Notes on Entrepreneurship & Management Concepts

Unit III (Marketing & Finance)

Marketing & Finance (Unit III)

Syllabus

and satisfaction (goods and services )marketing environment; selling, marketing and societal marketing concepts; four P’s,
product, price, placement, promotion; consumer, business and industrial market, market targeting, advertising, publicity,
CRM and market research.

Finance: Nature and scope, forms of business ownerships, balance sheet, profit and loss account, fund flow and cash flow
statements, breakeven point (BEP) and financial ratio analysis, pay-back period, NPV and capital budgeting.

Finance
Meaning of Financial Management
Financial Management means planning, organizing, directing and controlling the financial activities
such as procurement and utilization of funds of the enterprise. It means applying general management
principles to financial resources of the enterprise.

Scope/Elements

1. Investment decisions includes investment in fixed assets (called as capital budgeting). Investment
in current assets is also a part of investment decisions called as working capital decisions.

2. Financial decisions - They relate to the raising of finance from various resources which will depend
upon decision on type of source, period of financing, cost of financing and the returns thereby.

3. Dividend decision - The finance manager has to take decision with regards to the net profit
distribution. Net profits are generally divided into two:

a. Dividend for shareholders- Dividend and the rate of it has to be decided.

b. Retained profits- Amount of retained profits has to be finalized which will depend upon
expansion and diversification plans of the enterprise.

Objectives of Financial Management

The financial management is generally concerned with procurement, allocation and control of financial
resources of a concern. The objectives can be-

1. To ensure regular and adequate supply of funds to the concern.

2. To ensure adequate returns to the shareholders, this will depend upon the earning capacity,
market price of the share, expectations of the shareholders.

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3. To ensure optimum funds utilization. Once the funds are procured, they should be utilized in
maximum possible way at least cost.

4. To ensure safety on investment, i.e., funds should be invested in safe ventures so that adequate
rate of return can be achieved.

5. To plan a sound capital structure-There should be sound and fair composition of capital so that a
balance is maintained between debt and equity capital.

Functions of Financial Management

1. Estimation of capital requirements: A finance manager has to make estimation with regards to
capital requirements of the company. This will depend upon expected costs and profits and future
programs and policies of a concern. Estimations have to be made in an adequate manner which
increases earning capacity of enterprise.

2. Determination of capital composition: Once the estimation has been made, the capital structure
have to be decided. This involves short- term and long- term debt equity analysis. This will depend
upon the proportion of equity capital a company is possessing and additional funds which have to
be raised from outside parties.

3. Choice of sources of funds: For additional funds to be procured, a company has many choices like-

a. Issue of shares and debentures

b. Loans to be taken from banks and financial institutions

c. Public deposits to be drawn like in form of bonds.

Choice of factor will depend on relative merits and demerits of each source and period of financing.

4. Investment of funds: The finance manager has to decide to allocate funds into profitable ventures
so that there is safety on investment and regular returns is possible.

5. Disposal of surplus: The net profits decision has to be made by the finance manager. This can be
done in two ways:

a. Dividend declaration - It includes identifying the rate of dividends and other benefits like bonus.

b. Retained profits - The volume has to be decided which will depend upon expansional,
innovational, diversification plans of the company.

6. Management of cash: Finance manager has to make decisions with regards to cash management.
Cash is required for many purposes like payment of wages and salaries, payment of electricity and

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water bills, payment to creditors, meeting current liabilities, maintenance of enough stock,
purchase of raw materials, etc.

7. Financial controls: The finance manager has not only to plan, procure and utilize the funds but he
also has to exercise control over finances. This can be done through many techniques like ratio
analysis, financial forecasting, cost and profit control, etc.

Business Entity Types in India

The following is a guide to the different types of business entities that are allowed in India, providing
an overview of each type and their advantages and drawbacks. India is one of the fastest growing
economies of the world. In line with the globalization and liberalization trends it has been facilitating
the growth of enterprise and entrepreneurship by instituting several reforms and adapting a pro-
enterprise approach. It has readily embraced new and evolving corporate vehicles, such as Limited
Liability Partnership, while retaining certain vehicles that are inherent to its heritage. The scope of the
guide is limited to commercial businesses and does not include vehicles covering non-commercial
activities.

Indian legal framework allows for several types of business entities they are
• Proprietorship
• Partnership firm
• Limited Liability Partnership
• Private Limited Company
• Public Limited Company
In addition to the above legal entities, the following types of entities are available for foreign
investors/foreign companies doing business in India:

• Wholly owned Subsidiary Company

• Joint Venture Company
• Liaison Office/Representative Office
• Project Office
• Branch Office
Other forms of business entities which are beyond the realms of this guide are

• Co-operatives
• Joint Hindu Family Business

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Proprietorships
It is an archaic form of business entity and also the easiest form to set up and most common entity in
India. This however does not mean an ideal type of entity for all businesses. As a one-man organization
the owner of the entity is the be-all, do-all and an end-all of the business. This does not even require a
formal registration with the Registrar of Companies (ROC) however trade related licenses that are
mandatory have to be obtained. The businesses usually involve less risk, small market, small capital
and in turn have limited growth potential. It is the preferred type of entity among freelancers, small
traders, people who ply their skills and craftsmanship such as tailors, bakers, etc.

Relatively, there is less compliance burden on the owner and as a sole owner can exercise complete
authority and control. It provides complete confidentiality. The business owner and the business are
one and the same; there is no legal distinction between the two. This is a major drawback, as there is
no protection for the personal assets of the proprietor, in case of payment defaults, creditors can make
claims against the personal assets of the owner. This form of entity is less attractive to investors or
financial institution as it has no long term vision or transferability or transparency. It is very difficult to
raise capital hence this entity will have limited growth potential.

Partnership Firm
Partnership firm is formed by an agreement between two or more people to own and run the business.
This arrangement enables enterprising individuals to pool their resources to establish and expand a
business. Collectively the individual partners become a firm. This type of entity is suitable for team of
people rendering professional services such as lawyers, charted accountants, management
consultancies, doctors etc. This is also an ideal setup for small scale companies which require pooling
of capital and management expertise for running the business.

The law relating to a partnership firm is contained in the Indian Partnership Act, 1932. It does not
require compulsory registration of firms. It is optional for partners to register the firm and there are no
penalties for non-registration. A partner of an unregistered firm cannot file a suit in any court against
the firm or other partners for the enforcement of any right conferred by a contract or the Partnership
Act. Likewise the unregistered firm cannot seek legal action in the court of law against any third party
howsoever it does not limit a third party from suing the firm. In order to avail legal privileges a
partnership firm must be registered with the Registrar of Firms. It is not necessary to register at the
time of formation. A firm may be registered at any time by filing an application with the local Registrar
of Firms.

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Partnership Firms in India can have a minimum of two partners and a maximum of 20 partners, notably
the banking businesses are allowed a maximum of 10 partners only. Like proprietorship the firm also
does not have a separate identity, the partners and the firm is one and the same. In the event of the
assets and property of the firm is insufficient to meet the debts of the firm, the creditors can recover
their loans from the personal property of the individual partners.

There are restrictions on transfer of rights; no partner can transfer his individual rights to another third
party without the unanimous consent of all the partners. The firm must be dissolved on the retirement,
lunacy, bankruptcy, or death of any partner.

All partners have a right in management of the activities of the business and the extent of the rights of
each partner may be clearly determined in an agreement. Usually the rights, liabilities and duties of the
partners are laid out in an agreement in a professionally administered partnership firm. When the
written agreement is duly stamped and registered, it is known as “Partnership Deed”. If the deed does
not enlist the rights, duties and liabilities the provisions of The Indian Partnership Act, 1932 will apply.

Generally a partnership deed contains the following particulars:-

• Name of the firm

• Nature of the business to be carried out
• Names of the partners
• The town and the place where business will be carried on
• The amount of capital to be contributed by each partner
• Loans and advances by partners and the interest payable on them
• The amount of drawings by each partner and the rate of interest allowed thereon
• Duties and powers of each partner
• Any other terms and conditions to run the business
Other than the ease of formation and ease of pooling capital and expertise, partnership firm has
several drawbacks such as, unlimited liability, limited lifespan, restrictions on transfer of rights, lack of
unanimous authority, and more importantly liability for the acts of other partners.

Limited Liability Partnership (LLP)

It was introduced in India through Limited Liability Partnership Act, 2008. Limited Liability partnership
provides all the benefits of an incorporated company as well as the flexibility of a partnership. In an
LLP, all partners have limited liability, similar to that of the shareholders of a limited company, and are
relieved from the liability for the acts of other partners. Unlike the shareholder of a company, the

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partners have the right to manage the business directly. An LLP also limits the personal liability of a
partner for the errors, omissions, incompetence, or negligence of the LLP’s employees or other agents.

Unlike a partnership firm there is no restriction on the number of partners. Any two or more persons,
associated for carrying on a lawful business with a view to profit, may by subscribing their names to an
incorporation document and filing the same with the Registrar, may form a Limited Liability
Partnership. At least one of the partners should be an Indian resident.

It has a unique legal identity and is separate from the partners. It also has perpetual succession. The
liability of the partners is limited to their agreed contribution in the LLP. However the liabilities of the
LLP and partners, who are found to have acted with intent to defraud creditors or for any fraudulent
purpose, shall be unlimited for all or any of the debts or other liabilities of the LLP.

There is no minimum capital requirement. The mutual rights and duties of partners of an LLP inter se
and those of the LLP and its partners shall be governed by an agreement between partners or between
the LLP and the partners subject to the provisions of the LLP Act 2008. The LLP is required to maintain
proper accounts. Annual statement of accounts and solvency shall be filed by every LLP with the
Registrar.

The relative ease of setting up an LLP, limited liability, perpetuality and minimal compliance
requirement and cost makes it increasingly popular among small businesses involving professionals.
Moreover this type of entity is also internationally recognized and a relative newcomer in many of the
forward looking business jurisdictions which are keen on encouraging enterprise growth. This
international recognition also adds to the merits of this type of business entity.

Private Limited Company

The governing provisions for a Private Limited Company are contained in The Companies Act, 1956. A
private limited company must be appropriately incorporated with the Registrar of Companies (ROC).
India being a vast country with several provinces, ROCs are located across the states and Union
Territories. A company incorporated in any state of India can do business all over India.

The minimum paid up capital at the time of incorporation of a Private Limited Company is INR 100,000.
It can be increased any time, by payment of additional stamp duty and registration fees. A Private
Limited Company must have a minimum of two and a maximum of 50 members as its shareholders. It
must have minimum of two directors and maximum of 12 directors. Where the paid-up capital is equal
to or exceeds INR 50 million a company secretary must be appointed. The shareholders and directors
need not be locals.

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The liabilities of the share holders are limited to the shares subscribed by them. A Private Company is
prohibited from inviting the public to subscribe for any shares or debentures of the company. It is also
prohibited from inviting or accepting deposits from persons other than its members, directors or their
relatives. The shares can be transferred only among its members and it involves some restrictions.

A Private Limited Company has a separate legal identity. It is perpetual. Although the liabilities of the
shareholders are limited, at times, the liability of a Director/Manager can be unlimited. Under the
Companies Act several regulatory exemptions are granted to a Private Limited Company, such as
exemption from filing prospectus with the Registrar, exemption from obtaining Certificate for
Commencement of business, exemption from holding statutory meeting and statutory report, etc.
Similarly the directors of a private limited company do not face restrictions as those of the Public
Limited Company.

A Private Limited Company is easy to set up and there are relatively less compliance requirements than
a public limited company, however there are some limitations such as restrictions on share transfer.
Notably the limited liability clause is undermined by the bankers and financial institutions, which are
increasingly resorting to personal guarantee from directors of Private Limited Company. Nevertheless,
it is an ideal vehicle where the shares of the company will be closely held and where there is no
requirement for more capital to be raised through public issue.

Public Limited Company

The regulatory provisions for this type of entity are contained in The Companies Act, 1956. A Public
Limited Company must be registered with ROC.

A Public Limited Company is a Company limited by shares in which there is no restriction on the
maximum number of shareholders, transfer of shares and acceptance of public deposits. The minimum
paid-up capital for a public limited company is INR 500,000. A Public Limited Company must have a
minimum of seven shareholders and have a minimum of three directors and maximum of 12 directors.
Where the paid-up capital is equal to or exceeds INR 50 million, a company secretary must be
appointed.

The liability of each shareholder is limited to the extent of the unpaid amount of the shares’ face value
and the premium thereon in respect of the shares held by him. However, the liability of a Director /
Manager of such a Company can at times be unlimited. The shares of a company are freely transferable
and that too without the prior consent of other shareholders or without subsequent notice to the
company.

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A company is a legally independent body therefore is perpetual irrespective of death, retirement or

insolvency of any of its shareholders. The shareholders do not have a right in managing the activities of
the company there is a clear separation of management and ownership and the company’s Board of
Directors are vested with the decision making power as per the rule of majority.

There are some strict compliance requirements for Public Limited Company

• It must have at least three Directors

• A prospectus or a statement in lieu of prospectus has to be filed with the Registrar of
Companies before allotment of shares.
• It has to obtain Certificate of Commencement of Business from the Registrar of Companies
before it can commence business on incorporation.
• It has to hold a statutory meeting of members and file a Statutory Report with the Registrar of
Companies.
It must be noted that the financial status of the company is public and requires public disclosure of its
operational outcomes hence there is no confidentiality. The regulatory regime is very strict for Public
Limited Companies and resultant compliance cost is also high. But it is suitable for large scale
businesses that require huge capital and allied resources. The ease of raising capital by issuing shares
or through loans and ability to attract high quality talents to manage the company affairs, democratic
management etc., make it an ideal format for large scale businesses.

Deemed Public Companies

Under section 43 (A) of Companies Act, 1956, certain private companies are deemed to be public
companies when

• 25% or more of its paid up share capital is held by one or more body Corporate
• Its average Annual turnover exceeds INR. 250 million.
• It holds 25% or more of paid up capital of a public company or it accepts or renews deposits
from public after making an invitation by an advertisement.

Balance Sheet - Definition of 'Balance Sheet'

A financial statement that summarizes a company's assets, liabilities and shareholder’s equity at a
specific point in time. These three balance sheet segments give investors an idea as to what the
company owns and owes, as well as the amount invested by the shareholders.

The balance sheet must follow the following formula:

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Assets = Liabilities + Shareholders' Equity

It's called a balance sheet because the two sides balance out. This makes sense: a company has to pay
for all the things it has (assets) by either borrowing money (liabilities) or getting it from shareholders
(shareholders' equity).

Each of the three segments of the balance sheet will have many accounts within it that document the
value of each. Accounts such as cash, inventory and property are on the asset side of the balance
sheet, while on the liability side there are accounts such as accounts payable or long-term debt. The
exact accounts on a balance sheet will differ by company and by industry, as there is no one set
template that accurately accommodates for the differences between different types of businesses.

An outline of a balance sheet using the balance sheet classification is shown here:

PROFIT and LOSS Account

An account in the books of an organization to which incomes and gains are credited and expenses and
losses debited, so as to show the net profit or loss over a given period.

A financial statement that summarizes the revenues, costs and expenses incurred during a specific
period of time - usually a fiscal quarter or year. These records provide information that shows the
ability of a company to generate profit by increasing revenue and reducing costs. The P&L statement is
also known as a "statement of profit and loss", an "income statement" or an "income and expense
statement".

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PROFIT AND LOSS ACCOUNT

For the year ended 31st March 2013

Schedule Current year Previous year

Income

Sales 1
Other Income
Increase/Decrease in Work-in- 2
progress/
Finished Stocks 3
Total
Expenditure 4
Cost of Raw material and Spars
Excise Duty 5
Employees’ Remuneration &
Benefits 6
Other Expenses
Interest 6
Depreciation
Total 8
Profit Before Taxation & Extra
ordinary
Items
Extraordinary Item 9
Profit for the Current Year
Prior Period Adjustments
Profit before Taxation
Provision for Taxation 10
Profit After Tax
Balance B/F from the Previous Year
Total available for Appropriations
Appropriations
Proposed Dividend
Corporate Dividend on Taxes (CDT)
Debenture Redemption Reserve
General Reserve
Any other statutory Reserves
Balance c/f to next year
Total of Appropriation & Balance c/f

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Fund flow and Cash flow statements

A Cash Flow statement is a statement showing changes in cash position of the firm from one period
to another. It explains the inflows (receipts) and outflows (disbursements) of cash over a period of
time. The inflows of cash may occur from sale of goods, sale of assets, receipts from debtors, interest,
dividend, rent, issue of new shares and debentures, raising of loans, short-term borrowing, etc. The
cash outflows may occur on account of purchase of goods, purchase of assets, payment of loans loss
on operations, payment of tax and dividend, etc.

A cash flow statement is different from a cash budget. A cash flow statement shows the cash inflows
and outflows which have already taken place during a past time period. On the other hand a cash
budget shows cash inflows and outflows which are expected to take place during a future time period.
In other words, a cash budget is a projected cash flow statement.

Funds Flow statements states the changes in the working capital of the business in relation to the
operations in one time period. For example, if the inventory of the business increased from Rs 1,40,000
to Rs 1,60,000, then this increase of Rs 20,000 is the increase in the working capital for the
corresponding period and will be mentioned on the funds flow statement. Net working capital is the
total change in the business's working capital, calculated as total change in current assets minus total
change in current liabilities.

Cash flow statements have largely superseded funds flow statements as measurements of a business's
liquidity because cash and cash equivalents are more liquid than all other current assets included in
working capital's calculation.

What is Included in a Cash Flow Statement?

The statement of cash flows uses information from the other two statements (Income Statement and
Balance Sheet) to indicate cash inflows and outflows.

A Cash Flow Statement comprises information on following 3 activities:

1. Operating Activities
2. Investing Activities
3. Financing Activities

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Break-even Point
Definition
In simple words, the break-even point can be defined as a point where total costs (expenses) and total sales
(revenue) are equal. Break-even point can be described as a point where there is no net profit or loss. The firm
just “breaks even.” Any company which wants to make abnormal profit, desires to have a break-even point.
Graphically, it is the point where the total cost and the total revenue curves meet.

Calculation (formula)
Break-even point is the number of units (N) produced which make zero profit.
Revenue – Total costs = 0
Total costs = Variable costs * N + Fixed costs
Revenue = Price per unit * N
Price per unit * N – (Variable costs * N + Fixed costs) = 0
So, break-even point (N) is equal
N = Fixed costs / (Price per unit - Variable costs)

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Financial Ratio Analysis

Financial analysis is the selection, evaluation, and interpretation of financial data, along with other
pertinent information, to assist in investment and financial decision making. Financial analysis may
be used internally to evaluate issues such as employee performance, the efficiency of operations, and
credit policies, and externally to evaluate potential investments and the credit-worthiness of
borrowers, among other things.

There are six aspects of operating performance and financial condition we can evaluate from financial
ratios:

1. A liquidity ratio provides information on a company's ability to meet its short—term, immediate
obligations.

2. A profitability ratio provides information on the amount of income from each dollar of sales.

3. An activity ratio relates information on a company's ability to manage its resources (that is, its
assets) efficiently,

4. A financial leverage ratio provides information on the degree of a company's fixed financing
obligations and its ability to satisfy these financing obligations.

5. A shareholder ratio describes the company's financial condition in terms of amounts per share of
stork.

6. A return on investment ratio provides information on the amount of profit, relative to the assets
employed to produce that profit.

Pay-back period, NPV and Capital budgeting

Capital budgeting (or investment appraisal) is the planning process used to determine whether an
organization's long term investments such as new machinery, replacement machinery, new plants,
new products, and research development projects are worth the funding of cash through the firm's
capitalization structure (debt, equity or retained earnings). It is the process of allocating resources for
major capital, or investment, expenditures. One of the primary goals of capital budgeting investments
is to increase the value of the firm to the shareholders.
Capital budgeting involves allocating the firm's capital resources between competing project and investments.
Many formal methods are used in capital budgeting, including the techniques such as
• Accounting rate of return
• Payback period
• Net present value
• Profitability index

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• Internal rate of return

• Modified internal rate of return
• Equivalent annuity
• Real options valuation
Popular methods of capital budgeting include net present value (NPV), internal rate of return (IRR), discounted cash flow
(DCF) and payback period.

Payback Period

Payback period in capital budgeting refers to the period of time required for the return on an investment to
"repay" the sum of the original investment. Payback period intuitively measures how long something takes to
"pay for itself." All else being equal, shorter payback periods are preferable to longer payback periods.

The payback period is considered a method of analysis with serious limitations and qualifications for its use,
because it does not account for the time value of money, risk, financing, or other important considerations, such
as the opportunity cost.

Net Present Value – NPV

The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in
capital budgeting to analyze the profitability of an investment or project.

NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield.

NPV compares the value of a dollar today to the value of that same dollar in the future, taking inflation and
returns into account. If the NPV of a prospective project is positive, it should be accepted. However, if NPV is
negative, the project should probably be rejected because cash flows will also be negative.

For example, if a retail clothing business wants to purchase an existing store, it would first estimate the future
cash flows that store would generate, and then discount those cash flows into one lump-sum present value
amount, say Rs.565,000. If the owner of the store was willing to sell his business for less than Rs.565,000, the
purchasing company would likely accept the offer as it presents a positive NPV investment. Conversely, if the
owner would not sell for less than Rs.565,000, the purchaser would not buy the store, as the investment would
present a negative NPV at that time and would, therefore, reduce the overall value of the clothing company.

Need For Capital Budgeting

1. As large sum of money is involved which influences the profitability of the firm in making
capital budgeting an important task.
2. Long term investment once made cannot be reversed without significance loss of invested capital. The
investment becomes sunk and mistakes, rather than being readily rectified, must often be borne until
the firm can be withdrawn through depreciation charges or liquidation. It influences the whole conduct
of the business for the years to come.
3. Investment decision are the base on which the profit will be earned and probably measured through the
return on the capital. A proper mix of capital investment is quite important to ensure adequate rate of
return on investment, calling for the need of capital budgeting.

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4. The implication of long term investment decisions are more extensive than those of short run decisions
because of time factor involved, capital budgeting decisions are subject to the higher degree of risk and
uncertainty than short run decision.

*****

Best wishes for an excellent performance- Prof.Arvind Shrimali

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Marketing (Unit III)

Syllabus

Marketing:Importance, definition, core concepts of need want and demand, exchange & relationships, product value, cost
and satisfaction (goods and services )marketing environment; selling, marketing and societal marketing concepts; four P’s,
product, price, placement, promotion; consumer, business and industrial market, market targeting, advertising, publicity,
CRM and market research.

Finance: Nature and scope, forms of business ownerships, balance sheet, profit and loss account, fund flow and cash flow
statements, breakeven point (BEP) and financial ratio analysis, pay-back period, NPV and capital budgeting.

Marketing
Define Marketing Management? (RGTU Dec 2012)

Marketing is the action or business of promoting and selling products or services, including market research and
advertising.

Marketing is the management process which identifies, anticipates, and supplies customer requirements
efficiently and profitably. In other words, it is the process of understanding, creating, and delivering profitable
value to targeted customers better than the competition.

Marketing Management is the analysis, planning, implementation and control of programs designed to create,
build and maintain beneficial exchanges and relationships with target markets for the purpose of achieving
Organisational objectives.

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The management process through which goods and services move from concept to the customer. It includes the
coordination of four elements called the 4 P's of marketing:

(1) identification, selection and development of a product,

(2) determination of its price,

(3) selection of a distribution channel to reach the customer's place, and

(4) development and implementation of a promotional strategy.

For example, new Apple products are developed to include improved applications and systems, are set at
different prices depending on how much capability the customer desires, and are sold in places where other
Apple products are sold. In order to promote the device, the company featured its debut at tech events and is
highly advertised on the web and on television.

Marketing is based on thinking about the business in terms of customer needs and their satisfaction. Marketing
differs from selling because (in the words of Harvard Business School's retired professor of marketing Theodore
C. Levitt) "Selling concerns itself with the tricks and techniques of getting people to exchange their cash for your
product. It is not concerned with the values that the exchange is all about. And it does not, as marketing
invariable does, view the entire business process as consisting of a tightly integrated effort to discover, create,
arouse and satisfy customer needs." In other words, marketing has less to do with getting customers to pay for
your product as it does developing a demand for that product and fulfilling the customer's needs.

The Importance of Marketing: Why You Should Be Marketing Your Business

Marketing is possibly the most important activity a business can partake in. It is the one activity that
most directly affects the amount of recognition and sales that a company gets and this determines the
level of profitability. Basically, if you’re marketing your business well, it will make profits and if you’re
not…you could be in trouble. Even the most brilliant products and services won’t survive without
marketing efforts. How could a business continue if nobody knows about them?
The marketing umbrella covers many different fields, from advertising to public relations to
promotions to sales. Marketing combines all of these fields in order to introduce your product or
service to your potential customers. If you’re not using the channels in the best way, your potential
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customers won’t have any way of knowing about your product or service! Many great companies have
a hard time or end up failing because their sales are dropping due to lack of marketing efforts.

Needs, Wants and Demand

Needs wants and demands are a part of basic marketing principles. Though they are 3 simple worlds,
they hold a very complex meaning behind them along with a huge differentiation factor. In fact, a
product can be differentiated on the basis of whether it satisfies a customer’s needs, wants or
demands.

Needs-Human needs are the basic requirements and include food clothing and shelter. An extended
part of needs today has become education and healthcare. Generally, the products which fall under
the needs category of products do not require a push. But in today’s tough and competitive world, so
many brands have come up with the same offering satisfying the needs of the customer that even the
“needs category product” has to be pushed in the customers mind.
Example – Real Estate (land always appreciates), FMCG, etc.

Wants– Wants are largely dependent on the needs of humans themselves. For example, you step into
a restaurant. You may satisfy by eating basic plate meals rice. But you definitely want to try different
recipes because it is your want. Example – Hospitality industry, Electronics, Consumer Durables etc,
FMCG, etc.

Demands– Demands are wants for specific products backed by ability to pay. When an individual wants
something which is premium, but he also has the ability to buy it, then these wants are converted to
demands. The basic difference between wants and demands is desire. A customer may desire
something but he may not be able to fulfill his desire. Many people want a luxury car or a weekend
break in Dubai, but only a few people are willing and able to buy one. In business terms, companies
must measure not only how many people want their product but also how many would actually be
willing and able to buy it.
Example: BMW’s, 5 star hotels etc.

Need is a necessity without which a person cannot exist. Eg : Food, Water.

Want is something that you decide to get but without which you can still survive and exist. Eg: car,
mobile.
Demand is a state of mind which drives your want towards fulfillment.

The needs wants and demands are a very important component of marketing because they help the
marketer decide the products which he needs to offer in the market.

Company Orientations to the Marketplace (Environment)

What philosophy should guide a company marketing and selling efforts? What relative weights should be given to the
interests of the organization, the customers, and society? These interest often clash, however, an organization’s
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marketing and selling activities should be carried out under a well-thought-out philosophy of efficiency, effectiveness,
and socially responsibility.

Five orientations (philosophical concepts to the marketplace have guided and continue to guide organizational
activities:

1. The Production Concept

2. The Product Concept

3. The Selling Concept

4. The Marketing Concept

5. The Societal Marketing Concept

The Production Concept. This concept is the oldest of the concepts in business. It holds that consumers will prefer
products that are widely available and inexpensive. Managers focusing on this concept concentrate on achieving high
production efficiency, low costs, and mass distribution. They assume that consumers are primarily interested in
product availability and low prices. This orientation makes sense in developing countries, where consumers are more
interested in obtaining the product than in its features.

The Product Concept. This orientation holds that consumers will favor those products that offer the most quality,
performance, or innovative features. Managers focusing on this concept concentrate on making superior products
and improving them over time. They assume that buyers admire well-made products and can appraise quality and
performance. However, these managers are sometimes so engrossed with their product and do not realize what the
market needs.

The Sales Concept. This concept assumes that consumers typically show buying inertia or resistance and must be
coax into buying. It also assumes that the company has a whole battery of effective selling and promotional tools to
stimulate more buying. Most firms practice the selling concept when they have overcapacity. Their aim is to sell what
they make rather than make what the market wants.

The Marketing Concept. This is a business philosophy that challenges the above three business orientations. Itholds
that the key to achieving its organizational goals (goals of the selling company) consists of the company beingmore
effective than competitors in creating, delivering, and communicating customer value to its selected target
customers. The marketing concept rests on four pillars: target market, customer needs, integrated marketing and
profitability.

Distinctions between the Sales Concept and the Marketing Concept:

The Sales Concept focuses on the needs of the seller.
The Marketing Concept focuses on the needs of the buyer.
The Sales Concept is preoccupied with the seller’s need to convert his/her product into cash.
The Marketing Concept represents the major change in today’s company orientation that provides the foundation to
achieve competitive advantage. This philosophy is the foundation of consultative selling.

The Societal Marketing Concept

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This concept is more theoretical and will surely influence future forms of marketing and selling approaches. This
concept holds that the organization’s task is to determine the needs, wants, and interests of target markets and to
deliver the desired satisfactions more effectively and efficiently than competitors while preserving or enhancing the
consumer’s and the society’s well-being.

Societal Marketing is basically a marketing concept that is of the view that a company must make good marketing
decisions after considering consumer wants, the requirements of the company and most of all the long term interests
of the society.

Societal Marketing is actually an offshoot of the concept of Corporate Social Responsibility and sustainable
development. This concept urges companies to do more than having an exchange relationship with customers, to go
beyond delivering products and work for the benefit of the consumers and the society.

Examples:

Following are the three examples of Societal Marketing Concept:

1: Body Shop: Body Shop is a cosmetic company found by Anita Roddick. The company uses only vegetable based
materials for its products. It is also against Animal testing, supports community trade, activate Self Esteem, Defend
Human Rights, and overall protection of the planet. Thus it is completely following the concept of Societal Marketing.

2: Ariel: Ariel is a detergent manufactured by Procter and Gamble. Ariel runs special fund raising campaigns for
deprived classes of the world specifically the developing countries. It also contributes part of its profits from every
bag sold to the development of the society.

3: British American tobacco Company: BAT is a British based Tobacco company. It was found in the year 1902. BAT is
involved in working for the society in every part of the world. It conducts tree plantation drives as part of its societal
marketing strategy.

Exchange and Transactions

Exchange, which is the core concept of marketing, is the process of obtaining a desired product from
someone by offering something in return. For exchange potential to exist, five conditions must be
satisfied:

1. There are at least two parties.

2. Each party has something that might be of value to the other party.
3. Each party is capable of communication and delivery.
4. Each party is free to accept or reject the exchange offer.
5. Each party believes it is appropriate or desirable to deal with the other party.
Whether exchange actually takes place depends on whether the two parties can agree on terms that
will leave them both better off (or at least not worse off) than before. Exchange is a value-creating
process because it normally leaves both parties better off.

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Two parties are engaged in exchange if they are negotiating-trying to arrive at mutually agreeable e
terms. When an agreement is reached, we say that a transaction takes place. A transaction is a trade of
values between two or more parties: A gives X to B and receives Y in return. Smith sells Jones a
television set and Jones pays Rs.400 to Smith. This is a classic monetary transaction but transactions do
not require money as one of the traded values. A barter transaction involves trading goods or services
for other goods or services, as when lawyer Jones writes a will for physician Smith in return for a
medical examination.

A transaction involves several dimensions: at least two things of value, agreed-upon conditions, a time
of agreement, and a place of agreement.

Marketing deals with identifying and meeting human and social needs. One of the shortest definitions
of marketing is "meeting needs profitably."

The American Marketing Association offers the following formal definition: Marketing is an
organizational function and a set of processes of recreating, communicating, and delivering value to
customers and for managing customer relationships in ways that benefit the organization and its stake
holders. Coping with exchange processes calls for a considerable amount of work and skill.

Value, Cost, and satisfaction

Customer Value

■ “Is the bundle of costs customers expect to incur in evaluating, obtaining, and using the
product or service”

■ The customer’s evaluation of the difference between all the benefits and all the costs of the
product.

■ Total Customer Cost is the summation of:

-Monetary Cost
-Time Cost
-Energy Cost
-Psychic Cost

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Customer Cost

■ “Is the bundle of benefits customer expect from a given product or service”

■ Total Customer Value is the summation of:

-Product Value

-Services Value

-Personnel Value

-Image Value

Customer Delivered Value

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■ “Is the difference between total customer value and total customer cost”

Customer Satisfaction

"It is a person's feelings of pleasure or disappointment resulting from comparing a product's

perceived performance in relation to his or her expectations"

MEASURING CUSTOMER SATISFACTION

• Getting the feedback right

• Drawing the right conclusions on customer loyalty from feedback (satisfaction does not mean loyalty)

• Building customer satisfaction index.

Consumer, business and industrial market

How can someone choose between various kinds of products that can satisfy their needs? For example,
someone needs three-mile journey to the place of work every day. He can using a number of products to satisfy
this need, such as roller skates, bicycle, motorcycle, car, taxi, or bus.

Alternative option is a choice collection of products (product choice set). Someone may want to satisfy some
additional needs during the journey to the workplace, namely speed, convenience, security and economy. Each
product has a ability to satisfy a different set of needs in (set of needs) it. Bicycle is slower, less secure and
requires more energy than cars, but bicycle is more economical. However someone must decide which products
will provide the largest total satisfaction.

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Concepts that can help solve this problem is the value and satisfaction. Value is the estimate of consumer the
ability of all products to satisfy their needs. Suppose someone is interested in the speed and ease go to work. If
all of the products offered in the up without charge, he will choose the car. However, because each product
incur certain cost, he may not choose a car that costs much more expensive than a bicycle or taxi. If he choose a
car, he must forfeit something to get the car in the form of financial transaction. Therefore he will consider the
value and price of the product before making a decision. He will choose the products that generate more value
per dollar. According to DeRose, value is the “fulfillment of customer’s requirement in the lowest cost of
acquisition

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Markets can be analysed via the product itself, or end-consumer, or both. The most common
distinction is between consumer and industrial markets.

Consumer Markets

Consumer markets are the markets for products and services bought by individuals for their own
or family use. Goodsbought in consumer markets can be categorised in several ways:

• Fast-moving consumer goods (“FMCG's”)

– These are high volume, low unit value, fast repurchase

– Examples include: Ready meals; Baked Beans; Newspapers

• Consumer durables

– These have low volume but high unit value. Consumer durables are often further divided
into:
– White goods (e.g. fridge-freezers; cookers; dishwashers; microwaves)
– Brown goods (e.g. DVD players; games consoles; personal computers)

• Soft goods

– Soft goods are similar to consumer durables, except that they wear out more quickly
and therefore have ashorter replacement cycle
– Examples include clothes, shoes

• Services (e.g. hairdressing, dentists, childcare)

Industrial Markets

Industrial markets involve the sale of goods between businesses. These are goods
that are not aimeddirectly at consumers. Industrial markets include

• Selling finished goods– Examples include office furniture, computer systems

• Selling raw materials or components – Examples include steel, coal, gas, timber

• Selling services to businesses– Examples include waste disposal, security, accounting &
legal services

Industrial markets often require a slightly different marketing strategy and mix. In
particular, a businessmay have to focus on a relatively small number of potential
buyers (e.g. the IT Director responsible for ordering computer equipment in a
multinational group). Whereas consumer marketing tends to be aimed at the mass
market (in some cases, many millions of potential customers), industrial marketing
tends to be focused.

*****
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