BU 121 COURSE PACKAGE

BUSINESS PLANNING

Overview:

Text Unit 1 (Chapter 8): Writng an Efectve Business Plan

• benefts of writng a business plan, model of business planning

• components of a business plan – key questons answered, characteristcs of a well-prepared plan, critcal risks,

milestones, seven deadly sins

Lecture Material – Week 1

• ‘Art of the Start’ – 5 things an entrepreneur must accomplish, why write a business plan

TEXTBOOK: WRITING AN EFFECTIVE BUSINESS PLAN

WHY WRITE A BUSINESS PLAN?

o Allows investors to fully comprehend your plan, higher chance of funding your venture

o Detailed road map of the new venture—guides you in implementaton stages

o More likely for success compared to not writng one; reduces the chance of failure

MODEL OF BUSINESS PLANNING

• Business Planning Model:

o Develop simple business plan

o Start Business

o Take lessons learned and informaton gained and refne plan

o Contnue to grow as a business

• Business Plans are LIVING DOCUMENTS

o They constantly change with the external factors learnt in BU 111 as well as the suit the business’

needs

o Write deliberately (consciously and analytcally; with purpose), act emergent (growing, fexible

and adaptve)

• It’s more of a PROCESS vs. PLAN

o Once again, is not statc

o Gain much more than a roadmap

o The process is more important than the destnaton

COMPONENTS OF A BUSINESS PLAN

• Basic Questons Answered:

o Who will want the product? Who are the people behind the venture?

o What is it?

o Why will people want it?

o How will the venture be realized? How much money is needed?

• Characteristcs of a Well-Prepared Business Plan:

o Orderly: proper business format

o Succinct: clearly and quickly

o Persuasive: beat out the competton!

• Components: (Bolded ones are the ones you have to know for the midterm)

o Executve Summary: Answers key questons efciently

o Background/Purpose: Main idea and purpose

o Marketng: Who’s going to buy it, why, and how we’re going to get it to them

o Competton: Who’s a heavy contender? What’s your compettve advantage?

o Development, Producton, Locaton: Where you at with the product?

o Management: What’s the team like? Are they qualifed?

o Financial: Sustainable? Revenues? How much funding is needed and where will it come from?

o Critcal Risks: Risks that prevent a venture from reaching its key objectves

Price cutng compettors

Change in industry trends

Fail to reach sales projectons

Costs exceeding expectatons

Lack of experience in top managers

o Harvest and Exit: Management succession and exit strategies for investors

o Milestones: What major actvites will happen and when they will be achieved

Formal incorporaton

Completon of service/design

Completon of prototypes

Hiring

o Appendices

THE SEVEN DEADLY SINS IN BUSINESS PLANS

1. Financial projectons are unreasonably optmistc

2. Qualifcatons of management is not clear

3. Target market for the product or service is not clear

4. Product development process is not clear

5. The executve summary is too long and does not have a strong point

6. The plan is too fancy, be concise.

7. The plan is poorly prepared (errors etc.)

LECTURE: ART OF THE START

FIVE THINGS AN ENTREPRENEUR MUST ACCOMPLISH

1. Make MEANING: Identfy the true purpose of your venture; what are you trying to do with it? Let that be

motvaton

2. Make MANTRA: Start with a mantra; something that really encapsulates who you are—NOT A SLOGAN.

Supposed to be internal and within the company

3. Get GOING: Get sufcient informaton and start your business, experience is crucial and it is pointless to

wait around

4. Defne a BUSINESS MODEL: Find out how everything will be integrated together; how are you going to

make money? With what resources?

5. Weave a MAT (Milestones, Assumptons, and Tasks): Test assumptons and set milestones that the

business must achieve through set tasks

REASONS FOR WRITING A BUSINESS PLAN

• To get funding from potental investors

• Forces the founding team to work coercively

• Allows to the team to consider any issues that has been looked over before

• Uncovers any gaps in the founding team that can be fxed now rather than later

BUSINESS COMMUNICATION

Overview:

Text Unit 2: Business Writng

• 4 principles of business writng, 3x3 writng process

Lecture Material – Week 2

• ‘Made to Stck’ – what is a stcky message?, 6 principles of stckiness

TEXTBOOK: PLANNING BUSINESS MESSAGES

4 PRINCIPLES OF BUSINESS WRITING

1. Audience-Oriented: Concentrate on writng the message from the audience perspectve

2. Economical: Show ideas clearly and concisely

3. Persuasive: Sway the audience into acceptng your message

4. Purposeful: Fulfll a want or need in each writen message

THE 3 X 3 WRITING PROCESS

Prewriting Writing Revising

Analyze:

• Identify purpose: Why

am I sending this

message and what do I

hope to achieve?

• Selecting the channel:

What is the best way to

deliver the message?

How formal is it?

Research:

• Gathering data for facts.

• Formal methods: Internet,

search manually,

investgate primary sources.

• Informal methods: Look in

the fles, talk to your

superior, talk to the target

audience, conduct an

informal survey.

Revise:

• The message must now be

edited for clarity,

conciseness, and

readability.

• Consider using bulleted

points or list to make it

easier and more appealing

to read the message.

Anticipate:

• Profiling the audience:

The person reading will

be thinking ‘what’s in it

for me?’ and ‘what am I

supposed to do with this

information?’

• Knowing the audience

helps shape the

message.

Organize:

• Using lists and outlines:

Alphanumeric format uses

Roman numerals and

shows major and minor

ideas. Decimal format

shows every level relatng

to the whole.

• Using paterns: Direct and

indirect ways to convey a

message depending on the

main idea.

Proofread:

• Spend tme carefully

reading through the

message and locate any

spelling, grammar,

punctuaton errors.

• Make sure that all the

names, numbers, and

formats are correct.

Adapt:

• One important factor is

tone. This is conveyed

by the words in your

message. Affects how

the reader feels.

• Use the ‘you’ view.

• Keep it conversational

but professional.

Compose:

• Compose a frst draf of

your organized message.

This should be done quickly

as this will be revised in the

last step.

Evaluate:

• Take a fnal look at the

message and ask yourself

‘Will this achieve the

purpose?’

• Is the message appealing

and persuasive enough to

get the job done?

LECTURE: MADE TO STICK

DEFINITION OF STICKY

• Something understandable, memorable, and efectve in changing thought or behaviour

6 PRINCIPLES OF STICKINESS:

1. Simple

a. Simplicity makes a message easier to remember and understand

b. Keep message short and sweet; communicate the core meaning using proverbs, existng schema

(existng knowledge), analogies, and generatve metaphors

2. Unexpected

a. Surprising the audience captures its atenton and generates curiosity

b. Go against the grain; break apart what they think they already know and give them the surprising

truth

3. Concrete

a. Concrete examples clear ambiguity around a message and makes it easier to understand

b. Using existng schema again to create an image in the mind of the audience

4. Credible

a. A credible expert/spokesperson can help clear doubts about the legitmacy of an (unexpected)

message

b. Use authorites, celebrites, and ant-authorites (more familiar to the audience)

i. Internal Credibility: giving statstcs to back up the message or have a testable credental

which atests to the credibility of the message

5. Emotonal

a. Emotonal messages can change the way a person feels and their behavior or attude toward

something, making the message stck

b. Make a relatable story instead of an abstract one (would detract from simplicity); emphasize the

benefts as opposed to the features and appeal to ego/identty

6. Stories

a. Stories tend to inspire people and lead to acton

b. Using stories with various plots can inspire people in diferent ways:

i. Challenge Plot: overcoming a difcult challenge

ii. Connecton Plot: story that connects a gap in the person’s knowledge

iii. Creatvity Plot: mental breakthrough

DISC AND EMOTIONAL INTELLIGENCE

Overview:

Lab Manual Readings (pages 118-135) – major concepts only

Lecture Material – Week 3

• diference between EI, IQ & Personality

• basic model of DISC

EI VS IQ VS PERSONALITY

• EI

o Emotonal intelligence is the ability to recognize and understand emotons in yourself and others, and

the ability to use this awareness to manage your behaviour and relatonships

o Emotonal intelligence is the most solid way of measuring EQI

• IQ

o Being book smart

o Highest IQ will be met when you are 17

• Personality

o Is statc just like EI

o Pieces overlap that they can both be happening at once

o Must look at them as a whole, not individually but notce the overlaps that occur between the circles

BASIC MODEL OF DISC

The DISC Model helps in determining what role people play in various setngs, most commonly used for hiring

processes and determining how each person fts in a group. DISC Analysis can advise on how to mediate group

confict and determine how to best approach people on certain levels of the DISC spectrum when issues arise.

CRITICAL THINKING

Overview:

Lecture Material – Week 4 (based on Lab Manual reading) and Lab Manual Exercises on critcal thinking

• claims, evidence, underlying assumptons, and causal claims

o what they are and how to fnd them

o how to evaluate as reader, how to apply to writng

• techniques of persuasion, how to build a persuasive argument

CLAIMS, EVIDENCE, UNDERLYING ASSUMPTIONS, AND CAUSAL CLAIMS

CLAIM

• A claim is the main conclusion of a piece of writng that an author is trying to persuade you to accept

• The claim can be found virtually anywhere in the piece of writng

• Some cue words to identfy are: therefore, thus, in summary, I believe that, clearly

• Uncontested claims:

o Own experience

o Facts that are independent

o Areas in which there is general agreement from experts

o Mathematcal claims

EVIDENCE

• Is any statement that supports the claim

• Claim + Evidence = Argument

• Usually right before or afer a claim is made

• Evaluate the quality of the evidence along the following criteria

o Accuracy: valid sources, free of errors

o Precision: statstcs can claim more credible

o Sufciency: there is enough evidence to support claim

o Representatveness: evidence truly represents claim in a fair and unbiased way

o Authority: the experience from other credible authorites increases credibility of claim

o Clarity of Expression: signifcance of evidence clearly expressed

UNDERLYING ASSUMPTIONS

• Logical link that flls the gap between evidence and claim

• To fnd, identfy what must be true for the evidence to support the claim and for the argument to exist

• Two types of assumptons:

o Reality assumptons: belief of events that have taken place, what exists, or how things work in

the world

Challenge by presentng informaton that shows the author’s noton of reality as

questonable

o Value assumptons: our ideals, our standards of right and wrong, the way things ought to be

Look for words like: ought to, should, desirable, unacceptable

Hard to challenge value assumptons because they are resilient to change

CAUSAL CLAIMS

• Causes are responsible for bringing about other events or situatons (efects)

• Find by determining the causes of the efects—may be hard because an efect may have multple causes

• Queston whether the author’s cause and efect link might have a rival causal relatonship

TECHNIQUES OF PERSUASION

• A main key is to have quality evidence in order for a persuasive message

• You must understand what your audience knows, believes, values, and assumes

• Antcipate and counter reader’s objectons

o Put yourself in their platorm, cover their objectons

Readers are aware of negatve evidence

They can come up with rival causal explanatons

Readers can disagree towards your assumptons

• Negatve evidence must be addressed as not actually evidence, not reliable, the importance is overstated

• Rival causes: brainstorm the alternate causes, think of rebutals towards them and explain why they are

not the cause

• Limit claims which have no rebutal

o Limit generalizatons

o Probability less than 100%

o Refning your terms

• Use an appropriate tone, rhetoric and vivid language

o Rhetoric: art of using language to persuade

MARKETING

Overview:

Text Unit 3 (Chapter 12) : Understanding the

Customer

• marketng concept - customer value &

satsfacton building relatonships

• types of compettve advantage

• consumer decision-making process, infuences

on consumer decision making

• consumer buying decisions vs B2B decision

making

• trends

Lecture Material – Week 4: Understanding the

Customer

• #1 Key to successful marketng

• locatng a target market – market segmentaton,

perceptual mapping, preference analysis

• positoning – 2 approaches

Text Unit 3 (Chapter 13): Creatng Marketng

Strategies

• classifying consumer products vs business

products

• product life cycle

• pricing objectves, markup, strategies

• channels of distributon and marketng

intermediaries, alternatve channel

arrangements, functons of distributon

channels, and intensity of distributon

• promoton objectves and factors afectng the

promotonal mix

• trends

Lecture Material – Week 5: Reaching the Customer

• product classifcaton – how consumers classify

and implicatons for strategy

• #2 Key to successful marketng – core beneft

propositon

• total product concept – brand and brand

insistence model

• approaches to pricing

• promotonal elements and IMC

o advertsing objectves – AIDA,

communicaton model and improving

communicaton

o personal selling – combined with

advertsing, factors in budget decision

o sales promoton and publicity

• direct vs indirect channels of distributon –

implicatons – demand backward pricing, push

vs pull promoton

TEXTBOOK: UNDERSTANDING THE CUSTOMER

MARKETING CONCEPT

• Identfy the customer need or want and then produce the goods or services that will satsfy their needs

while making a proft

o Please customers by providing value

o Focuses on: customer wants, integratng organizaton’s actvites, achieving long term goals

• Relatonship Marketng

o Focuses on creatng long-term partnerships with customers. Companies gain these partnerships

by creatng customer value and ofering customer satsfacton

Customers value: Value received from a product is determined from the belief of what

they are getng in comparison to what they sacrifce

Customer satsfacton: Product exceeds customer’s expectatons

o Customer Relatonship Management (CRM)

Used to track and organize informaton regarding current and potental customers

Informaton about customers or potental customers

Employees need a positve attude towards customers

COMPETITIVE ADVANTAGE

• Set of Unique features of a company and its products that are perceived as signifcant and superior

compared to the competton

o Cost compettve advantage: having lower costs compared to the competton

o Diferental compettve advantage: product has a superior diference

o Niche compettve advantage: frm targets a small single segment with their resources

CONSUMER DECISION-MAKING PROCESS

• The buying behaviour of consumers; their actons when buying products

• Process:

o Need Recogniton

o Informaton Search

o Evaluaton of Alternatves

o Purchase

o Post-purchase Behaviour

• Infuences on consumer decision making

o Culture: Values, ideas, attudes, and symbols created to shape human behaviour

o Social: Seek out opinions of others (reference groups, opinion leaders)

Socializaton Process: passing down of cultural values and norms to children

o Individual

Personality: combinaton of psychological makeup and environmental forces

Self-Concept: how the consumers perceive themselves (perceptons, beliefs, self-

evaluatons)

1. Ideal Self-Image: the wan an individual would like to be

2. Real Self-Image: how an individual sees themselves

o People try to make it so that they way they see themselves is closer to

what they would like to be

o Psychological

Percepton: how one sees the world around us and how one recognizes that we need

some help in making a purchasing decision

Belief: organized patern of knowledge that an individual holds as true about their world

Attude: tendency to respond consistently toward a given object, idea, or concept—

depends on values

• Contnuum of Consumer Buying Decisions

o Routne Response Behaviour: purchase of low cost, frequently bought items with litle search or

decision making

o Limited Decision-Making: consumer has previous product experience but is unfamiliar with

current brands

o Extensive Decision-Making: purchasing unfamiliar, high-cost, infrequently bought item afer a lot

of thought and analysis to make the right decision (stakes are higher in terms of higher cost and

consequently less chances to buy, so they spend more tme deciding)

CONSUMER DECISION-MAKING VS BUSINESS-TO-BUSINESS (B2B) DECISION-MAKING

• Key diference of the product is the intended use. If a good is purchased for use in a business environment,

then it is a business good

o B2B has higher purchase volume than B2C

o B2B has fewer customers than B2C

o Buyers from B2B market tend to be geographically concentrated whereas B2C has a more spread

out market

o Business sales tend to be done through direct distributon

TRENDS

• Internet Marketng Research

o Allows rapid access to business intelligence and thus allows for beter and faster decision making

o Cuts down costs for research and increases proftability

• Scanner-Based Research

o System for gathering informaton from a single group of respondents by contnuously monitoring

the advertsing, promoton, and pricing they are exposed to and the things they buy

o Huge database

• Loyalty Cards

o Cards issued by companies that give discounts to loyal and frequent customers

o Allows for data to be collected, what is bought, when etc.

• One-To-One Marketng

o Creatng a unique marketng mix for every customer and helps managers understand customers

on an individual basis

o Marketng Database: computerized fle of (potental) customers’ profles and purchasing paterns

LECTURE: UNDERSTANDING THE CUSTOMER

#1 KEY TO SUCCESSFUL MARKETING

• Related to providing a want-satsfying good or service

• Used to be “sell what you produce” (WWI/WWII)

• Now it’s “produce what you can sell” (What does the customer want?)

• Producton – Sales – Customer Orientaton

The Marketng Concept (Customer Orientaton)

• Create customer value

• Deliver customer satsfacton

• Build relatonships

STEPS TO DEFINING A TARGET MARKET

• Target Market

o The #1 Key is that you’re product or service must provide a unique beneft to the market you are

targetng

o The group of customers whose wants and needs have not been met by the competton

• Finding a Target Market

o Market Segmentaton using bases of segmentaton

Geographic

Demographic

Psychographic

Behaviour

1. Volume (usage rate, user status, readiness to buy)

2. Sensitvity to market factors

3. Loyalty

o Find a group of people seeking the same beneft and then take the market and split it into people

who want that same thing

Segment the market into diferent groups

Describe those using diferent bases

Name the boxes last

Perceptual Mapping and Preference Analysis

Determine which of the segments will be the target market

Finding the biggest gap between how the customer perceives the competton meets

their needs (perceptual mapping) and what they really want (preference analysis)

Process:

• Draw axes that represent relevant dimensions by which people diferentate between product oferings

• Locate positons of competng products on the axes according to customer perceptons (perceptual

mapping)

• Locate each segment’s ideal product (preference analysis

• Determine target market, i.e. Segment in which market needs have not been adequately met by

compettors

POSITIONING

• Finding a distnct positon in your customers’ minds for your product; one that shows the unique beneft

of your product

1. Consumer Approach: focusing on what the consumer wants using a preference analysis; show

the consumer why your product would beneft them (remember from earlier: benefts over

features)

2. Compettve Approach: focusing on how you compare with your compettors; show consumer

your unique value prepositon

TEXTBOOK: CREATING MARKETING STRATEGIES

CLASSIFYING CONSUMER PRODUCTS VS BUSINESS PRODUCTS

• A product is defned as any good or service and its perceived benefts that create value for its customers

• Consumer Products:

o Unsought: unknown goods or goods that customers do not actvely seek to buy (e.g. life

insurance, burial plots, new products); no efort on customer to buy

o Convenience: prety inexpensive items that are bought frequently (e.g. sof drinks, milk, bread);

very litle efort on customer

o Shopping: relatvely common items of considerable value to consumers (e.g. automobiles,

homes, vacatons); considerable amount of efort exerted

o Specialty: exclusive and expensive items (e.g. expensive jewelry, gourmet dinners, limited

editons); maximum efort by consumer

• Business Products: goods bought by businesses for use in making other products or in providing services

o Capital Goods: large, expensive items that have long life spans

Installatons: large, expensive capital items that determine the nature, scope, and

efciency of the company

Accessories: equipment such as computers, copy machines, etc. (require heavy branding

and personal selling to sell)

o Expense Items: smaller, less expensive items that

Component Parts and Materials: built into the end product; either custom-made or

standardized

Raw Materials: litle or no processing to create the fnal product (e.g. lumber, precious

minerals, etc.)

Supplies: bought for ofce use in bulk

Services: plan or support company operatons (e.g. janitorial cleaning, management

consultng)

PRODUCT

• Product Life Cycle: patern of sales and profts over tme for a given product/product category

• Stages:

o Introducton:

Product begins and faces many obstacles

• Heavy promoton needed

• Limited distributon

• High failing rate

• Producton/Marketng costs are high

Litle competton

Product is frequently modifed

Usually negatve proft

o Growth:

Sales grow at increasing rate—profts are healthy

Many compettors enter

Increase in aggressiveness of brand advertsing

Distributon is a main factor and building long-term relatonships with distributors is

crucial to gain a cost advantage

Prices eventually fall and profts peak

o Maturity:

Sales contnue to mount but at a decreasing rate

Most products have been on the market for a long tme

Can extend the product line to vary uses

o Decline:

Profts and sales fall

State of Decline governed by:

• Rate of Change in consumers’ tastes

• Rate at which new products enter market

Demand is null

Strategies for Stages of Product Life Cycle

Category Introducton Growth Maturity Decline

Marketng

Objectves

Encourage trial,

establish distributon

Get triers to

repurchase, atract

new customers

Seek new users or

uses

Reduce marketng

expenses, keep

loyal customers

ProductEstablish compettve

advantage

Maintain product

qualityModify product Maintain product

DistributonEstablish distributon

network

Solidify distributon

relatonships

Provide additonal

incentves to ensure

support

Eliminate trade

allowances

Promotonal Build brand awareness Provide informaton Repositon product

Eliminate most

advertsing and

sales promoton

Pricing

Set introductory

pricing (skimming or

penetraton)

Maintain pricesReduces prices to

meet compettonMaintain prices

PRICE

• Pricing Objectves

o Proft Maximizaton: producing a product for as long as the revenue from selling it exceeds the

cost of producing it; goal is to get the largest possible proft

o Target Return on Investment: a set price is determined to give the company the desired

proftability in terms of return on its money; NET PROFIT ÷ COST TO PRODUCE AND MARKET

PRODUCT

o Value Pricing: ofers the target market a high-quality product at a fair price + good services

Ofering good value

Good quality is the price of entry because customers are sick of low-quality merchandise

—catering to a market whose needs have not been/poorly met

Surprise consumers by giving them more than they expect

Gives meaningful guarantees

Gives buyer facts and informs them properly

Builds long-term relatonships with customers

• Markup: a certain dollar amount is added to a product’s cost to arrive at the retail price

o RETAIL PRICE = COST + MARKUP

• Pricing Strategies:

o Price Skimming: price new products high and lower price over tme so more consumers will buy

the product

Advantages:

• Inital price tests waters and sees how much consumers will pay

• Price can be lowered to meet demand

• Creates image of quality and prestge

• Consumers will believe they are getng a bargain when price is lowered

Disadvantages:

• High prices atract competton

o Penetraton Pricing: ofering new products at low prices to reach high sales volume

Advantages:

• Low price encourages trial and brand switching

• Might discourage new entrants into the market

Disadvantages:

• Requires more extensive planning than price skimming

o Leader Pricing: pricing products below normal markup or even cost (losing money) to atract new

customers so that they may enter the store—product is simply used as bait in an atempt to raise

OVERALL sales volume

Loss Leader: product priced below cost (incurring a loss on sales of that item)

Advantages:

• Customer may come in and buy other products that are compettvely priced

Disadvantages:

• May incur a loss if plan does not go as planned

o Bundling: Grouping two or more related products and pricing them as one to reach a segment of

the market that would not buy items separately

Encourages trial of another product

o Odd-Even Pricing: psychologically odd pricing is viewed as a bargain and even pricing denotes

quality

o Prestge Pricing: raising price of products to give the image of quality and prestge

PLACE/DISTRIBUTION

• Channels: sets of intermediaries involved in making the product available to consumers; ways of getng

the product to the end customer

o Direct Distributon: manufacturer sells directly to consumer

o Indirect Distributon: manufacturer sells to various intermediaries (e.g. wholesaler, retailer) to

get the product to consumers

• Intermediaries: organizatons that help in the distributon of goods to end users

o Agents and Brokers:

Agents: sales representatves of manufacturers and wholesalers

Brokers: enttes that bring buyers and sellers together

Both hired on commission

NEVER own nor take possession of the goods

o Industrial Distributors: independent wholesalers that purchase related product lines from

various manufacturers and sells those to industrial users; used in industries like aircraf

manufacturing, mining, petroleum

o Wholesalers: frms that sell fnished goods to retailers, manufacturers, and insttutons (e.g.

hospitals, schools)

o Retailers: frms that sell goods to consumers and industrial users for their own consumpton

• Alternatve Arrangements: a producer ofen uses a mixture of channels

o Multple Channels/Dual Distributon: a producer sets two or more channels to distribute the

same product (e.g. salespeople, internet, order from company, or pick up at retailer)

o Non-Traditonal Channels: examples include kiosks and vending machines; helps diferentate the

frm’s product and can be benefcial if serving a niche market to avoid the hassle of establishing a

network of intermediaries

o Strategic Channel Alliances: enables producer to deliver products through another

manufacturer’s already established channel; used most when creatng a channel is too costly or

tme-consuming; proving to be more successful than mergers or acquisitons

• Functons of Channels:

o Reduce number of transactons to get a product from a manufacturer to a consumer

o Ease the Flow of Goods

Sortng Out: breaking many diferent items into separate stocks that are similar

Accumulatng: groups similar stock together in bulk

Allocatng: breaks similar products into smaller lots

o Perform Needed Functons

Intermediaries increase efciency of channel

Transactonal functons like contactng and communicatng with prospectve buyers is

split up throughout the channel

Logistcal functons like physical distributon, storing, sortng, etc.

Facilitatng functons like fnancing and marketng

• Intensity of Distributon: how available a product is to consumers

o Intensive Distributon: producer’s products are stocked in a majority of outlets; a lot of the

product is easy to fnd

o Selectve Distributon: producer relies on few intermediaries; relatvely easy to fnd; usually for

specialized goods not bought on a regular basis

o Exclusive Distributon: producer selects very few intermediaries; hardest to fnd; luxury goods

(e.g. authentc Canada Goose jackets are sold only in specifc stores and online retailers)

PROMOTION

• Goals:

o Creatng Awareness: promoton through ads in various media forms; coupons in papers and

fyers; if people don’t know about your product you won’t make any sales!

o Getng Customers to Try Products: use promoton to get people to test out the products (e.g.

free samples)

o Provide Informaton: informatve promoton is prominent in the introducton stage of the

product life cycle; tells consumers what their product does or how it is diferent from current

products

o Keeping Loyal Customers: promoton keeps people from switching over by maintaining a positve

brand image and reminds them the superiority of your brand

o Increasing Frequency of Use: promoton atempts to get people to use more of a product and

more frequently (e.g. loyalty programs)

o Identfying Target Consumers: promoton helps fnd customers and what appeals to them

• Integrated Marketng Communicatons (IMC): every promotonal medium must send a consistent

message to the audience for the core to be properly received

o Promotonal Mix: combinaton of advertsing, personal selling, sales promoton, and public

relatons used to promote a product

Every frm creates a unique mix for each product

Advertsing: any paid form of non-personal promoton by an identfed sponsor

Personal Selling: face-to-face presentaton to a prospectve buyer

Sales Promoton: marketng actvites that stmulate consumer buying like coupons,

samples, displays, exhibitons, and demonstratons

Public Relatonship: link between organizaton’s goals and public interest

• Factors Afectng Promotonal Mix:

o Nature of Product: depending on the product, some parts of the promotonal mix may be more

efectve than others

Personal selling is more important for industrial products than consumer nondurables

Broadcast advertsing is used heavily in promotng consumer products

Industrial products advertsed in trade magazines

All components of promotonal mix are twice as important for consumer products than

business products

o Market Characteristcs:

If target market is spread out there would be more of a focus on informing over a large

area rather than personal selling

Detailing: physical stocking of merchandise at retailer by the salesperson who made

delivery

o Available Funds: tght budget restricts what you can do with a promotonal mix—may need to

rely more on free publicity and manufacturer’s agents

o Push and Pull Strategies:

Push: manufacturer uses aggressive personal selling to intermediaries to put your

product on their shelves

Pull: manufacturer focuses on stmulatng customer demand for product through heavy

advertsing to encourage intermediaries to stock shelves

TRENDS

• Incorporaton of Technology on All Levels: internet, corporate networks, and wireless setups make global

communicatons convenient; buyers can easily compare products; sellers can easily gather useful data on

buyer spending paterns, habits, etc.

• Yield Management Systems (YMS): helps companies maximize revenues; YMS computer-generates and

adjusts prices to increase proft and fll unused capacity

• Category Management: suppliers manage the inventory of a category of products for a retailer

LECTURE: REACHING THE CUSTOMER

PRODUCT CLASSIFICATON

• Convenience Goods/Services

o Staples: branding and product image is important; needs maximum exposure because consumers

will not go out of their way to look for it; shelf positon is important

o Impulse Goods: positoning at point-of-purchase is crucial to optmize opportunity for this

classifcaton; shelf positon and maximum exposure are important

o Emergency Goods: need to be readily accessible and near point of purchase

• Shopping Goods/Services

o Homogeneous: exposure for price comparison only

o Heterogeneous: exposure near similar products for comparison of both price and quality

depending on customer criteria

• Specialty Goods/Services: selectve distributon for exclusivity; consumers will need to put in the efort to

fnd these goods

• Unsought Goods/Services: aggressive promoton and strong personal selling are crucial for these to be

bought (telemarketng, etc.)

#2 KEY TO SUCCESSFUL MARKETING

• Convince the customer that your product provides that unique beneft through the 4Ps

o Integrated/Consistent system of actvites

• All parts of the organizaton need to have a consistent and clear idea of the unique beneft

• Core Beneft Propositon: clear, concise statement of product’s unique beneft or value propositon;

internal statement

TOTAL PRODUCT CONCEPT

• The total package of benefts as seem from the consumers’ perspectves

o Brand: collecton of perceptons in the mind of the consumer; built through efectve

communicaton, logos, and total experience; consumer percepton is everything

o Brand Name: communicates the CBP; is what the consumers recognize and should move through

stages of brand recogniton through the brand insistence model

o Brand Insistence Model:

PRICE – APPROACHES, STRATEGIES

• Approaches: Important that the price supports the CBP. It also helps to do test pricing to see consumer

reactons.

o Cost based mark-up

The price has a direct relatonship to cost

o Compettve based market share

Price must be compettve with industry standards

o Consumer based value

Price is based on what the consumer perceives to be the value of the product in

queston—ofering fair prices

• Strategies:

o Introductory pricing is either going to be ‘skimming’ or ‘penetraton’. They are decided by the

factors of:

Life span: It should have a long life span to be compettve with penetraton pricing and

price skimming if your life span is short

Speed of compettve entry: Slower with penetraton pricing and faster with price

skimming

Sunk costs: Depending on what it cost you to develop the product

o Market Protecton: keep costs compettve and watch when compettors’ prices drop

o Market Dominaton: Trying to get rid of compettors, but cannot engage in predatory pricing.

o Market Stabilizaton: In a market where there is price sensitvity, you should follow the lead of

the big players

o Product Line Promoton, Bundling: Selling a cheap product which needs a complementary

accessory (e.g. razor and razor blades)

o Price Lining: When there are a lot of products with diferent prices, stores group them according

to price (e.g. suits at Moors will be categorized by price to make it convenient for the consumer)

o Customer Atracton: Hook the customer in with a low priced product using loss leader and bait

and switch

o Image Enhancement:

Psychological pricing

Odd / even

Multple pricing. Ex: 3 for $1; people buy certain products in bundles

Quality prestge pricing

PROMOTION - IMC

• Advertsing: Any form of non-personal sales presentaton that is paid for by an identfed sponsor

o Objectves of advertsing

o Create AIDA:

Aware of the product

Interested in your product

Desire your product

Act on your product

o Communicate CBP:

Communicaton Model: Source MediumReceiverSource

Increase credibility of source

• Familiarity

• Spokesperson

• Pros and Cons: Highlight the good and the bad about your product

Develop a concise and clear message

• Create a unique selling propositon

• Must ft with the psychological profle of the consumer

Use most efectve medium

• Must reach the consumer with the message that you intend. The

medium is the message. How you send the message says something

about your product, and if that message does not match the product’s

message, then the consumer will be confused

• Personal Selling

o More efectve but more expensive. With this approach you reach potental customers on a one-

on-one basis

o It is beter to combine personal selling with advertsing to:

o Generate leads

o Decrease cost of sales

o Reach people who don’t answer the phone or door

o Maintain brand image in buyer’s minds

o Factors to consider in budget decision

o Perceived risk of sale (fnancial, social, performance)

o When a large amount of info has to be conveyed, personal selling is useful

o When the product can be customized the consumer must have someone there to help

them

• Sales Promoton and Publicity

o Short term incentves to induce purchases:

o Free samples

o Trial

o Coupons

o Rebates

o Extra volume discounts

o Giveaways

o Contests

o Premiums

o Point of Purchase Displays

o It is crucial that all these components support the CBP

o Public relatons and publicity

o If your product is newsworthy, then people will talk about it and you will get free

publicity through word of mouth. There is stll an explicit cost for this publicity

PLACE/DISTRIBUTION

• Direct vs Indirect

o Direct Distributon: less tme-consuming since you don’t have to create your own distributon

network but less efectve for consumer products if selling straight out of the warehouse

o Indirect Distributon: takes more tme, efort and money to create and channel and develop

relatonships with wholesalers and retailers, but tend to be more efectve for the brand image in

consumer products

• Implicatons:

o Demand Backward Pricing: If using intermediaries, estmate their contributon per transacton

using backwards pricing (e.g. if the price to the consumer is $4.99 - $1.50 - $1.00 = $2.49 to the

wholesaler)

• Push vs Pull:

o Push: Push product to channel members

Volume: exclusive distributon arrangements, training salespeople, etc.

Contributon: cash allowances, volume discounts

Promotonal Awareness: to channel members

o Pull: Promoton focused on customer mostly

FINANCE

Overview:

Text Unit 3 (Chapter 14): Using Financial Informaton & Accountng and Lab Manual Readings (pages 213-230)

• will NOT be tested separately but supports lecture material

Lecture Material – Week 6, and Lab Manual Exercises pages 249-253

• 7 principles of entrepreneurial fnance

• stages of the venture life cycle and fnancing optons

• cash vs proft

• Statement of Cash Flows – constructon

• Survival/Cash Flow Breakeven – calculaton, infuencing breakeven – contributon margin, leverage

• Cash Budget – constructon

LECTURE

7 PRINCIPLES OF ENTREPRENEURIAL FINANCE

• Real, human, and fnancial capital must be rented from owners

• Risk and expected reward go hand in hand

• While accountng is the language of business, cash is the currency

• New venture fnancing involves search, negotaton, and privacy

• A venture’s fnancial objectve is to increase value

• It is dangerous to assume that people act against their own self-interest

• Venture character and reputaton can be assets or liabilites

THE VENTURE LIFE CYCLE

• 5 Stages:

• Financing Optons

o Debt Financing

Long term debt is the cheapest source of capital because interest is tax deductble,

dividends are not, therefore higher return

Higher long-term debt means higher interest payment which are a legal obligaton

whereas dividends are not, therefore a greater RISK of insolvency

o Equity Financing

Lower risk but higher cost of capital therefore lower return

CASH VS PROFIT

• A proftable company can go bankrupt because the proft that is received is mostly in the form of

receivables. This money is not cash and if it is not collected in adequate tme, then it will not be possible

to pay of accounts payable and the company will go bankrupt

• Net Working Capital = Current Assets – Current Liabilites

o You must balance risk and return

o How much risk you should take depends on the working capital cycle

o You must predict your WCC

CASH FLOW STATEMENT

o Show the yearly impact on the company’s cash

Start with your proft for the current year

+ Amortzaton

+ Decrease / - Increase in Accounts Receivable

+ Decrease / - Increase in Inventory

+ Increase / - Decrease in Accounts/Notes Payable

+ Decrease / - Increase in Capital Assets

COST-VOLUME-PROFIT ANALYSIS

• Main uses:

o Finding the breakeven point in units or sales

o Operatng leverage (whether to keep the current method or use a diferent method)

o Opportunity Scenarios

o Finding the amount of units or sales to reach a target proft or margin of safety

• Assumptons:

o Short term model

Total Fixed Costs, Variable Costs, and Selling Price are all constant

Sales mix does not change (usually assume only one product being sold)

o Units produced = units sold

• Key Components and Concepts (Understand and know when and where to use them!)

o Fixed Costs (FC)

Costs that are constant regardless of the amount of units sold (Will not change whether

there are 100 units or 0 units sold)

Ex. Rent, Advertsing, Administratve salaries

o Variable Costs (VC)

Related costs in making the units we are selling (increases as the number of units

increases)

Ex. Cost of Materials, Wages

o Selling Price (SP)

The amount we are selling a single unit for

Selling price x Units = Revenue

o Breakeven Point (BEP)

The point where TR = TC

Neither making a proft nor incurring a loss

o Margin of Safety

The diference in number of units or sales between the BEP and the expected number

The “Safety Net” of units sold before arriving at breakeven point

o Contributon Margin per Unit (CM)

Revenue per unit that is lef over afer covering your Variable Cost per unit

CM = SP - VC

o Total Contributon Margin

Total Contributon Margin = CM x number of units sold

o Contributon Rate (CR)

Percentage of every sales dollar that is remaining afer covering VC that is used to cover

FC

CR = 1- (VC/Sales)

• Main Approaches/Ways to Solve

o Algebraically

o Contributon Margin

• Finding Breakeven Point in Units or Sales

• Algebraically

Breakeven occurs when Total Revenue = Total Costs

Selling Price = $10, Variable Costs = $3, Fixed Costs = $70, x = number of units

10x = 3x +70

7x = 70

x = 10 units

• Contributon Margin

How many units do we have to sell at contributon per unit in order to cover FC

Breakeven = FC / (Selling Price – VC per unit)

FC = $5000, Selling Price = $6. Variable Cost = $4

Contributon per unit = (Selling Price – VC per unit) = (6-4)

Contributon per unit = 2

Breakeven = 5000/2 = 2500 units

• Operatng Leverage

o Finding out at what amount of units sold would make the new method beter than the old

method (Ex. Machinery)

Algebraically

• The new method (lower VC per unit but higher FC relatve to the old method)

would be beter to implement above the operatve leverage BEP (in units)

• Operatve Leverage BEP = The producton level where both methods make the

same amount of proft

• Above the BEP, the method with the lower VC per unit is the beter alternatve

(leverage)

• SP1 – VC1 – FC1 = SP2 – VC2 – FC2

Contributon Margin

• Using the same concepts in the algebraic approach, fnd the BEP using

contributon margin

• (FC2 – FC1)/ (CM2 per unit – CM1 per unit)

• Opportunity Scenarios (Use contributon)

o Finding out if implementng the opportunity would be proftable or not

Ex. If an increase in FC by $10 000 would increase sales by $20 000 would you do it?

o Process

Calculate Contributon Margin, Total Contributon and Contributon Rate

Find the additonal total contributon in implementng the opportunity (CR x increase in

Sales)

Compare the additonal FC in implementng the opportunity

Compare Quanttatvely and Qualitatvely

• Target Proft/Margin of Safety

o Finding out what amount of units needs to be sold to reach their target proft or margin of safety

FC / (SP-VC) = BEP

In order to fnd the target proft or margin of safety we need to fnd how many units of

contributon needed to cover FC + Target Proft/Margin of Safety

(FC + TP) / CM per unit = Units needed to reach Target Proft or Margin of Safety

• Tips in CVP Success!

o Understand the key components and concepts and know when to use them!

o Know how to do all the diferent uses (Questons) of CVP

o If you are confused, write down your variables!

o Practce, Practce, Practce!

CASH BUDGETING

• Management of cash fows

• Management of Working Capital Cycle

• Create a worksheet based on the historical measures of amounts and tming of cash fows in the working

capital cycle

• Process

o Beginning Cash Balance

o + Receipts

o = Total Cash Available

o – Disbursements

o = Cash Excess/Defciency

o Minimum Cash Balance Desired

o +/- Borrwing Req’d/Surplus or Repayment

o =Ending Cash Balance