Resource Economics - Manage Your Own Business Exam 2 Ch. 7-12 Terms

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Market

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a group of customers or potential customers who have purchasing power and unsatisfied needs

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Marketing

Back 2

activities directing the flow of goods and services from producer to consumer or user

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Marketing Function

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identifying the target customers and product feasibility through marketing research, which leads to the development of the marketing mix - product, price, place, and promotional plans - and the sales forecast.

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Marketing Research

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The process of gathering and analyzing data for decision making

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Steps in the marketing research process

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1) define the decision, 2) gather the data, 3) analyze the data, and 4) make the decision

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hypothesis

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a tentative answer to a research problem

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survey questionnaire

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an instrument used to collect primary data in person, over the telephone, by mail, or on the internet.

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marketing research

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the gathering, processing, reporting, and interpreting of market information

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secondary data

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market information that has been previously compiled for some other purpose. do this first, it will guide primary data collection

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primary data

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new market information that is gathered by the firm conducting the research

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Advantage of secondary data

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quick and cheap to acquire

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Disadvantages of secondary data

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- availability (not what you want)
- relevance (different region or industry sector)
- timeliness (out of date)

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Secondary Data - Inside company

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start with internal information
Make use of:
- sales records
- advertising expense, timing, coverage
- sales call reports (including turn downs by potential customers. why?)

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Secondary Data - Outside company

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External sources including
- trade journals, government agencies, commercial databases
- internet search engines
- public data

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Methods for collecting primary data

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Observational Methods
- Human
- Mechanical

Questioning Methods
- Surveys (mail, telephone)
- Personal Interviews
- Experiments

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End-user survey (customer research)

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most efficient way to get potential customer perceptions about you

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Focus Group (customer research)

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greater learning potential, cost, risk og bias

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Test Marketing (customer research)

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- need a product (usually) or service
- gain information about actual customer actions
- alert competitors to your intentions

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Personal Interview
Advantages/Disadvantages
(comparing survey methods)

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Adv:
- highly detailed data possible, more cooperation from respondents

Dis:
-most expensive and time consuming, possible interviewer bias and more interviewer training

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Telephone
Advantages/Disadvantages
(comparing survey methods)

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Adv:
allows feedback, probing, completeness of survey, wide regional coverage possible

Dis:
- lack of face-to-face rapport, no visual questions, possible interviewer bias

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Mail
Advantages/Disadvantages
(comparing survey methods)

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Adv;
-cheapest, no interviewer bias, large sample, wide coverage possible

Dis:
low response rate, need short survey form, its design is important, possible non-representative response, must acquire good mailing list

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Sales Forecast

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the predicted dollars and/or units of the product that will be sold to the target customers during a given period of time

-an essential component of a business plan that assesses the new ventures feasibility and assists in planning for product scheduling, setting inventory levels and personal decisions

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The predicting variable
(the forecasting process)
- Direct forecasting
- Indirect forecasting

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direct forecasting - the use of sales as the predicting variable

indirect forecasting - variables related to sales are used as proxies to project future sales

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The Starting Point
(the forecasting process)
-Breakdown process
-Buildup process

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Breakdown process
(chain-ratio method)
- forecasting begins with macro-level variable and works down to the sales forecast (top-down)

Buildup Process
- all potential buyers in various sub markets are identified and then the estimated demand is added up (bottom-up).

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Forecasting in the Existing Business

-Methods

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Is relatively easy
- an existing business usually has record of sales

Methods
-naive no change:
simple, but one of the best
- trend regression:
also simple, not so good
-exponential smoothing :
a kind of weighted averaging, takes care of seasonal patterns as well. does reasonably well
- econometric :
uses theory, casual variables, takes a lot of work and skill. does not do very well.
- judgment:
the most common approach. unaided judgment is not good, but judgment applied to a simple mechanical method often is.

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Product

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a total bundle of satisfaction - a service, a good, or both - offered to consumers in an exchange transaction

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Product development

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to maintain competitive advantage, a business must find, evaluate and introduce new products or new markets for existing products

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A product has three important features:

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-Brand names and trademarks
-Packaging
-Warranties

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Brand names and trademarks

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used to identify companies and products

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Packaging

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presentation that involves protecting and promoting products

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Warranties

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what the business promises about the product

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Marketing Mix

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the blend of product, price, place, and promotion that best meets the needs of the target customer

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Pricing

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the determination of how much the firm will charge for its products

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ways to address complaints

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- watch for problems
- talk to customers, comment card
- call your own business

superior levels of customer service are not easy to attain and are not cheap

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Pricing and competitive advantage

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customers will demand and pay more for a product that they perceive as important to their needs

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place

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the distribution, transportation, and storage of the product

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channel of distribution

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the system of moving products from producers to consumers

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promotion

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personal selling, advertising, sales promotion, and publicity

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sales promotion

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promotional activities other than person and mass selling

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publicity

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any unpaid form of mass selling

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Markup Pricing

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cost plus pricing system that adds a markup percentage to cover:
-operating expenses
-subsequent price reductions
-desired profits

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Prestige Pricing

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- setting a high price to convey an image of high quality or uniqueness (competitive advantage)
- customers associate price with quality
-markets with low levels of product knowledge are candidates for prestige pricing

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Penetration Pricing

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-setting lower than normal prices to hasten market acceptance of a product or service or to increase market share

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Skimming Pricing

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setting very high prices for a limited period before reducing them to more competitive levels

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Follow - the - leader Pricing

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using a particular competitor as a model in setting prices

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Variable Pricing

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setting more than one price for a good or service in order to offer price concession to certain customers

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Dynamic Pricing

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charging more than the standard price when the customer's profile suggests that the higher price will be accepted

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price lining

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setting a range of several distinct merchandise levels

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Purpose of promotion

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- inform
- persuade
- remind
- institutional advertising ( create positive image about the company, not to sell specific product or service)

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Promotional Mix

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a blend of personal, non-personal, and special forms of communication techniques aimed at a target market

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Promotional Mix determined by

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-geographical nature of target market
- size of promotional budget
- product's characteristics

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Personal Selling

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a sales presentation (promotion) delivered in a one-on-one manner

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Personal selling requires:

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- product knowledge
- well prepared sales presentation
- ability to build goodwill

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Prospecting

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a systematic process of continually looking for new customers

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Advertising

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the impersonal presentation of a business idea through mass media

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Other Sales Promotional Tools (Def:)

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an inclusive term for any promotional techniques that are neither personal selling or advertising (and used in combination with them)
-specialties
-trade shows
-publicity

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Specialties

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tangible and enduring functional items of worth distributed personally to recipients that serve as reminders of the firm.
- pens, key chains, magnets, and clothing imprinted with the name, logo, or slogan of the firm.

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Trade Show exhibits

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-provide hands on experience with products
- are less costly than personal selling
-provide a selected audience, interested in the products/service exhibited

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Publicity

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information about a firm and its products or services that appears as a news item
- usually free of charge
- provides visibility for the firm
- requires regular contacts with the news media

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Types of Distribution Channels (system of relationships to support logistics)

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Direct: a distribution system without intermediaries
Indirect: a channel with one or more intermediaries
Dual: a distribution system with more than one channel

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intermediaries

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-can provide efficient distribution of the product
- may take title to the goods (merchant middlemen) or not (agents/brokers)

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Important factors in building a distribution channel

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- costs associated with establishing a direct channel distribution
-coverage is increased through the use of indirect channels of distribution
- control is enhanced using a direct distribution channel.

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Five key Factors in determining a good business location

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1) customer accessibility
2) environmental business conditions
3) resource availability
4) personal preference of the entrepreneur
5) site availability and costs

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lease

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an agreement between the lessee, who uses the asset and makes periodic payment to the lessor, who owns the asset being leased

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advantages of leasing

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- reduced capital outflow
- better maintenance of the equipment
- easy replacement at the end of lease term
- tax benefits

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disadvantages of leasing

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- must return asset at end of the lease period ( or pay additional amount, or set up lease-to-own contract)
- higher cost than borrow to buy (to cover the profit to the lessor)
- legal obligation, generally not cancel able, and you may have to pay even if you are not using it

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Operating leases

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- permits you to use the equipment in your business
- lessee pays for maintenance, insurance, repairs

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Leaseback (sometimes called scale and leaseback)

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used when you already own the equipment or building and wish to generate cash to be used in other parts of the business by leasing the asset back to the third party