Chapter 5

Marketing and Financial Plan

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Chapter Outline
 Introduction
 Market Analysis
 Marketing Mix
 Financial Plan

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 Introduction
• Some entrepreneurs concentrate on the cart & neglect
the horse.
• Engineers do not want to invest to the product that is
well engineered or programmed but unwanted by
customers.
• This chapter describes market analysis, marketing mix
(marketing strategy)& financial plan.
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 What is a market?

• willingness and the ability to engage in

exchange to satisfy that need or want”
At
At Least
LeastTwo
Two Parties
Parties
Something
Something of
ofValue
Value

Necessary
Necessary Ability
Ability to
to
Conditions
Conditionsfor
for Communicate
Communicate Offer
Offer
Exchange
Exchange
Freedom
Freedom totoAccept
Accept
Desire
Desire to
to Deal
DealWith
With or
or Reject
Reject
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Other Party
Party 4
 Definition
• Market may refer to :
– A physical location where buying & selling take place
or
– A selling efforts or
– A group of customers or potential customers who
have purchasing power and unsatisfied need.

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 Cont…
• “Marketing is the activity, set of institutions, and
processes for creating, communicating, delivering, and
exchanging offerings (products or services) that have
value for customers, clients, partners, and society at
large. ”

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 Cont…
• Marketing is used to:
– Identify the customer,
– Satisfy the customer, and
– Keep the customer.

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 Market Analysis
• It is an evaluation process that encompasses:
1. Marketing research
2. Market segmentation
3. Sales forecasting

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 1. Marketing Research
• Is the process by which information about the
market environment is
– gathered,
– analyzed,
– interpreted &
– reported for use as an aid to marketing decision making.

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 Cont…

• Before conducting a marketing research ask:

– Is the research really necessary?
– Will the data obtained justify the expense?
– Can I do the research myself?

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 Steps in Marketing Research Process
• Step 1: The Informational Need
• Step 2: Searching for the Secondary Data
• Step 3: Collecting Primary Data
• Step 4: Interpreting the Data

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 2. Market Segmentation

• It is the division of a market into several smaller

groups with similar needs.
• Segmentation variables: the parameters used to
distinguish one form of market behavior from
another.

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 Cont…
• There are three major Segmentation variables are:
1. Benefit variables:
 distinguish market segments according to the benefits.
2. Demographic variables:
 age, gender, marital status, occupation and income
3. Psychographic variables:
 Attitude, interests, and opinions (AIO).

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 Target Market
• A target market is a group of customers that the
business has decided to aim its marketing efforts and
ultimately its merchandise towards.

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 Cont…
• A well-defined target market is the first element
to a marketing strategy.
• Once these distinct customers have been
defined, a marketing mix strategy can be built
by the business to satisfy the target market.

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 3. Sales Forecasting
• It is a prediction of how much of products or services
will be purchased within a given market in a specified
time period.
• It can be in terms of dollars and /or units.

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 Marketing Mix
• Is a set of controllable variables to satisfy the target
market and achieve organizational objectives.
• These controllable variables are usually classified to four
major decision areas (four P’s):
1. Product,
2. Price,
3. Place, and
4. Promotion

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 1. Product
• Product differentiation is the most essential factor to
marketing promoters.
• You must differentiate your product in the following
ways:
– Quality
– Quantity
– IP protection

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 2. Price
• Price is what the customer pays for the product.
• Five pricing schemes are introduced here:
1. Cost-plus pricing,
2. Fair pricing,
3. Skimming pricing,
4. Penetration pricing, and
5. Psychological Pricing
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 3. Place
• Place means the product’s channels of distribution or
how it is conveyed from the producer to the end user.
• Its functions include
– manufacturing,
– transportation,
– warehousing,
– wholesaling, and
– retailing.
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 4. Promotion
• Promotion involves communication of the product attributes
and the corporate image in the most favorable light possible to
intermediary sellers (i.e., trade advertising and trade
promotion) and to end users (i.e., consumer advertising and
consumer promotion).

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 Financial Plan
• Financial planning Is the process of wisely managing
your finances so you can achieve your goals and
dreams.
• This plan allocates future income to various types of
expenses, such as rent or utilities, and also reserves
some income for short-term and long-term savings.

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 Cont…
• Common mistake among business owners:
“Failing to collect and analyze basic financial data.”
• One-third of entrepreneurs run their companies
without any kind of financial plan.

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 Cont…

• Only 11 percent of business owners analyze

their companies’ financial statements as
part of the managerial planning process.
• Financial planning is essential to running a
successful business and is not that difficult!

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 Financial Statements
• Financial statements include:
1. Income Statement,
2. Cash-flow Statement, and
3. Balance Sheet .
• These financial statements should be prepared
according to Generally Accepted Accounting Principles
(GAAP).
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 1. Income Statement
• Income Statement compares the firm’s expenses
against its revenue over a period of time to show its
net income (or loss):
• Net Income = Sales Revenue - Expenses
• It represents the profitability of a business over a
period of time.

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 2. Cash Flows Statement

• It is the most important from all financial statements.

• It describes the cash into & out of business.
• Shows the change in the firm's working capital over a period
of time.
• The cash-flow statement exhibits sources and uses of cash
over a given period of time.
• The focus is on generating income and honoring obligations
(e.g., loans and debts).
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 Cash Flow Statement Projection 1st 6months($)
1 2 3 4 5 6

Cash receipts(Cash inflow) 7500 8600 9500 12500 13000 14000

Disbursements
(Cash outflow)

Cost of goods sold 4875 5590 5130 6750 7020 7560

Equipment lease 100 100 100 100 100 100

Selling payments 1000 1000 1000 2000 2000 2000

Salaries 850 850 850 850 850 850

Advertising 200 200 300 600 600 600

Office supplies 100 100 100 100 100 100

Rent 750 750 750 750 750 750

Utilities 75 100 100 100 100 100

Insurance 50 50 50 50 50 50

Taxes 80 80 80 80 80 80

Total Disbursements 8080 8820 8460 11380 11650 12190

(Cash outflows)

NET CASH FLOW -580 -220 1040 1120 1350 1810

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 3. Balance Sheet
• The balance sheet is a “snapshot” of a business at a
particular point in time.
• It reveals financial resources the company owns
(assets), debts it owes to the others (liabilities)
• Built on the accounting equation:
• Assets = Liabilities + Owner’s Equity

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 Balance sheet for company ‘x’ on December 31, 2017($)
Assets  
Current Assets:  
 cash 45000
 Accounts receivable 75000
 inventories 180000
Total current assets 300000
Fixed assets:  
 Gross plant and equipment 790000
 Accumulated depreciation 360000
Net plant and equipment 430000
 land 70000
Total fixed assets 500000
TOTAL ASSETS 800000
Debt(liabilities) and equity  
Current liabilities:  
 Accounts payable 15000
 Short term notes 60000
Total current liabilities 75000
Long term liabilities:  
 Long term notes 150000
Total liabilities 225000
Common stock 300000
Retained earning 275000
Total stockholders’ equity 575000
TOTAL DEBT AND EQUITY 800000

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 Fit of the Income Statement and the Balance Sheet

Income statement reports the profits from

Jan 1,2017 through Dec 31, 2017
Jan 1 Dec 31

Balance sheet Balance sheet

reports a firm’s financial reports a firm’s financial
position at beginning of 2017 position at end of 2017
(end of 2016) (beginning of 2018)

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• End

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 (Quiz 4) 10%
• Individual exercise

• Discuss the difference between promotion and

advertising.

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