the Koreans felt the phone was not as good as their current phones and was somewhat obsolete.

Similarly, if a company has to open brick-and-mortar storefronts to distribute and sell the offering,
this too will have to be built into the price the firm must charge for it. This is referred to as a direct
cost. The point at which total costs equal total revenue is known as the Breakeven Point (BEP).
For a company to be profitable, a company's revenue must be greater than its total costs. If total
floats exceed total revenue, the company suffers a loss.

Total costs include both fixed costs and variable costs. Fixed or overhead expenses, are costs that
a company must pay regardless its level of production or level of sales. Variable costs are costs
that change with a company's level of production and sales. Raw materials, labour, and
commissions i units sold are examples of variable costs. You, too, have variable costs, such as the
cost of gasoline for your car or your utility bills, which vary depending on how much you use.

Illustration

Consider a small company that manufactures specialty DVDs (III them through different
retail stores. The manufacturer’s selling price (MSP) is #15, which is what the retailers for the
DVDs. The retailers then sell the DVDs to consumers for an additional charge. The manufacturer
has the following charges:
• Copyright and distribution charges for the titles #150,000
• Package and label designs for the DVDs #10,000
• Advertising and promotion costs #40,000
• Reproduction of DVDs #5 per unit
• Labels and packaging #1 per unit
• Royalties #1 per unit
In order to determine the breakeven point, you must first calculate the fixed and variable costs. To
make sure all costs are included, you may want to highlight the fixed costs in one color (e.g., green)
and the variable costs in another color (e.g., -blue).
Required: Determine the Break-Even Point

Suggested Solution for Break-Even Point

The formula for BEP is as follows:
• BEP = total fixed costs (FC) ÷ contribution per unit (CU)
• Contribution per unit = MSP - variable costs (VC) BEP =
• #200,000 - (#15 - #7) = #200,000 + #8 - 25,000 units to break even
• To determine the breakeven point in Naira, you simply multiply the number of units to break
even by the MSP. In this case, the BEP in Naira would be 25,090 units’ times’ #15, or
#375,000.

5. FACTORS INFLUENCING PRICING DECISIONS

Organizations must understand buyers, competitors, the economic conditions, and political
regulations in other markets before they can compete successfully. Next we look at each of the
factors and what they entail,
a. Customers
• How will buyers respond? Three important factors are whether the buyers perceive the product
offers value, how many buyers there are, and how sensitive they are to changes in price. In
addition to gathering data on the size of markets, companies must try to determine how price
sensitive customers are. Will customers buy the product, given its price? Or will they believe
the value is not equal to the cost and choose an alternative or decide they can do without the
product or service? Equally important is how much buyers are willing to pay for the offering.
Figuring out how consumers will respond to prices involves judgment as well as research.
• Price Elasticity, or People's sensitivity to price changes, affects the demand for products.
• Price Elasticity = percentage change in quantity demanded percentage change in price
• The number of competing products and substitutes affects the elasticity of demand. Whether a
person consider product a necessity or a luxury and the percentage of person's budget allocated
to different products and services also affect price elasticity. Some products, such as cigarettes,
tend to be relatively price inelastic since most smoker keep purchasing them regardless of price
increases and the fact Hi. Other people see cigarettes as unnecessary. Service provider such as
utility companies in markets in which they have monopoly (only one provider), face more
inelastic demand since no substitutes are available.

b. Competitors
• How competitors price and sell their products will have tremendous effect on a firm's pricing
decisions. If you wanted to buy a certain pair of shoes, but the price was 30 percent less at one
store than another, what would you do? Because companies want to establish and maintain
loyal customers they will often match their competitors’ prices. Some retailers such as Every
day will give you an extra discount
• if you find the same product for less somewhere else. Similarly if one company offers you free
shipping, you might discover other companies will, too. With so many products for less online
consumers can compare the prices "of many merchants before making a purchase decision.
• The availability of substitute products affects a company’s pricing decisions as well. If you can
find a similar pair of shoes selling for 50 percent less at a third store, would you buy it. There's
a good chance you might.

c. The Economy and Government Laws and Regulations

• Pricing decisions are affected by federal and state regulations. Regulations are designed to
protect consumers, promote competition, and encourage ethical and fair behavior by
businesses. For example, the Robinson-Patman Act limits a seller's ability to charge different
customers different prices for the same products. The intent of the act is to protect small
businesses from larger businesses that try to extract special discounts and deals for themselves
in order to eliminate their competitors. However, cost differences, market conditions, and
competitive pricing by other suppliers can justify price differences in some situations. In other
words, the practice isn't illegal under all circumstances. You have probably noticed that some
transporters offer adults and children discounted prices. The movies also charge different
people different prices based on their ages and charge different amounts based on the time of
day, with matinees usually less expensive than evening shows. These price differences are
legal.
• Price fixing, which occurs when firms get together and agree to charge the same prices, is
illegal. Usually, price fixing involves setting high prices so consumers must pay a high price
regardless of where they purchase a good or service.
• Similarly, bait-and-switch pricing is illegal in many states. Bait and switch, or bait advertising,
occurs when a business tries to "bait," or lure in, customers with an incredibly low-priced
product.

6. PRICING DECISIONS AND STRATEGIES

There are numerous pricing decisions and strategies; they are briefly discussed as follows:
A. Customers-Based Pricing

- Penetration Pricing: Penetration pricing is the pricing technique of setting a relatively low
initial entry price, usually lower than the intended established price, to attract new customers.
The strategy aims to encourage customers to switch to the new product because of the lower
price. Penetration pricing is most commonly associated with a marketing objective of
increasing market share or sales volume. In the short term, penetration pricing is likely to result
in lower profits than would be the case if price were set higher. However, there are some
significant benefits to long-term profitability of having a higher market share, so the pricing
strategy can often be justified. Penetration pricing is most appropriate when:
• Demand is expected to be highly elastic; that is, customers are price sensitive and the
quantity demanded will increase significantly as price declines.
• Large decreases in cost are expected as cumulative volume increases.
• The product is of the nature of something that can gain mass appeal fairly quickly.
• There is a threat of impending competition.
• As the product lifecycle progresses, there likely will be changes in the demand curve and
costs. As such, the pricing policy should be reevaluated over time.
 • The pricing objective depends on many factors including production cost, existence of
economies of scale, barriers to entry, product differentiation, and rate of product diffusion,
the firm's resources, and the product's anticipated price elasticity of demand.

B. Price-Skimming

Price skimming is a strategy used to pursue the objective of profit margin maximization. Skimming
involves setting a high price before other competitors come into the market. This is often used for
the launch of a new product which faces little or no competition - usually due to some technological
features. Such products are often bought by "early adopters" who are prepared to pay a higher
price to have the latest or best product in the market. Good examples of price skimming include
innovative electronic products, such as the Apple iPad and Sony PlayStation 3. There are some
other problems and challenges with this approach.
• Price skimming as a strategy cannot last for long, as competitors soon launch rival products
which put pressure on the price (e.g. the launch of rival products to the i Phone or iPod).
• Distribution (place) can also be a challenge for an innovative new product. It may be necessary
to give retailers higher margins to convince them to stock the product, reducing improved
margins that can be delivered by price skimming final problem is that by price skimming, a
firm may slow do the volume growth of demand for the product. This can g competitors more
time to develop alternative products re* for the time when market demand (measured in
volume) strongest. Skimming is most appropriate when:
• Demand is expected to be relatively inelastic; that is, t customers are not highly price sensitive.
• Large cost savings are not expected at high volumes, or it difficult to predict the cost savings
that would be achieve at high volume.

C. Cost-Based Pricing

This involves setting a price by adding a fixed amount percentage to the cost of making or buying
the product in some ways this is quite an old-fashioned and somewhat discredited pricing strategy,
although it is still widely used. After all, customers are not too bothered what it cost to make the
product - they are interested in what value the product provides them.
• Cost-plus (or "mark-up") pricing is widely used in retailing, where the retailer wants to
know with some certainty what the gross profit margin of each sale will be. An advantage
of this approach is that the business will know that its costs are being covered. The main
disadvantage is that cost-plus pricing may lead to products that are priced un-competitively.
• Here is an example of cost-plus pricing, where a business wishes to ensure that it makes an
additional #50 of profit on top of the unit cost of production.

D. Other Pricing Decisions and Strategies

(i) Target Return Pricing: Set the price to achieve a target return-on-investment.
Investments costs are determined and a targeted return is applied to deliver the required
return on investment. For example, if an investment costs are estimated to be #5 per unit
 and investors seek a 10% return on investment, the price of the product will be #5.50 per
unit
(ii) Value-Based Pricing: This policy is based on the buyer's perception of value and not the
seller's costs as the key to pricing. Here the value customers receive is calculated and
pricing is applied accordingly. For example if a personal session with- a business advisor
provides the same value as a two-day seminar, the personal session could be priced as the
same level or level higher if individual attention and mentoring provides an even greener
value than group based training.
(iii) Economy Pricing: This is a no frills low price. The costs of marketing and promoting a
product are kept to a minimum. Supermarkets often have economy brands for soups,
spaghetti, etc. Budget airlines are famous for keeping their overheads as low as possible
and then giving the consumer a relatively lower price to fill an aircraft. The first few seats
are sold at a very cheap price (almost a promotional price) and the middle majority are
economy seats, with the highest price being paid for the last few seats on a flight (which
would be a premium pricing strategy). During times of recession economy pricing sees
more sales. However it is not the same as a value pricing approach
(iv) Product Line Pricing: Where there is a range of products or services the pricing reflects
the benefits of parts of the range. For example car washes; a basic wash could be #200, a
wash and wax #400 and the whole package for #600. Product line pricing seldom reflects
the cost of making the product since it delivers a range of prices that a consumer perceives
as being fair incrementally - over the range. If you buy chocolate bars or potato chips
(crisps) you expect to pay X for a single packet, although if you buy a family pack which
is 5 times bigger, you expect to pay less than 5X the price. The cost of making and
distributing large family packs of chocolate/chips could be far more expensive. It might
benefit the manufacturer to sell them singly in terms of profit margin, although they price
over the whole line. Profit is made on the range rather than single items.
(v) Psychological Pricing: The aim of psychological pricing is to make the customer believe
the product is cheaper than it really is. Pricing in this way is intended to attract customers
who are looking for "value". Sometimes prices are set at what seem to be unusual price
points. For example, why are DVD's priced at #11,199 or #14,599? The answer is the
perceived price barriers that customers may have. They will buy something for #9.99,
but think that #10 is a little too much. So a price that is one Naira lower can make the
difference between closing the sale, or not.
(vi) Competitor-Based Pricing: If there is strong competition in a market, customers are faced
with a wide choice of who to buy from. They may buy from the cheapest provider or
perhaps from the one which offers the best customer service. But customers will certainly
be mindful of what is a reasonable or normal price in the market. Most firms in a
competitive market do not have sufficient power to be able to set prices above their
competitors. They tend to use "going-rate" pricing - i.e. setting a price that is in line
with the prices charged by direct competitors. In effect such businesses are "price-
takers" - they must accept the going market price as determined by the forces of demand
and supply. Other competitive based pricing policies include competitive bidding and
price leadership (follower the leader pricing). An advantage of using competitive pricing
is that selling prices should be line with rivals, so price should not be a competitive
disadvantage. The main problem is that the business needs some other way to attract
customers. It has to use non-price methods to compete - e.g. providing distinct customer
 service or better availability. In addition to setting the price level, managers have the
opportunity to design innovative pricing models that better meet the needs of both the firm
and its customers. For example, software traditionally was purchased as a product in which
customers made a one-time payment and then owned a perpetual license to the software.
Many software suppliers have changed their pricing to a subscription model in which the
customer subscribes for a set period of time, such as one year. Afterwards, the subscription
must be renewed or the software no longer will function. This model offers stability to both
the supplier and the customer since it reduces the large swings in software investment
cycles.

7. TYPES OF PRICE DISCOUNTS

The normally quoted price to end users is known as the list price. This price usually is discounted
for distribution channel members and some end users. There are several types of discounts, as
outlined below.
(i) Quantify Discount - These are deductions from the list price offered to customers who
purchase in large quantities. Quantitative discount can be cumulative or non-
cumulative
(ii) Cumulative Quantity Discount - a discount that increases as the cumulative quantity
increases. Cumulative discounts may, be offered to resellers who purchase large
quantities over time but who do not wish to place large individual orders. It is non-
cumulative when it is based on the size of an individual order of one or more products.
(iii) Seasonal Discount - based on the time that the purchase is made and designed to reduce
seasonal variation in sales. For example, the travel industry offers much lower off-
season rates. Such discounts do not have to be based on time of the year; they also can
be based on day of the week or time of the day, such as pricing offered by long distance
and wireless service providers. Cash discount - extended to customers who pay their
bill before a specified date.
(iv) Trade Discount - Sometimes referred to as a functional discount is a reduction from
the list price offered to channel members for performing their roles such as storage,
handling, transportation etc.
(v) Promotional Discount - a short-term discounted price offered to stimulate sales.

8. OTHER PRICING OBJECTIVES

• Quality leadership - use price to signal high quality in an attempt to position the product
as the quality leader.
• Partial cost recovery - an organization that has other revenue sources may seek only
partial cost recovery.
• Survival - in situations such as market decline and overcapacity, the goal may
be to select a price that will cover costs and permit the firm to remain in the market. In this
case, survival may take a priority over profits, so this objective is considered temporary.
• Deterring pricing - this is the last step in developing a product price. We shall examine
the various methods of pricing under pricing strategies and policies.