Download B120: An Introduction to Business Studies

B120: An Introduction to Business Studies
Session 1
What is a business?
Morgan’s metaphors, 1986:
One of the famous academic theories, by Garith Morgan, uses metaphors to illuminate and
extend our thinking regarding the question, “what is business”. The ‘images of organization’ offered
by the following eight metaphors:
A machine
Businesses are often designed and operated as if they are machines, with highly visible
structures and procedures.
An organism
Seeing the business as behaving in similar ways to our own biological mechanisms.
A brain
This means realising it has to be able to respond to change and also capable of rational
thinking and intelligent change.
A culture
The values, believes, norms, essentials and principles.
A political system
The social relations between individuals and groups in a business that involve authority
and power.
Psychic prison
Some businesses may be constrained by themselves.
As
flux
and The constant change shaping our lives.
transformation
A
vehicle
domination
for
Businesses can be dominant.
Session 2
The external environment
STEEP model (STEEP is an acronym for Sociological, Technological, Economic, Environmental
and Political factors).
STEEP stands of five factors:
1- Sociological factors: It include demographic changes in the age and structures of populations,
patterns of work, gender roles, patterns of consumptions and ways in which culture of population or
country changes and develops.
2- Technological factors: It includes information technology (IT) for business management and
information and communications technology (ICT) which influence on:
• Lowering the barriers of time and place.
• Creates new industries.
• Depends of many individual jobs and internal service functions on ICT systems.
3- Economic factors: It includes economic growth, interest rates, inflation, energy prices, exchange
rates and levels of employment.
4- Environmental factors: The impact of businesses activities on the natural environment
(sustainability, recycling, emissions and waste disposal). Businesses need to consider a number of
environmental factors (such as: legislations, environmental management systems 'ISO 14000',
information about environmental audit and performance reports, employees, shareholders, pressure
groups, and customers).
5- Political factors: It include legislations, trading relationships (such as: the World Trade
Organization ‘WTO’ and the European Union ‘EU’), government, the level and nature of public
services (e.g. health, education etc.), financial policy, levels of taxation and potential elections.
Stakeholders:
Stakeholders are groups of people who have an interest in a business. They can be seen as
being either external (e.g. creditors, customers, suppliers, government, community), or internal (e.g.
shareholders ‘owners’, managers, staff or employees).
Why the concept of stakeholder is important?
The concept of stakeholder is important for two rezones:
1- It emphasises that stakeholders groups have different interests, and hence lead to the conflict of
interests.
2- It illustrates the relationships between businesses and their external environments (as explained
through the STEEP model).
Analyzing stakeholders:
The relative power and interest of the stakeholders (four categories in the matrix), shown in
the following figure
Level of interest
Power
Low
High
Low
Category A
Minimal effort
(e.g. customers,
suppliers or
competitors)
Category C
Keep satisfied
(e.g. institutional
stakeholders)
High
Category B
Keep informed
(e.g. associate
members, employees)
Category D
Key player
(e.g. directors)
SWOT Analysis:
Another important tool is the SWOT analysis as this helps managers to look at both the
external circumstances, the possible Opportunities (O) and Threats (T) that the firm faces and the
internal factors, Strengths (S) that the firm can build upon and Weaknesses (W), which the firm
need to understand.
A SWOT analysis generates information that is helpful in matching an organisation or
group’s goals, programs, and capacities to the social environment in which it operates. It is an
instrument within strategic planning, since developing a full awareness of your situation can help
with both strategic planning and decision - making.
Strengths:
- Positive tangible and intangible attributes, internal to an organization. They are within the
organisation’s control.
- A resource or capacity of the organisation or team that can be used effectively to achieve
objectives now or in the future.
2
Weaknesses:
- Factors that are within an organisation’s control that detract from its ability to attain the core
goal. Which areas might the organization improve?
- A limitation, fault or defect of the organisation or team that will hinder achievement of
objectives now or in the future
Opportunities:
- External attractive factors that represent the reason for an organisation to exist and develop.
What opportunities exist in the environment, which will propel the organisation?
- Identify them by their “time frames”.
Threats:
- External factors, beyond an organization’s control, which could place the organization
mission or operation at risk. The organization may benefit by having contingency plans to
address them if they should occur.
- Classify them by their “seriousness” and “probability of occurrence”.
- Any unfavourable situation in the future, in the market, that is potentially damaging, now or
in the future.
Benefits of the SWOT Analysis:
•
•
•
•
•
Simple process which lowers costs;
No extensive training required;
Flexible-enhances strategic planning;
Integration-synthesises qualitative & quantitative information;
Collaboration-encourages interdepartmental coordination.
3
Strengths
Weaknesses
Opportunities
S-O strategies:
build on success,
good practices,
models
W-O strategies:
use opportunities to
address weaknesses
Threats
SWOT Matrix:
S-T strategies:
use success to
minimise threats
W-T strategies:
defensive actions vs.
susceptible areas
Book 2
An Introduction to Human Resource Management
(HRM) in Business
Session 1
Why do people go to work?
Definitions of HRM
Designing management systems to ensure that human talent is used effectively and efficiently to
accomplish organizational goals.
…refers to the practices and policies needed to cover the ‘human’ aspect of management.
… is the part of the management process that specializes in the management of people in work
organisations.
The Nature of Motivation
What Is Motivation?
- The extent to which persistent effort is directed toward a goal.
- A need or desire that energizes behavior and directs it towards a goal.
- The set of forces that leads people to behave in particular ways.
- Anything that provides direction, intensity, and persistence to behavior.
- A willingness to exert effort toward achieving a goal.
- An internal drive to satisfy an unsatisfied need.
- The psychological process that gives behavior purpose and direction.
- The conditions that energize, direct, and sustain work behavior.
- The inner force that drives individuals to accomplish personal and organizational goals.
- And the will to achieve.
A simple model of motivation:
Unfulfilled
Need
Motivation
Behaviour
Feedback
4
Rewards
U
n
f
u
l
f
i
l
l
The Psychological Contract
Defining the Psychological Contract:
• Guest and Conway (2000): “The perceptions of both parties to the employment relationship,
organisation and individual of the reciprocal promises and obligations implied in the
relationship”
Written Contracts
Items typically included in the Written Contract:
• Job title;
• Description of duties;
• Date of appointment;
• Place & hours of work;
• Annual salary and other payments;
• Annual holiday entitlement;
• Sickness absence & payments;
• Notice period for termination;
• Disciplinary & grievance procedures.
The Psychological Contract Expectations
Employers expect employees to:
- Work hard;
- Uphold company reputation;
- Maintain levels of attendance and punctuality;
- Show loyalty to the organisation;
- Work extra hours when required;
- Develop new skills and update old ones;
- Be flexible and receptive to change;
- Be courteous to clients and colleagues;
- Be open and honest;
- Come up with new ideas.
Employees expect employers to:
- Pay commensurate with performance;
- Provide opportunities for training and development;
- Provide opportunities for promotion;
- Recognise innovation or ideas;
- Give feedback on performance;
- Provide interesting tasks;
- Provide an attractive benefits package;
- Treat everyone with respect;
- Give reasonable job security;
- Provide a pleasant and safe working environment
Importance of Psychological Contracts:
•
•
•
•
•
•
Employee beliefs that their hard work and loyalty should be rewarded with long-term
employment security.
Link individuals to organizations.
Reflect the trust that is a fundamental feature of the employment relationship.
Motivate individuals to fulfill their obligations (if they believe the other party will do the
same).
An individual may have a reason to believe that they will be recognised and promoted if they
work hard, even though this is not part of any formal employment contract. If this does not
occur as expected, they may feel that their Psychological Contract has been violated, leading
to dissatisfaction.
A ‘healthy’ psychological contract is linked to outcomes (such as: positive employment
relations, employee commitment, motivation and job satisfaction), this means that they are
more likely to feel committed to their employer and motivated to work hard for them. And the
inverse will be occur in the case of ‘week’ psychological contract.
5
Unpacking the language of psychological contract definitions:
• Promises: Made by one party to another to engage in specific action.
• Obligation: Commitments to be delivered by party in receipt of promise.
• Expectation: Less binding language than promise and obligation.
Psychological Vs. Employee Contract:
Psychological Contracts
- Dynamic relationship defining employees’
psychological involvement with employer.
- Reflects perceptions of expectations.
- Interpretations may not be similar.
Employee Contracts
Formal contract that specifies agreements such as
hours and type of work in return for
compensation and benefits.
Session 2
Designing satisfying work
The job characteristic model (Hackman & Oldham’s Job Characteristics Model):
• This model looks at the relationship between core characteristics, employee’s psychological
states and key outcomes.
• Diagnostic approach to job enrichment.
Five core job characteristics are particularly important (Hackman & Oldham, 1980) as
follows:
1- Skill variety: the degree to which the job requires different skills.
2- Task identity: the degree to which the job involves completing a whole, identifiable piece of
work rather than simply a part.
3- Task significance: the extent to which the job has an impact on other people, inside or outside
the organization.
4- Autonomy: the extent to which the job allows jobholders to exercise choice and discretion in
their work.
5- Feedback from the job: the extent to which the job itself (as opposed to other people) provides
jobholders with information on their performance.
Formula to determine motivating potential of job:
Motivating
Potential Score =
(MPS)
6
Skill
Variety +
Task
Identity +
3
Task
Significance
X Autonomy X Feedback
Hackman & Oldham’s Job Characteristics Model:
Core job
characteristics
Critical psychological
states
Task variety
Experienced
meaningfulness
of the work
Task identity
Task significance
Autonomy
Experienced
responsibility
for work
outcomes
Feedback
from the job
Knowledge of
results of work
activities
Outcomes
High
intrinsic
motivation
High job
satisfaction
High work
effectivenes
s
Session 3
Finding people and helping them fit
1- The HRM Function:
Develops an HRM system - set of activities - for planning, decision making, and execution concerning:
 Recruitment and selection;
 Training and development;
 Performance appraisal/feedback;
 Pay and benefits (rewards);
Labor relations.

2- Recruiting Human Resources:
 Recruiting: any activity carried on by the organisation with the primary purpose of identifying and
attracting potential employees.
 Recruitment is often underrated as a communications function within a business. Any process of
recruitment is saying something to the outside world about how the business presents itself. Recruitment
and selection is a two-way process with information from both the applicant and the employer as to
what each has to offer.
4- Selection:


The process of choosing individuals with qualifications needed to fill jobs in an organization.
Selection methods: the main methods of selecting employees for a business are:
1- Interview: the aim of the selection interview is to determine whether the candidate is interested
in the job and competent to do it. It is a two - process, it is also a chance for the applicant to
assess if he/she wants the job being offered.
- Interviews are the most popular form of selection.
7
- They can involve one or more interviewer.
- They are a relatively cheap method.
- They can be unreliable as they don’t give a valid picture of how someone will perform on
the job.
- Chance for an employer to meet applicant face to face and can obtain much more
information.
- Assess the working culture of a possible new employer.
2- Tests: tests can be used to measure aptitude, such as competence in literacy or numeracy, or
personality (psychometric tests 'Aptitude tests, Intelligence tests, and Personality tests'). Tests
and their results are likely to form a part rather than the whole of a selection process as they
provide quantitative but not qualitative information about an individual. Also selection tests
increase chances of choosing best applicant and so minimise high costs of recruiting wrong
people.
3- Assessment centre: this is a process, rather than a place, which uses a number of selection
techniques, instruments and exercises in combination and designed to diagnose individuals’
development needs. An assessment centre evaluates a person’s potential by observing his/her
performance in simulated work situations.
Book 3
An Introduction to Accounting & Finance in Business
Session 3
Accounting ……. Is about
“the provision of financial information to help with decision about resource allocation, and about
the preparation of financial reports which describe the results of past resource allocation
decisions”
The characteristics of good financial information:
Relevance:
• To be useful, the accounting information must be relevant to the needs of decision makers.
Reliability:
• Reliability of information means that the information is free of error and bias, it can be
depended on.
Understandability:
 Financial reporting should provide information that is understandable to one who has a
reasonable knowledge of accounting and business and who is willing to study and analyze the
information presented. Users are assumed to be financially literate.
Comparability:
 Users should be able to make valid comparisons about the financial statements across time.
The accounting statements
The three main accounting statements:
1- The income statement (the profit and loss account).
2- The balance sheet (the statement of financial position).
3- The cash flow statement.
8
1- The income statement (the profit and loss account):
A statement showing revenues and expenses for a period of time. Income statement or profit and loss
statement reflecting financial performance:
1- Income (revenue).
2- Expenses.
Example 1: Paula's Pipes:
(A sole trader in the commercial sector, she is a solo plumber trading as 'Paula's Pipes')
Explanation of items
Plumbing components used
10500
Gross profit
20000
Transport costs (Petrol, license,
repair to van)
Marketing costs (advertising)
1000
• The income statement is more like a video of the firm’s operations for a
specified period of time, rather than having been prepared at a point of
time.
• Measures profitability over a given period of time (typically monthly,
quarterly and annually).
• Time scale of reporting should ensure that the income statement is
communicating valuable information.
• Recognise revenues and expenses in the same time period (accrual method
of accounting).
 Sales or revenues.
 You generally report revenues first and then deduct any expenses for the
period.
 Revenues are recognised when they are realised or earned regardless
whether cash is collected or (i.e., when the service is performed or the
goods are delivered, according to accrual accounting).
 The cost of goods sold: refer to the costs associated with acquiring or
producing the goods that have been sold (plumbing components, from the
stock or inventory, used in Paula's Pipes).
 Can include raw materials or materials plus manufacturing labour,
especially in manufacturing businesses.
 Gross profit (Contribution Margin): the gross sales less the allowance for
cost of goods sold and bad debts before the reminder of the costs of running
the business are deducted.
 Measures what remains from a sale that contributes to the running of a
business.
 Can be used to comparatively analyze product lines and their profitability
for the business and evaluate the success of their trading strategy, but less
so for service businesses like Paula's Pipes.
 Expenses are recognized when they incur regardless whether they are paid
or not (i.e., when used or consumed, according to accrual accounting).
 Expenses include all the running costs (such as: G, H and I).
 All running costs of the van (including depreciation of it).
400
 Marketing costs are often separated out. In this case Paula wanted to know
I
Administration costs (bank fees,
mobile phone, stationery)
600
J
Net profit
A
B
Paula's Pipes Income Statement
for the period 1 May to 31 October
Fees for work completed in 30500
period
C
D
(-)
E
F
£
Income:
Expenses:
G
H
how much she was spending on advertising in proportion to the rest of her
costs and income.
 This category includes all the other costs that are not shown anywhere more
specific.
 Profit is a key measure of performance, as measured by the difference
18000
between income and expenses (if the costs were greater than the income then
there would be a loss rather than a profit)
Recognising revenues:
When accountants say that a revenue or expense has been recognised, they mean that:
1- The revenue or expense has been recorded in the accounting records (i.e., “the books”), and
2- That it is being reported on the financial statements of the business.
The revenue recognition principle states that revenues be recorded in the accounting records when they
are earned. In most cases, revenue is earned when the business has delivered a completed good or service to
the customer.
9
Recognising expenses:
Characteristics of expenses:
1- They are flows;
2- That take the form of a decrease in assets or increases in liabilities;
3- Result in a decrease in equity.
Depreciation and Amortization:
•
Depreciation: the decline in the useful life of a fixed asset as allocated to each accounting period that
will benefit from its use
Amortization: allocating the cost of an intangible asset to each accounting period receiving benefits
from the asset.
•
2-The balance sheet (the statement of financial position):
A statement showing the resources of a company (the assets), the company’s obligations (the
liabilities), and the equity of the owners at a certain point in time. The balance sheet is a snapshot of the
entity’s assets and liabilities at a given point in time.
Definitions of the elements:
The element
Assets
Liabilities
Equity
(capital
or
net worth or
shareholders'
equity)
10
Definition
An asset is a resource
controlled by the entity as a
result of past events and
from
which
future
economic benefits are
expected to flow to the
entity.
A liability is a present
obligation of the entity
arising from past events,
the settlement of which is
expected to result in an
outflow from the entity of
resources
embodying
economic benefits.
Refers to the value of the
company after liabilities are
deducted from assets.
Equity = Assets – Liabilities
E
= A
–
L
Characteristics
Types
Examples
Future
economic
benefits.
- Control by the entity.
- The result of a past
event (i.e. a past
transaction or other
past event).
Short term (current) Assets: Cash or
anything that the business can easily convert
into cash within (usually) one year.
Cash - securities - accounts
and notes receivable (A/R) inventories - work in process prepaid expenses - accrued
revenues.
Plant / equipment - land and
buildings - cars - furniture.
-
- The existence of a
present obligation to
another entity.
- A future sacrifice of
economic benefits.
- The result of a past
event.
Long term (fixed) Assets: Tangible
properties or equipment used to support
business for more than one year.
Intangible assets: they lack physical
existence and not financial instruments.
Normally classified as long-term asset.
Short term (current) Liabilities: Short-term,
payable within a year, and usually from
current assets.
Long Term Liabilities: Have longer life, due
after one year or more.
Capital Stock: The amount of money the
owner/s originally invested in the company
or the amount of money raised by selling
shares in the company.
Retained Earnings: The profits of the
business from operations since its inception
that have not been withdrawn by the owners
or distributed as dividends.
Patent / copyrights - goodwill trademarks or trade names franchises or licenses.
Accounts Payable (A/P) purchase of goods or services taxes owed - prepayments by
customers for goods or
services yet to be delivered.
Notes payable that mature
greater than one year - longterm lease – Bonds - Employee
pension.
Common stock
preferred stock
and
-Net income increases retained
earnings.
-Dividends decrease retained
earnings.
Session 4
The accounting world
Branches of accounting
Table 1: Differences between financial and management accounting:
Management accounting
Financial accounting
Produces information that is mainly used for
management purpose within the organisation
Helps management to record, plan and control
activities and aids the decision-making process
Produces information that is mainly used by parts
external to the organisation
Provides a record of the performance of an
organisation over a financial year and the financial
position at the end of that financial year
No legal requirements
Governed by legal (law)
Focus on specific areas of a business’s activities Concentrates on the whole organisation
Time focus: historical and future (planning Time focus: historical picture of past operations
tool)
Emphasis on relevance for planning and control Emphasis on verifiability
Mandatory for external reports
Not Mandatory
No specified format and no specific, required Has a format specified by accounting standards and
statements
by law
Behavioral Issues: Designed to influence Behavioral Issues: Indirect effects on employee
employee behavior
behavior
Session 5
Budgets and the budgeting process
What is a budget?
 A budget is a financial or non-financial expression of an organisation’s plan of action for a
specified period; it identifies the resources and commitments required to achieve the
organisation’s goals for the period identified.
 Budgets are quantitative representations.
 For example: a firm may prepare cash budget to predict cash inflows and outflows or a
production budget to plan its production levels.
What is a Budgeting?
 The process of preparing a budget is called budgeting.
Types of budgets:
• Master Budget: summarises the planned activities of all subunits of an entity. A master
budget is a comprehensive budget for a specific period.
• The master budget is made up of operating and financial budgets:
- Operating budgets: are plans that identify resources needed to carry out the budgeted
activities, such as budgeted sales and budgeted production.
- Financial budgets: identify sources and uses of funds for the budgeted operations. It
include the budgeted cash flow, budgeted income, the budgeted balance sheet, and the
capital expenditures budget.
11
Book 4
An Introduction to Marketing in Business
Session 4
The marketing mix
4.1: Product:
• The product should be what the customer wants and expects to get.
• Products can be described as a 'bundle of benefits'. This means that it is not usually the actual
product itself which is important to customers but what it will do for them.
• There are three levels of product benefits (see figure 1):
1- The core benefit: is the kind of main benefit and is intangible (see figure 2). You can't touch it.
That's because the core product is the benefit of the product that makes it valuable to you.
Marketers must first define what the core benefits the product will provide the customer.
2- The actual product benefit: is the tangible, physical product. You can get some use out of it.
Marketer must then build the actual product around the core product. May have as many as five
characteristics (quality level, features, design, brand name and packaging).
3- The augmented product benefits: is the non-physical part of the product. It usually consists of lots
of added value, for which you may or may not pay a premium. Augmented Product - offer additional
consumer benefits and services (installation, after-sale service, warranty, delivery and credit, and
customer training).
Core product
Actual product
Augmented product
Installation
Packaging
Brand name
Delivery
and credit
Features
After-sale
service
Core benefit or
service
Styling
Quality
Warranty
Figure 1: The three levels of product (Kolter et al., 2001, p. 460)
12
The product life cycle (PLC):
1. The introduction stage: after a new product has been developed and is first introduced to the
market. In this stage sales are small and the rate of market penetration is low because the industry’s
products are little known and customers are few.
2. The growth stage: characterized by accelerating market penetration as product technology becomes
more standardized and prices fall.
3. The maturity stage: increasing market saturation and slowing growth as new demand gives way to
replacement demand (direct: customers replacing old products with new products, or indirect: new
customers replacing old customers).
4. The decline stage: product becomes challenged by new products that produce technologically
superior substitute products.
4.2: Pricing:
• Pricing is one of the most important and complex marketing decisions.
Price is the one, which creates sales revenue - all the others are costs.
The price of an item is clearly an important determinant of the value of sales made.
Price is really determined by the discovery of what customers perceive is the value of the item on
sale.
• Objectives in pricing: Achieve a target return on investment; create stabilization of price and margin;
reach a market share target; meet or prevent competition; profit maximization; and survival.
• Pricing must be carefully coordinated with the other marketing mix elements.
Approaches to pricing:
There are three main approaches to setting prices, which vary in the degree to which they are
customer oriented.
Table 2: Approaches of pricing:
Approach
1
Features
- Adding a standard markup (a fixed profit percentage) to cost, to cover unassigned costs and provide a profit.
Cost-based
pricing
(Cost- - The least customer-oriented pricing method.
- Popular pricing technique because it simplifies the pricing process, Price competition may be minimized, and it is
Plus Pricing)
perceived as more fair to both buyers and sellers.
2
Customer-based
pricing
3
Competitionbased pricing
- By using solely a cost-based approach the seller my miss opportunities for additional profit or set a price too high to
realise adequate sales to even cover cost.
- The fundamental flaw of this approach to pricing is that it ignores demand and fails to account for competition.
- Uses customers' perceptions of value rather than seller’s costs to set price.
- Is more in line with a marketing orientation, as it stats with the customer's willingness to pay.
- Net value = Perceived benefits to customer (gross value) minus all Perceived outlays (Money, Time, Mental/Physical
effort)
- Pricing influenced primarily by competitors’ prices.
- Involves comparing the prices of all competing products and then setting the price of one's own product.
- Determine your competitor’s pricing, after this, you must decide to: price below or in line with or above the competition.
- Method importance increases when: competing products are homogeneous or lack differentiation, and business is serving
markets in which price is a key consideration.
Cost-based pricing:
Product
Cost
Price
Value
Customers
Value
Price
Cost
Product
Customer-based pricing:
Customers
Figure 4: Approaches of Pricing
13
In practice, businesses will take into account all three elements of costs, customer perceptions and
competition when setting prices.
4.3: Distribution (Place):
•
Place: Making goods and services available in the right quantities and at the right locations - when
customers want them.
• Distribution Channels: A series of businesses or individuals participating in the flow of products
from producer to final user or consumer.
• Marketing channel strategy is growing in importance. Why?
1- Search for sustainable competitive advantage.
2- Growing power of retailers in marketing channels.
3- The need to reduce distribution costs.
4- The increased role and power of technology.
5- The new stress on growth.
Members of the distribution channel:
1- The shortest distribution channel (also called direct distribution or producer to customer): are
those in which producers sell directly to final customers without any intermediaries. e.g. (The internet)
Slightly longer: are those channels which include retailers as well as producers and final customers.
Distribution channels involving large retail businesses often take this shape.
2- Smaller retailers: are often not in a position to buy directly from manufacturers. In this case the
channel contains a further level, namely wholesalers.
3- Wholesalers: are businesses that buy products from producers and sell them on to retailers.
4- Retailers: are businesses that buy from producers or wholesalers and sell on to consumers (such as:
high street shops, out-of-town superstores, internet seller, door-to-door salespeople).
Technology has the power to greatly enhance the effectiveness and efficiency of marketing channels
and could potentially change the entire structure of distribution around the world.
4.4: Marketing communications (Promotion):
•
•
•
Marketing Communication or Promotion is the communication undertaken by a firm to persuade/inform
potential buyers to accept ideas, concepts, or things.
The concept under which a business carefully integrates and coordinates its many communications channels to
deliver a clear, consistent, and compelling message about the business and its products.
Marketing communications is not a straight forward, one-way process from marketers to potential customers.
Marketers often follow the so-called AIDA approach, which suggests that good marketing communication
should go through the sequence of stimulating 'Awareness', 'Interest', 'Desire' and 'Action' on the part of
consumers (get your customer’s Attention, keep them Interested, generate a Desire and encourage them to
take Action). AIDA framework guides message design.
Promotional Mix: is the specific mix of advertising, personal selling, sales promotion, and public relations that
a firm uses to pursue its advertising and marketing objectives (see figure 5).
1- Advertising: any paid form of non-personal presentation and promotion of ideas, goods, or services by an
identified sponsor. Advertising tools include print(newspapers, magazines), TV, radio, outdoor, and online.
2- Sales promotions: refers to the specific element of the promotional mix which tries to create a temporary
increase in sales by offering customers an incentive to buy the product. Types of sales promotions
include:
1) Money based, such as cash-back, immediate price reductions at point of sale, and coupons.
2) Product based, such as X % extra free, buy one get one free, free samples, piggy-backing with another
product.
3) Gift, prize or merchandise based, such as gifts in return for proof of purchase, loyalty schemes, and
contests 'solve questions and you win something' or sweepstakes 'depend on luck'.
14
3- Personal selling: personal presentation by the business’s sales force for the purpose of making sales and
building customer relationships. Most effective tool for building buyers’ preferences, convictions, and
actions. Personal interaction allows for feedback and adjustments.
4- Public relations (PR): building good relations with the business’s various publics by obtaining favorable
publicity, building up a good “corporate image”, and handling or heading off unfavorable rumors, stories,
and events. It is unpaid advertising. PR tools include: press releases, sponsorships, and special events.
Direct marketing: direct communications with carefully targeted individual consumers-the use of
telephone, mail, fax, e-mail, the internet, and other tools to communicate directly with specific
consumers. Direct marketing such as: sending catalogues and telemarketing.
Messages
Transmitters
Receivers
Advertising
Consumers
Sales
promotion
Employees
Personal
selling
Pressure
groups
Public
relations
Other
publics
Information about
products and brands
Information about
the company
Figure 5: The promotional mix
Ethical issues in marketing communications:
• Marketing Communications can be easily misused or abused:
- Communication messages often include promises about the benefits that customers will
receive and the quality of service delivery.
- Promises made and then broken disappointment, and dissatisfaction can occur.
- Perceptions of wasted time and, or money may lead to anger.
- Employees may feel frustrated.
• Ethical issues in promotion mix:
- Personal selling: insincere, use power to gain publicity and orchestrating news events.
- Sales promotion: misleading promotions, slotting allowances and misuse of mailing lists.
- Public relations: high-pressure tactics.
4.5: Marketing services:
• Services: Any act of performance that one party can offer another that is essentially intangible and
does not result in the ownership of anything; its production may or may not be tied to a physical
product.
15
• Characteristic of service:
- Intangibility: A service is not physical and you need to make some evidences.
- Inseparability: A service is normally produced, consumed and evaluated simultaneously.
- Variability: Services are heavily dependent on the person that provide them.
- Perishability: Services can not be stored.
• This makes it difficult for customers to assess service quality before buying; for instance, by handling
or testing the product. Customers find it hard to evaluate services: more dependent on marketing
communications for information and business’s reputation becomes a critical factor.
• The three additional ‘P’s of Service Marketing: The marketing mix should be extended by further
elements, to take better account of the particular nature of services marketing. These elements are the
'people' who deliver the service, the 'processes' by which the service is delivered and any other
'physical evidence' for service quality that the marketer may provide.
In summary, the unique 3 Ps of services marketing: People, Physical evidence and Process are within the
control of the firm and its contact employees. They influence the customer’s initial decision to purchase a
service, customer’s level of satisfaction and repurchase decisions.
The 7 Ps - price, product, place, promotion, physical presence, provision of service, and processes
comprise the modern marketing mix that is particularly relevant in service industry, but is also relevant to
any form of business where meeting the needs of customers is given priority.
Book 5
Session 3
Globalisation
3.1: What is globalisation?
• Globalization means different things for different people. It can be defined simply as the expansion of
economic activities across political boundaries of nation states. More important, perhaps, it refers to a
process of increasing economic openness, growing economic interdependence and deepening
economic integration between countries in the world economy. It is cross-border economic
transactions, but also with an organization of economic activities which straddles national boundaries.
This process is driven by the lure of profit and the threats of competition in the market (Nayyar, 2002).
• The role of the business in the modern economy is now locked into an international system of players
who are crucial both as competitors and as partners.
3.2: Internationalisation and globalisation:
• Internationalisation: includes activities such as joint ventures with partners in other countries to cooperate in some aspects of business (such as Coca-Cola).
• Globalisation: globalization is an extension of internationalization in the sense that most aspects of the
production or service are performed, and integrated, across many global locations (such as IBM).
National boundaries become more flexible and are not the barriers to trade (transport network
'logistics').
3.3: Drivers of globalisation:
The drivers of globalization are those pressures or changes that have impelled both businesses and
nations to adopt this approach. The different drivers are:
1- Cost driver: these seek out an advantage to a business from the possible lowering of the cost of the
service or production, and would include:
- Gaining economies of scale from increasing the size of the business operation;
- The development and growth of technological innovation (IT and the internet);
16
- Lower labour and other resources costs in the developing countries;
- Fast and efficient transportation systems with the development of improved infrastructure.
2- Market drivers: the development of a world market brings about changes in the demands and tastes of
the consumer by:
- The establishment of global brands (Nike, Adidas, McDonald' s fast foods);
- Increasing low-cost travel;
- Growing per capita income, this increases the purchasing power of consumers.
3- Government drivers: nations work together to increase the possibility of trading activities in their
international trade to create economic advantage and wealth. This can brought about by:
- A reduction in trade barriers (such as: General Agreement on Tariffs and Trade 'GATT');
- The creation of trading blocs to bring about closer co-operation and economic activity between
nations (such as: EU);
- The creation of more open and freer economies as a result of the ending of closed economies of
Eastern Europe and the relaxation of the Chinese economy for example;
- Privatisation of previously centrally controlled industries or organisations.
4- Competition drivers: the opining up of economies or businesses creates an environment in which
more players can enter to the marketplace, whether nationally or internationally. This means that
competition will increase. This is brought about by:
- The cross-border ownership of home firms by foreign organisations;
- Movement of companies to become globally centred rather than nationally centred through
acquisition, strategic alliance and takeover;
- The growth of these global networks of organisational structures and businesses which make
countries interdependent within specific industries.
The advantages and disadvantages of globalisation:
Advantages
Disadvantages
- Globalisation generates wealth, goods and services which are now
available to a greater percentage of the world's population.
- It gives rise to economies of scale in the production process, which
drive down average costs, resulting in cheaper products.
- The vast majority of the world's population may not to purchase these
consumer goods, even at the lower prices.
- The new technologies and access to the communications may not benefit all
in that they create social and economic desires which cannot be met within
all societies.
- The products of the global economy may destroy the manufacturing
diversity and cultural heritage of a country as products become standardized
worldwide.
- The enhanced production of goods and services may have an environmental
cost in terms of depletion of natural resources, waste and pollution.
- Globalisation may undermine the idea of nation state as a global business
becomes more powerful - financially and politically - than it host country.
- Businesses are better able to seek out low-cost producers and hence
more competitive prices.
- It increases the potential market for goods and services.
- It facilitates growth in communications (the internet, email, satellite).
3.4: Multinational corporations (MNCs):
Multinational corporations (MNCs) are a firm which control and organize production using plants
from at least two countries. MNCs are large businesses that have budgets which involve sums of money that
are often larger than the gross domestic products (GDO) of the nations with which they are involved.
Prepared by
Dr. Helal Afify
17