UNIT ONE

PROACTIVE BUSINESS EXPANSION

1.1 Long-term planning for Business Growth

1.1.1 Introduction to Business
In our complex society of today, it is a common phenomenon for everyone to search, identify
and deal with the opportunities to keep his/her life surviving. By putting forth his/her effort,
time, skill, judgment, and all other types of resources available, everyone ventures on every
field of endeavor to gratify his/her never-ending chains of needs and wants.
Business contributes certain values to the society. Although the main motivation for
establishing and operating a business is to make a profit for investors, also business is to make
a profit for social functions. It provides individuals and society as a whole with a means of
exchange that is more than money-which includes material goods, services, and leisure, and
employment.
1.1.2 Meaning of Business
Business can be defined as all human activities that satisfy human needs and wants geared
towards making a profit. Business provides us with necessities such as food, clothing, housing,
medical care and transportation, as well as many other things that make our lives easier and
better. Business also provides people with the opportunity to become wealthy.
One of the greatest social contributions of business is to provide employment. An obvious
benefit of employment is that it gives people the money needed to buy goods and services in a
business-oriented society. Employment services a greater function. In today’s society, jobs and
careers can be among the most important paths to personal satisfaction. Useful, productive, and
rewarding employment can give meaning to people’s lives by providing them with a sense of
purpose a feeling of accomplishment, and an out let for creativity. In relatively free and open
business environment the opportunity to advance skills and abilities is a great incentive to
personal growth. As a society is the sum of its citizens, personal growth contributes to social
and economic growth.
In short, business is part of an economic system that helps to create a higher standard of living
(the amount of goods and services people can buy with the money they have) and high quality

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of life (the general well being of a society in terms of clean environment, education, health
care, safety and etc that leads to satisfaction and joy) for everyone in the country.
1.1.3 Characteristics of Business
There are certain common features that business activities share to a greater or lesser degree
and that might qualify an activity to be business activity.
 Dealing in goods and services: Any activity to be a business activity must one way or
another involves itself in production or exchange of goods and services. The goods
dealt with may be either capital/producers’ goods or consumers’ goods. Consumers’
goods like food, grains, clothes, and etc are meant for final consumption either
immediately or after undergoing some processes. Producers’ goods like machines,
tools, and etc. are meant for being used for the purpose of further production.
 Production and Exchange for a price: Manufacturing, buying and selling of goods,
and rendering of services are for a price. Thus, production or exchange of goods and
services for personal consumption or for presenting as gifts will not be considered as
business.
 Recurrence, Regularity or Continuity in dealing: The term business should be
reserved for the production or/and exchange of goods and services undertaken
continually or at least regularly.
 Profit Motive: Business is income oriented or gain motivated. The profit motive is an
important distinguishing feature of business. To maintain the survival, continuity,
growth, and expansion of business, there must be a gain or reward, which is profit.
However, it should have to be noted that profit cannot be the sole and primary objective
of business because business activity will flourish and the objective will be realized
when it is able to serve the community to its satisfaction.
 Element of Risk: When a person is carrying out a business activity, as there is a chance
to get profit, there is also the possibility of loss or uncertainty of return on investment
that is known to risk. All business involves some elements of risk and uncertainty,
which might happen due to several factors.

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 Some specific causes of risk may include the following factors:
 Changes in technology leading to slow or sudden obsolescence of plant and machinery,
techniques of production.
 Changes in consumer tastes and fashion.
 Increasing in competition in the market.
 Change in government policies.
1.2 Definitions of Planning
Planning is deciding now what we are going to do later including when and how we are
going to do it. It involves selection of mission, formulation of objectives and deciding on the
courses of action in advance for achieving the objectives. In the absence of planning,
purposive effort and integration of resources is not possible. As a result, there would be much
waste of time and resources. With out planning, we cannot get anything done, because we do
not know what need to be done, when and how to do it.

Classification of planning
1. Based on time period
a. short-term plan:
It is a plan that focuses on a limited or narrow functions and issues that determine the
attainment of organizational goals and that need special attention in the long term plan. It must
have to be compatible with the organization’s long-term plan. Short term plans typically cover
a period of one year or less. Examples of short-term plan include annual or quarterly plan and
lower level management is responsible for their development.
b. long-term plan:
It is a plan that deals with the entire organization or company wide issues such as expansion or
contraction of production, market or product line, etc. It covers a time period of five years or
more and it is the responsibility of top management to develop such plans.
c. intermediate plans:
These are plans whose time period ranges between short-term and long-term plans.

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Classification of planning based on scope or area of coverage:
a. operational planning:
It is a short-term plan, usually made in a specific and more detailed manner. It provides content
and form to long-term plans. Operational plan is usually prepared by lower level managers. It
is concerned with the day-to-day operations and its focus is on short run operating periods,
usually a year or less. Programs, projects, budgets, procedures, rules, etc were examples of
operational plans.
b. Tactical (intermediate) planning:
Such plans are less detailed that the short-term plans. They are concerned with implementing
strategic plans by coordinating the work of different departments in the organization. They try
to integrate various organizational units and ensure commitment to strategic plans.
c. Strategic planning (long-term planning, usually five years or more):
This type of planning involves the determination of how the organizational objectives will be
achieved. Essentially, a strategy is a plan of action that will define the way in which goals can
be accomplished. Strategy determines the organization’s overall corporate mission and
direction. It links the human and other resources of an organization, on the one hand and copes
up with the challenges and risks caused by the outside world, on the other.
Strategic planning, generally speaking, covers A time period of five years or more in to the
future. However, the length of the strategic planning period varies directly with the confidence
managers have in anticipating the environment. Where there is stable environment, the long-
term period may be in the range of five to ten years or more.
Strategic planning: is the managerial process of developing and maintaining a viable fit
between the organization’s objectives and resources and its ever changing market environment
situations. Strategic planning is recognized as one of the most effective management tools for
reducing risk. An organization’s strategic plan should:
 Define the organization’s mission
 Set the organization’s objectives
 Evaluate the firm’s strategic business units and
 Select appropriate strategies

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 1.2.1. Proactive versus Reactive planning
Business planning has become a very important part of the top management function due to the
influence of external environmental factors and systems approach to the business management.
Business planning is strategic planning because it is concerned mainly with the designing of
business. However, the business planning is concerned with:
1. The direction in which the company should move,
2. The implementation of the plan for the subsequent period, and
3. The alternatives which are to be sacrificed, if the plan is accepted and implemented.
Business planning is “the process of selecting an organization’s goals, determining the
policies and strategic programs necessary to achieve specific objectives en-route to the goals
and establishing the methods necessary to assure that the policies and strategic program are
achieved.”
Reactive planning-involves reacting to events when they occur with little to no anticipation
of events.
Proactive planning-involves anticipating and planning ahead for events such as
problems, markets, trends, and consumer demands. Proactive Planning is an innovative
management style developed by Inter-Dynamics applying its “big picture” approach to a
wide range of transportation and production applications in a way, which emphasizes
smooth flows.
Decisions are based on forecasts of future states of the environment as opposed to the reactions
to various crises as they occur. Proactive planning in an unstable, technology driven business
environment is critical for continuing success in almost every endeavor. Rather than reacting to
the situation as it changes, proactive planning requires that you analyze the environmental
forces and make resource allocation decisions. It reverses the management trend that sees
managers continuously reacting to demands, and chasing resources.
In particular, proactive planning
 enables management to direct their attention to the global perspective of how their
actions harmonize with demand and supply provision,
 supporting staff productivity,

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  to reduce resource requirements,
 utilizes regularized work practices that promote workplace harmony and provide
individuals with opportunities to increase their own productivity,
 utilizes strategic units of resources and workforce, which enable a focus upon
strategic objectives rather than on details,
 reduces waste and stress by specifying operating tactics that avoid the need to
continuously chase demand,
 Enables environmental, social and political considerations to be examined positively
with respect to corporate objectives.

Proactive and Reactive Management

First of all, we must state that all management must be both proactive and reactive to
survive. Obviously when significant events happen it is necessary to react to them. But the
reaction most of the time should be planned and well thought out. The best management is
primarily proactive rather than reactive. Good management is proactive first and reactive
second.
How to be Proactive
So the question is how can one organization foresee a future event and be ready for it when
other organizations fail to do this? What do they do?
 They plan for short and long term.
 They work closely with technical and marketing staff to determine marketing
opportunities that may be opening up.
 They encourage innovation.
 They protest markets.
 They take polls.
 They take calculated risks.

Characteristics of planning
i. Foundation: planning provides the basis from which all future management
functions arise. Without these activities determined during planning, there would be nothing to

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organize, to motivate, and no need for control. Planning always precedes all other management
functions.
ii. Continuous: planning is a never ending activity of managers.
iii. Pervasiveness (universality): planning is all managers’ function. Every
manager has a planning function to perform within his/her particular areas of activities.
iv. Flexibility: good planning helps all organizations adapt to their individual
circumstances. To be useful, a plan must be both stable and reasonably flexible. A plan must
reflect and meet current needs. A flexible plan is one that can be adjusted to the requirements
of changing circumstances of the environment.
v. Action orientation: plans must be formulated in a precise way and expressed in
realistic terms.
vi. Participation: planning is not the exclusive special right for top management.
Generally, A good plan has features such as the following:
 it should have a clear objectives
 it should be simple, flexible, and
 It should provide optimum use of resources and; proper analysis and classification of
actions.

Strategic planning process involves the steps listed here under:

i. Vision determination: strategic planning process begins with the determination of vision of
the organization. Vision is what you want to see in the future. It is A vehicle of hope. An ideal
vision provides an ultimate destination, not just for one’s own organization but also primarily
for defining the kind of world we want for tomorrow.
ii. Defining mission: all units in the organization must understand the basic purpose for which
the firm is established. Since strategic planning focuses on an organization’s long-term
relationship to its external environment, it is better to formulate the mission statement in terms
of benefits to be provided to the society in the future.
iii. Evaluate present strengths and weaknesses: no firm is equally strong in all activities. So,
while formulating the grand strategy, the organization should try to capitalize on its strengths
and minimize its weaknesses. It must identify and develop A particular niche or role that is
beneficial so that it is able to sell its products better than competitors and, thereby, acquires A

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fair share of the market. It must be able to match outside opportunities with inside strengths. In
order to prepare A balance sheet of its competitive advantages and disadvantages, an
organization has to make resources analysis which is A four step process:
 Develop A profile of the organization’s principal resource
and skills in financial, physical, organizational, human
and technological areas;
 Determine key success requirements of market;
 Compare the resources profile to key success
requirements to determine the firm’s strengths and
weaknesses; and
 Compare organizational strengths and weaknesses with
that of competitors.
Benefits of Business Planning
The benefits of business planning include.
 Business planning helps the company to formulate objectives and goals clearly.
 Business planning helps to avoid piece-meal approach and to have integrated approach.
 Business planning helps to view the organization in total rather than department-wise.
 Business plan aims at the long-range plan rather than short-range plan.
 Business plan integrates the company plan with the national plans and priorities.
 Business plan takes into consideration the environmental factors.
 Business plan helps the company to anticipate the political changes and developments
in the national and international scenarios and their possible impact on the business.
 Effective business plan helps the company to achieve its objectives and goals.
 Effective business plan certainly contributes for the achievement of high rate of profits
and increases in earning per share.
 Business plan helps to determine potential growth and profit.

1.3 Strategies for Business Growth

1.3.1 Meaning of Strategy

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According to Alfred D. Chandler, “Strategy is the determination of the basic long-term goals
and objectives of an enterprise and the adoption of the courses of action and the allocation
of resources necessary for carrying out these goals.”
Note that Chandler refers to three aspects: determination of basic long-term goals and
objectives; adoption of courses of action to achieve these objectives; and allocation of
resources necessary for adopting the courses of action.

Strategy is the pattern of objectives, purposes, goals, and the major policies and plans for
achieving these goals stated in such a way so as to define what business the company is in or is
to be and the kind of company it is or is to be (Kenneth Andrews).
Strategy is a unified, comprehensive and integrated plan designed to assure that the basic
objectives of the enterprise are achieved (William F.Glueck). The three objectives, which
Glueck uses to define a plan, make the definition quite adequate. Unified means that the plan
joins all the parts of an enterprise together; comprehensive means it covers all the major
aspects of the enterprise, and integrated means that the parts of the plan are compatible with
each other.
We note that a strategy is:
 A plan or course of action or a set of decision rules making a pattern or creating a
common thread;
 The pattern or common thread related to the organization’s activities which are
derived from the policies, objectives, and goals;
 Concerned with pursuing those activities which move an organization from its
current position to a desired future state; and
 Concerned with the resources necessary for implementing a plan or following a
course of action.
1.3.2 Meaning of Strategic Management
Strategic management has been defined and interpreted differently by various authors.
 Strategic management is a stream of decisions and actions which leads to the
development of an effective strategy or strategies to help achieve corporate objectives.
According to this definition the end result of strategic management is a strategy or a
set of strategies for the organization (Glueck).

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  Strategic management is the formulation and implementation of plans and the
carrying out of activities relating to the matters which are of vital, pervasive, or
continuing importance to the total organization (Sharplin)
 Strategic management is a systematic approach to a major and increasingly
important responsibility of general management to position and relate the firm to its
environment in a way which will assure its continued success and make it secure
from surprises (Ansoff).

Phases in Strategic Management

The definitions quoted above give us the idea that, as a process, strategic management consists
of different phases, which are sequential in nature. Most authors agree that there are four
essential phases in the strategic management process, though they may differ with regard to the
sequence, emphasis or nomenclature. These four phases could be encapsulated as follows:
1. Defining business mission, purpose, and objectives;
2. Formulation of strategies;
3. Implementation of strategies; and
4. Evaluation of strategies.

Exhibit 1:1 Phases in strategic management

Defining business Formulation Implementation Evaluation

mission, purpose and of Strategies of of
objectives Strategies Strategies

Feedback

Elements in Strategic Management Process

Each phase of the strategic management process consists of a number of elements, which are
discrete and identifiable activities performed in logical and sequential steps

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 Models of Strategic Management Process

The process of strategic management is depicted through a model, which consists of different
phases; and these phases are considered as sequentially linked to each other and each
successive phase provides a feedback to the previous phases. Most of the authors agree on
dividing the strategic management process into four phases.
Exhibit 1:2 A comprehensive model of the strategic management process.

Establishing strategic intent

Business definition, vision, mission,
purpose, and objectives

Formulation of Strategy
Environmental appraisal, Organizational
appraisal, SWOT analysis, corporate
level analysis, Business level analysis,
Strategic alternatives and choice,
Feedback Strategic plan

Implementation of strategy
Project implementation
Procedural implementation
Structural implementation
Functional implementation
Behavioral implementation
Resource allocation

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 Evaluation of strategy

Brief descriptions of the different elements of the process are presented as follows:
1. The hierarchy of strategic intent lays the foundation for the strategic
management. The element of vision in the hierarchy serves the purpose of stating what
an organization wishes to achieve in long run. The mission relates an organization to
society. The business definition explains the business of an organization interim of
customer need and alternative technologies. The objective of an organization states
what is to be achieved in a given time period.
2. Environmental and organizational appraisal helps to find out the opportunities and
threats in the environment and the strengths and weaknesses of the organization in order
to create a match between them. In such a manner opportunities could be availed of and the
impact of threats neutralized in order to capitalize on the organizational strengths and
minimize the weakness.
3. Strategic alternatives and choice are required for evolving alternative strategies,
out of the many possible options, and choosing the most appropriate strategy or
strategies in the light of environmental opportunities and threats and corporate
strengths and weaknesses. The procedures (or processes) used for choosing strategies
involve strategic analysis and choice. The end result of this set of elements is a strategic
plan which can be implemented
4. For implementing the strategy, the strategic plan is put into action.
5. The last phase of strategic evaluation appraises the implementation of strategies
and measures the organizational performance. The feedback from strategic evaluation is
meant to exercise strategic control over the strategic management process. Strategies may be
reformulated, if necessary.

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STRATEGIES FOR GROWTH (Growth strategies)

Plans for existing business allow firms to project total sales and profit. Projected or
expected sales and profit are often less than what the business person wants them to be.
The difference between the expected sales and profit from the actual sales and profit is
known as the strategic gap as shown below

Expected sales and profit

Less strategic gap =the need for marketing strategy

Actual sales and profit

Generally there are three growth strategies:

1. Intensive growth strategy
2. Integrative growth strategy
3. Diversification growth strategy

1) Intensive growth strategy

In this case the business person identifies opportunities to achieve further growth with in the
firm's current business .IGOR ANSOFF has proposed a useful framework for detecting new
intensive growth opportunities called product/market expansion grid in the following diagram:

Current products New products

Current 1. MARKET 2.PRODUCT DEVELOPMENT

Market PENETRATION STRATEGY
STRATEGY

New 3.MARKET 4.DIVERSIFICATION STRATEGY

Market DEVELOPMENT(market
expansion) STRATEGY

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 a)Market penetration strategy
I n this case the firm tries to get more market share with its current products in their current
markets.
There are three methods to increase market share in their current market.
 encourage current customers to buy more
 convince non users to start using the product
 attract the competitors customers

b) Market Development strategy

In this case the firm tries to find new markets for its current products. The firm should sell its
current product in geographic location in domestic market or abroad.

c) Product Development strategy

I n this case the firm tries to develop new products to its current markets.

2. Integrative Growth strategy

There are three types of integrative growth strategies:
a. Backward integration: In this case the firm acquires r buys its supplier to gain more
control and profit.
EXAMPLE: If Bambis supermarket buys out Ceralia Factory
b. Forward integration: I n this case the enterprise acquires or buys some
wholesalers or retailers if they are profitable
EXAMPLE: If BGI Ethiopia buys out large restaurants to sell exclusively Bati, Castle,
St.Gerge, it follows a forward integration growth strategy.
c. Horizontal integration: In this case the firm acquires one or more of its competitors.
EXAMPLE: If Bambis spermarket acquires Royal/Hadiya/supermarkets

3. Diversification Growth Strategies

This strategy is pursued when a god opportunity can be found outside the present businesses.

1.4 Concept of Time Management

One of the most frequently mentioned problems of businessmen is encapsulated in the phrase,
“If I only had more time…” This concern is a common problem among all busy people. It
seems that no one has enough time. Time is the most precious yet most limited resource of the
businessmen. It is a unique quantity-the businessmen cannot store it, rent it, hire it, or buy it.
With its supply being inelastic, it is totally perishable and irreplaceable. Everything requires it
and it passes at the same rate for everyone. While important throughout the life of the venture,

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time is particularly critical at startup and during growth and expansion of the venture. No
matter what the businessman does, today’s ration of time is 24 hours, and yesterday’s time is
already history.
1.4.1 What is Time Management?
Managing time means investing time to get what you decide you want out of life, including
what you want out of the venture created. This definition assumes that the businessmen know
what they want out of life-goal-oriented action. It implies that the businessmen have focused
values about the venture, work, family, social activities, possessions, and themselves.

Why does the problem of time management exist for the businessman? It is basically due to a
lack of information and a lack of motivation. The businessman must want to manage his or her
time effectively and then spend some time to acquire the information necessary to accomplish
this. Effective time management starts with an understanding of some benefits that will result.

Benefits of Time Management

While there are numerous benefits to the entrepreneur for effectively managing his/her time,
some of the typical pay-offs are discussed below.
1. Increased productivity: Reflects the fact that there is always enough time to
accomplish the most important things. Through a conscious effort and increased focus,
the businessman can determine what is most important to the success and growth of the
venture and focus on those things rather than on less important or more enjoyable
things; the businessman must learn to focus on the majors, not the minors.
2. Increased job satisfaction: Getting more important things done and being more
successful at helping the venture grow will give the businessmen more job satisfaction.
3. Improved interpersonal relations: There will be an improvement in the esprit de
corps of the venture as there are less time pressure, better results, and more job
satisfaction for the businessmen. While total time spent with other individuals in the
company may in fact decrease, the actual time will be of better quality as the
businessmen is free to be involved with interrelations. Also, more time becomes
available for the businessmen to spend with family and friends.
4. Reduced time anxiety and tension: Worry, guilt, and other emotions tend to reduce
mental effectiveness and efficiency so that decision making is less effective. Effective

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 time management reduces concerns and anxieties, allowing better decisions to be made
in a shorter time.
5. Better health: All of the above benefits culminate in this. Large amounts of energy and
persistence are needed for the growth as well as for the start of a venture. High energy
levels and long working hours require good health. Poor control of time often leads to
mental and physical fatigue, poor eating habits, and no exercise. If there is one thing the
businessman needs to help the venture grow, it is good health. A good health is a by-
product of good time management.
Basic principles of time management
a. Principle of Desire
States that one should recognize that he/she is a time waster. This is starting point in
order to manage time.
b. principle of effectiveness
c. principle o prioritized planning
d. principle of analysis
States that one has to check where, how, and why he is currently spending his time.
e. principle of re analysis

1.4.2 Defining Task and Priority Setting

In organizational time management we can delineate the overall tasks in the form of the
following
1. Urgent and very important matters: these are organizational matters or activities that
require immediate concern or decision-making. They are regarded as urgent because
they basically influence the overall performance of an organization.
2. Less urgent and very important matters: these are the activities that are crucial to the
organization’s performance but are dealt with over a wider range of time without any
urgency.
3. Urgent and less important matters: these are activities that are not crucial to the
organization but they require immediate concern. They are seen next to those activities,
which are both urgent and more important.

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 4. Less urgent and less important matters: these are organization matters or activities
that require the least attention both in urgency and importance of all the organizational
activities. They are dealt with after all the above activities are executed.

UNIT TWO
THE COMPETITIVE ENVIRONMENT
.
2.1 Introduction
William F. Glueck and Lawrence R. Jauch defined the term “Environment” as the factors that
pose threats to the firm, and offers opportunities for exploitation. Although there are many
factors, the most important of these are socio-economic, technology, suppliers, competitors,
government and physical and natural. In a nutshell, all the definitions given by different
authors show that the business environment is the very crucial factor for the successfulness of
any business. Business environment can broadly be divided into two categories. Namely,
general (external) environment and internal environment.
I. Internal Environment
Internal Environment is also called controllable factors. These factors are internally directed by
an organization and its marketers. Some of these factors are directed by top management; these
are not controllable by marketers. Top management must develop plans to satisfy overall
organizational goals. In situations involving small or medium sized institutions, both broad
policy and marketing decisions are often made by one person, usually the owner.
A) Factors Directed by Top management
Although top management is responsible for numerous decisions, five are of extreme
importance to marketers: line of business, overall objectives, role of marketing, role of other
business functions, and corporate culture. They have an impact on all aspect of
marketing.Figure 2-1 shows the types of decisions in these areas.

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 5. Corporate culture
Customer service orientation
Time orientation
Flexibility
Risk (innovativeness)
Centralized or decentralized
Interpersonal contract 4. Role of other business
functions
Promotes form with in
Production
Finance
Line of business Accounting
General category Engineering
Functions Purchasing
Geographic coverage Research and development
Type of ownership
Specific business

Top management
controls

3. Role of marketing
Importance in company
2. Overall objectives Functions
Sales Integration
Profits
Long term existence
Consumer acceptance

Figure 2-1 Factors Controlled by Top Management

1. Line of Business: The line of business refers to general goods or services category,
functions, geographic coverage, type of ownership and specific business of a firm. The general

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 goods or services category is a broad definition of the industry in which a firm seeks to be
involved. It may be energy, transportation, computing or a number of others.
2. Overall objectives: Overall objectives are the broad, measurable goals set by top
management. A firm’s success or failure may be determined by comparing objectives with actual
performance. Usually, a combination of sales, profit, and other goals is stated by management for
short-run (one year or less) and long-run (several years) periods.

3. Role of marketing
Top management determines the role of marketing by noting its importance, outlining its
activities, and integrating it into a firm’s overall operation. Marketing’s importance is evident
when marketing people have decision- making authority and proper resources are given. The
larger marketing’s role, the greater the likelihood that a firm has an integrated marketing
organization. The smaller its role, the greater the possibility that a firm undertakes marketing
tasks on a project, crisis, or fragmented basis.
4. Role of other business functions
The role of other functions and their interrelationships with marketing need to be defined
clearly to avoid overlaps, jealousy, and conflict. Production, finance, accounting, engineering,
purchasing, and research and development each have different perspectives, orientations, and
goals.
5. Corporate culture: Top management strongly influences a firm’s corporate culture: the
shared values, norms, and practices communicated to and followed by those working for the
firm. It may be described in items of:
a. A customer- service orientation- is the commitment to customer service clear to employees?
b. A time orientation- is a firm short-or long- run oriented?
c. The flexibility of the job environment- can employees deviate from rules? How formal are
relations with subordinates?
d. The level of risk/ innovation pursued- is risk taking fostered?
A) Factors Directed by Marketing
The major factors controlled by marketing personnel are the selection of a target market,
marketing objectives, the marketing organization, the marketing mix, and assessment of the
marketing plan- see figure 2.2

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 1. Selection of target market 5. Performance assessment
Size Marketing Day- to –day
Characteristics Directs Periodic
Desires

2. Marketing objectives 3.Marketing

Image 4. Marketing mix
organization
Sales Product
Functions
Profit Distribution
Types
Differential advantages Promotion
Price

Figure 2.2 Factors Controlled by Marketing

1. Selection of target market

• One of the most crucial marketing- related decisions involves selecting a target market,
which is the particular group (s) of customers a firm proposes to serve, or whose needs
it proposes to satisfy, with a particular marketing program.
• Marketing objectives
Marketing objectives are more customer oriented than those set by top management.
Marketers are quite interested in the image consumers hold of a firm and its products. Sales
goals reflect a concern for brand loyalty (repeat purchase), growth via new- product
introductions, and appeal to unsatisfied market segments. Profit goals can be related to long-
term customer loyalty. Most importantly, marketers seek to create differential advantages, the
unique features in a firm’s marketing program that cause consumers to patronize that firm and
its competitors.
2. Marketing organization

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A marketing organization is the structural management that directs marketing functions. It
outlines authority, responsibility, and the tasks to be done so that functions are assigned and
coordinated.

3. Marketing mix
A marketing mix is the specific combination of marketing elements used to achieve objectives
and satisfy the target market. It encompasses decisions regarding four major variables:
 Product decisions involve determining what goods, services, organizations people,
places and or ideas to market; the number of items to sell and their quality; the
innovativeness pursued; packaging; product feature, warranties; when to drop
existing offering; and so on.
 Distribution decisions include determining whether to sell via intermediaries or
directly to consumers, how many outlets to sell through, how to interact with other
channel members, what terms to negotiate on, functions to assign to others,
supplier choice, and so on.
 Promotion decisions include selecting a combination of tools (advertisings public
relations, personal selling, and sales promotion,) whether to share promotions with
others, the image to pursue, the level of personal service, media choice, message
content, promotion timing, and so on.
 Price decisions include choosing overall price levels, the range of prices, the
relation between price and quality, the emphasis to place on price, how to react to
competitors, when to offer discounts, how prices are computed, what billing terms
to use, and so on.
I. External Environment
External environments are also called uncontrollable factors. These factors affect an
organization’s performance that cannot be fully directed by that organization and its marketers.
A marketing plan, no matter how well conceived, may fail if uncontrollable factors have too
adverse impact. Thus, the external environment must be regularly observed and its effects

21
considered in any marketing plan. Uncontrollable factors that especially bear studying are
consumers, competition, suppliers and distributors, government, the economy, technology, and
independent media.
2.2 Assessing the Nature of Competition
2.2.1 Competition
Competition is simply a situation in which organizations compete with each other for
something that not everyone can have. In case of business, the things over which companies
are competing are profits and market shares. This competitive environment often affects a
company’s marketing efforts and its success in reaching a target market. Thus, a firm should
assess its industry structure and examine competitors in terms of marketing strategies, domestic
or foreign firms, size, generic competition, and channel competition.
Competitors: competitors are an organization’s opponents, the companies against which the
business organization competes for customers and needed resources (e.g. employees, raw
materials, even other business organizations) in the external environment.
 An organization’s intra-type competitors are companies that produce the same or similar
products or services as the organization.
 Inter-type competitors are distinctly different and competing organizations for the same
resources
2.2.2 The Five-Force Model of Competition
Even though competitive pressures in various industries are never precisely the same, the
competitive process works similarly enough to use a common analytical framework in gauging
the nature and intensity of competitive forces. Professor Michael Porter has convincingly
demonstrated, the state of competition in an industry is a composite of five competitive forces
as depicted in the figure below:

Firms in other
Industries
Offering substitute
products

Rivalry Among
Suppliers of key inputs Buyers
Competing sellers

22

Potential New Entrants

Figure 2-3 The Five–Forces model of Competition
Porter’s Five-Force model is a powerful tool for systematically diagnosing the chief
competitive pressures in a market and assessing how strong and important each is.
1. Rivalry among existing firms
The strongest of the five competitive forces is usually the jockeying for position and buyer
favor that goes on among rival firms. In some industries, rivalry is centered around price
competition-sometimes resulting in prices below the level of unit costs and forcing losses on
most rivals. In other industries, price competition is minimal and rivalry is focused on such
factors as performance, product features, new product innovation, quality and durability,
warranties, after the sale service, and brand image.
Competitive jockeying among rivals heats up when one or more competitors sees an
opportunity to better meet customer needs or is under pressure to improve its performance.

2. The Competitive Force of Potential Entry.

New entrants to a market bring new production capacity, the desire to establish a secure place
in the market, and sometimes-substantial resources. Just how serious the competitive threat of
entry is in a particular market depends on two classes of factors:
i) Barriers to entry
ii) The expected reaction of incumbent firms to new entry.
A barrier to entry exists whenever it is hard for a newcomer to break in to the market and/or
economic factors put a potential entrant at a disadvantage. There are several types of entry
barriers:
1. Economies of scale-scale economies deter entry because they force potential
competitors either to enter on a large-scale basis (a costly and perhaps risky move) or to
accept a cost disadvantage (and lower profitability).

23
 2. Inability to gain access to technology and specialized know- how- many industries
requires technological capability and skills not readily available to newcomer. Key
patents can effectively bar entry as can lack of technically skilled personnel and an
inability to execute complicated manufacturing techniques.
3. The existence of learning and experience curve effects- when lower unit cost are
partly or mostly a result of experience in producing the product and other learning
curve benefits, new entrants face a cost disadvantage competing against firms with
more know- how.
4. Resource requirements-the larger the total investment and other resource
requirements needed to enter the market successfully, the more limited the pool of
potential entrants.

3. Competitive Pressures from Substitute Products

Firms in one industry are, quite often, in close competition with firms in another industry
because their products are good substitutes. Just how strong the competitive pressures are from
substitute products depends on three factors:
i) When attractively priced substitutes are available,
ii) How satisfactory the substitutes are in terms of quality, performance, and
other relevant attributes, and
iii) The ease with which buyers can switch to substitutes.
4. The Power of Suppliers
Whether the suppliers to an industry are a weak or strong competitive force depends on market
conditions in the supplier industry and the significance of the item they supply. Supplier related
competitive pressures tend to be minimal whenever the items supplied are standard
commodities available on the open market from a large number of suppliers with ample
capability. Suppliers are also relegated to a weak bargaining position whenever there are good
substitute inputs and switching is neither costly nor difficult. Suppliers also tend to have less
leverage to bargain over price and other terms of sale when the industry they are supplying is a
major customer

On the other hand, when the item accounts for a sizable fraction of the costs of and industry’s
product, is crucial to the industry’s production process, and/ or significantly affects the quality
of the industry’s product, suppliers have great power control of the available supplies and have

24
pricing leverage on the available supplies. Likewise, a supplier has bargaining leverage when it
is difficult or costly for users to switch to alternate suppliers. Big supplies with good
reputations and growing demand for their output are harder to wring concessions from than
struggling suppliers striving to broaden their customer base or more fully utilize their
production capacity.

5. The Power of Buyers

Just as with suppliers, the competitive strength of buyers can range from strong to weak.
Buyers have substantial bargaining leverage in a number of situations. The most obvious is
when buyers are large and purchase much of the industry’s output. Even if buyers do not
purchase in large quantities or offer a seller important market exposure or prestige, they may
still have some degree of bargaining leverage in the following circumstances:
• If buyers’ costs of switching to competing brands are relatively low.
• If the number of buyers is small.
• If buyers are well informed about sellers’ products, prices, and costs.

2.3 Competitive Strategies and Competitive Advantages

To be successful over the long term, a business must hold some advantage relative to its
competition. In the simplest terms, such a competitive advantage can take one of three forms
that reflect basic customer’s values: customers want goods and services as: better, cheaper, and
faster
We refer to these forms of competitive advantages as differentiation, cost leadership and quick
responses, respectively. Differentiation refers to the extent to which the customer finds the
firm’s goods or services unique in some way that makes them more attractive and therefore
worth a premium price. Alternatively, the firm may be in a position of cost leadership that
allows it to charge similar (or even lower) prices while realizing better- than- average margins.
These two forms of competitive advantage have provided the basis for studying business-level
strategy. Recently, however, another form of competitive advantage has emerged: the ability to
recognize, adapt to and react to changing customer needs faster than competitors do, what is
called quick response.
A firm that holds more than of these advantages is in a particularly strong competitive position.
But a business that does not excel in at least one of these three sources of competitive

25
advantage does not offer customers a superior option along any of the three dimensions of
value, and it will consequently fare poorly in a competitive market.

BASIC COMPETITIVE STRATEGIES

Michael porter suggested three basic competitive positioning strategies that companies can
follow. These include:

1. Overall Cost Leadership

Here the company works hard to achieve the lowest production and distribution costs. Low
costs let it to price lower than its competitors and win a larger market share or earning a higher
profit margin selling at the going market price.
A competitive strategy predicated on low cost leadership is particularly powerful when:

 price competition among rival sellers is specially vigorous

 the industry's product is essentially standardized or a commodity readily available from
a host of sellers(a condition that allows buyers to shop for the bet price)
 there are very few ways to achieve product differentiation that have value to buyers(put
another way, the difference between brands do not matter much to buyers), thereby
making buyers very sensitive to the price differences.
 most buyers utilize the product in the same ways-with common user requirements ,a
standardized product can satisfy the needs of buyers, in which case low selling price,
not features or quality, becomes the dominant factor in causing buyers to choose one
seller's product over another's
 buyers incur low switching costs in changing from one seller to another, thus giving
them the flexibility to switch readily to lower priced sellers having equally good
products
 buyers are large and have significant power to bargain down prices

2. Differentiation Strategies

Here the company concentrates on creating a highly differentiated product line and marketing
program so that it comes across as the class leader in the industry. Differentiation strategies
seek to produce competitive edge by incorporating attributes and features in to a company's
product/service offering that rivals do not have. To be successful with differentiation strategy,
a company has to study buyer's needs and behaviour carefully to learn what buyers consider
important ,they think has value, and what they are willing to pay for.
Successful differentiation allows a firm to:

• command premium price for its price

26
 • increase unit sales(because additional buyers are won over by the differentiation
features)
• gain buyer loyalty to its brand(because some buyers are strongly attached to h
differentiating features)
• erects entry barriers in the form of customer loyalty and uniqueness that new customers
find hard to hurdle.
• mitigates buyers' bargaining power since the products of alternative sellers are less
attractive to them.
• helps a firm fend off threats from substitutes not having comparable features or
attributes. To the extent that differentiation allows a company to charge a higher price
and have bigger profit margins, it is in a stronger position to withstand the efforts of
powerful vendors to get a higher price for the items they supply.
For the most part, differentiation strategies work best in markets where:
 there are many ways to differentiate the product or service and may buyers
perceive these differences as having value
 buyer needs and uses of the items or service are diverse
 few rival firms are following a similar differentiation approaches
The most appealing approaches to differentiation are those that are hard or expensive for rivals
to duplicate.

3. Focus or market niche strategy

Here the company focuses its effort on serving a few market segment well rather than going
after the whole market.
A focused strategy becomes increasingly attractive as more of the following conditions ere
met:
 the segment is being enough to be profitable
 the segment has good growth potential
 the segment is not crucial to the success of major competitors
 the focusing firm has the skills and resources to serve the segment effectively
 the focuser can defend itself against challengers based on the customer goodwill it has
built up and its superior ability to serve buyers in the segment
Focusing works best:
I. when it is costly or difficult for multi-segment competitors to meet the
specialized needs of the target market niche
II. when no other rival is attempting to specialize in the same target segment
III. when a firm does not have the reasons to go after a wider part of the total market
IV. when the industry has many different segments, thereby allowing a focuser to
pick an attractive segment suited to its strengths and capabilities

Table: 1. Distinctive features of the Generic competitive strategies

Type of Cost leadership Differentiation Focus strategy

features

27
strategic a broad cross a broad cross a narrow market
target section section niche where buyer
of the market of the market needs and
preferences are
distinctively
different from the
rest of the market
Basis of lower costs than an ability to offer lower cost in serving
competitive competitors buyers something the niche or an ability
advantage different from to offer niche buyers
competitors something customized
to their requirements
& tastes
product line a good basic product many product customize to fit the
with few frills variations wide specialized needs of
(acceptable quality and selection strong the target segment
limited selection) emphasis on the chosen
differentiation features
product a continuous search for invent ways to create tailor made for the
emphasis cost reduction without value for buyers; strive niche
sacrificing acceptable for product superiority
quality and essential
features

sustaining  economical  communicate  remain totally

the strategy prices/ good the points of dedicated to
values difference in serving the
 all element of credible ways niche better
strategy aim at  stress constant than other
contributing to a improvement competitors;
sustainable cost and use don't blunt the
advantage-the innovation to firm's image
key is to manage stay a head of and efforts by
costs down, year imitative entering other
after year in competitors segments or
every area of the  concentrate on a adding other
business few key product
differentiating category to
features, tout widen market
them to create a appeal
reputation and
brand image
marketing try to make a virtue out • build in communicate the
emphasis of product features that whatever focuser's unique
lead to low cost ability to satisfy the

28
 features buyers buyer's specialized
are willing to requirments.
pay for
• charge a
premium price
to cover the
extra costs of
differentiating
features

UNIT THREE
CUSTOMER GROWTH
3.1 consequences of Illegal Business
3.1.1 Business Ethics
Meaning of Business Ethics: Business ethics means the behavior of a businessman while
conducting a business, by observing morality in his business activities. The behavior of a
businessman has more impact within the business organization than outside. So, he/she should
obey the laws even though he may personally believe them to be unjust or immoral. If the
businessman feels that the provisions of laws are unjust, he/she can take steps to change the
provisions instead of disobeying them.
A businessman should observe morality not only in business activities but also in non-business
activities. Such observation of morality is not required out of fear for punishment. He should
observe ethics inspired by his own interest in his business and society as a whole. The reason is
that there is no distinction between a businessman and his business. According to Drucker,
every individual and organization in society should abide by certain moral codes and that there
is no separate ethics of business.

Definition of Business Ethics

In the words of Robert Gwinner and others, “Business ethics may be defined as those
principles, practices and philosophies that are concerned with moral judgments and good
conduct, as they are applicable to business situations.”

29
Business ethics may be defined as a set of moral rules and principles to protect the interest of
customers, employees, society, business unit and the industry as a whole.

Importance of Business Ethics

The development of a business has an impact on the lifestyle of a businessman. The behavior
of a businessman has close relationship with his lifestyle. Hence, it is necessary to observe
business ethics for the following reasons.

1. Survival of the business unit

Businessmen should consider the interest of the business unit. Unethical practices of
businessmen will lead to the closure of business unit. The closure of a business unit does not
only create problems to business but also to employees and the society in general.
2. Growth of business unit: Whenever a businessman observes ethics strictly, definitely the
particular business unit well gets developed. A business could not be run in such a manner as is
detrimental to the interest of society or business itself.
3. Earning goodwill
The prime objective of any business is to earn profit. At the same time, no business is allowed
to earn profit without following business ethics. If business ethics are properly followed by a
business, automatically that particular business unit earns a good name among the public.
4. Improving the confidence: Business ethics are necessary to improve the confidence of the
customers, employees, and the like.
5. Maintaining Inter-relationship
No business functions separately or independently. Each business has close relationship with
another business even though the nature and size of the other business differs.

Principles of Business Ethics

Some of the principles of business ethics developed by various known authorities are
explained below
 Service motive should be in the first place rather than profit motive, even though the
very purpose of any business is to earn profits.

30
  There is no discrimination against any particular group of people, say the rich, the poor,
the high, he low, the caste, the religion, etc.
 Fullest satisfaction should be available to consumers.
 There is no lack of consideration for clean environment.
 Human feelings are properly considered while rendering service.
 There is no wastage or misuse of available scarce resources.
 Business must be a dynamic and efficient one.
 Business should provide quality products at reasonable price.
 Business must maintain or improve standard of living.
 There must be healthy competition.

Factors Affecting Business Ethics

Business ethics reflects its responsibility, authority, and dignity. So, the business organization
wants to conduct its business without affecting the interest of society and the business itself by
assuming responsibility, exercising authority and maintaining dignity. But there are some
factors affecting the observation or adoption of business ethics. These are:
1. Unhealthy competition 6. Unjust legislation
2. Abnormal profit motive 7. Corruption
3. Political interference 8. Lack of ethical attitude
4. Political parties approach the 9. Lack of education
businessman to get donation. 10. Non cooperation of workers
5. Political uncertainty 10 . Red-Tapism

Costs and Consequences of Corruption.

• Corruption erodes confidence in leadership and weakness the structure of political
organization, the bureaucracy and the development.
• Creates social unrest and undermines the legitimacy of the government as well as the
public sector.
• Cuts the revenue of the government and increases poverty.
• Decreases funds that should be directed to public utilities.

31
 • Diverts money away from infrastructure and cause deterioration of roads, railways,
communication and other public utilities.
Consequences of Illegal Business
• It reduces revenue of the government and increase poverty.
• It creates unstable market situation
• May result in liquidation of legal business by taking their market share
• May offer deceptive products and others.

3.2 Product Life Cycle (PLC)

Products, like people, have been viewed as having a life cycle. The concept of the product life
cycle describes the stages (or courses) a new product goes through in the market place. In other
terms, product life is the course of product’s sales and profits over its lifetime. Product life
cycle (PLC) involves four distinct stages: introduction, growth, maturity, and decline.
Not all products follow this PLC. Some products are introduced and die quickly; others stay in
the mature stage for a long, long time. Some enter the decline stage and are then cycled back
into the growth stage through strong promotion or repositioning.

Sales and
Profits ($)

Sales

Profits

32
 Introduction Growth Maturity Decline Time

Figure 4.1: Sales and profits over the product’s life from inception to demise.
1. Introduction Stage
The introduction stage starts when the new product is first launched. Because it takes time to
roll out the product in several markets and to fill the dealer pipelines, sales growth is apt to be
slow at this stage.
In this stage, as compared to other stages, profits are negative or low because of the low sales
and high distribution and promotion expenses. Much money is needed to attract distributors
and build their inventories.
Promotional expenditures are at their highest ratio to sales because of the need for a high level
of promotional effort to
 inform potential consumers of the new Product,
 induce trial of the product, and
 secure distribution in retail outlets. The firms focus their selling on those buyers who
are the readiest to buy, usually higher-income groups.
In addition, prices tend to be on the high side because
 costs are high due to relatively low output rates,
 technological problems in production may have not yet been fully mastered, and
 high margins are required to support the heavy promotional expenditures that are
necessary to achieve growth. At this stage, the market is not generally ready for
product refinements; the company and its few competitors produce basic versions of
the product.
Marketing Strategies in the Introduction Stage
In launching a new product, marketing management can set a high or a low level for each
marketing variable (price, promotion, distribution, product quality). Considering only price and
promotion, management can pursue one of the four strategies in figure 3-2.

High
Rapid skimming Slow skimming strategy Price
strategy
Rapid penetration Slow penetration strategy
33
strategy
 Low
High low

Promotion

Figure 3-2: Four Introductory Marketing Strategies

a. Rapid–Skimming Strategy: A rapid-skimming strategy

consists of launching the new product at a high price and a high promotion level. The firm
charges a high price in order to recover as much profit per unit as possible. It spends
heavily on promotion to convince the market of the product’s merits even at the high price.
The high promotion acts to accelerate the rate of market penetration.
b. Slow–Skimming Strategy: A slow-skimming strategy consists of launching the new
product at a high price and low promotion. The high price helps recover as much profit
per unit as possible, and the low level of promotion keeps marketing expenses down. This
combination is expected to skim a lot of profit from the market.
c.Rapid–Penetration Strategy: A rapid–penetration strategy consists of launching the
product at a low price and spending heavily on promotion. This strategy promises to bring
about the fastest market penetration and the largest market share.
d. Slow-Penetration Strategy: A slow–penetration strategy
consists of launching the new product at a low price and low level of promotion. The low
price will encourage rapid product acceptance, and low promotion costs bring profits up.
The company believes that market demand is highly sensitive to price but minimally
sensitive to promotion.

2. Growth stage
If the new product satisfies the market, it will enter a growth stage, in which sales will start
climbing quickly. The early adopters will continue to buy, and later buyers will start following
their lead, especially if they hear favorable ward of mouth. Product sales grow at an increasing
rate because of new purchasers of a product and growing proportion of repeat purchasers.

34
 Attracted by the opportunities for profit, new competitors will enter the market, and introduce
new product features, and the market will expand. To differentiate the original product from
competitor’s product an improved version or new features are added to the original design, and
product proliferation occurs. The increase in competitors leads to an increase in the number of
distribution outlets
Prices remain where they are or fall only slightly; depending on how fast demand is increasing.
Companies keep their promotion spending at the same or a slightly higher level to meet
competition and to continue to educate the market. Profits increase during the growth stage as
(1) promotion costs are spread over a large volume and (2) unit manufacturing costs fall faster
than price declines owing to the producer learning effect.

Marketing Strategies in the Growth Stage

During the growth stage, the firm uses several strategies to sustain rapid market growth as long
as possible:
 It improves product quality and adds new product features and improved styling.
 It adds new models and flanker products (i.e., products of different sizes, flavors, and
so forth that protect the main product).
 It enters new market segments.
 It increases its distribution coverage and enters new distribution channels.
 It shifts from product awareness-advertising to product- preference advertising.
 It lowers prices to attract the next layer of price sensitive buyers.

3. Maturity Stage
At some point, a product’s sales growth will slow down, and the product will enter a maturity
stage. This stage normally lasts longer than the previous stages, and it poses strong challenges
to marketing management. Most products are in the maturity stage of the life cycle, and
therefore most of marketing management deals with the mature product. In this stage, sales
increase at a decreasing rate as fewer new buyers enter the market and most previously users of
a product have tried and abandoned it.
The slowdown in the rate of sales growth creates overcapacity in the industry. This
overcapacity leads to intensified competition. Competitors scramble to find and enter niches.

35
They engage in frequent markdowns. They increase their advertising and trade and consumer
deals. Although many products in the maturity stage appear to remain unchanged for long
periods, most successful ones are actually evolving to meet changing consumer needs. Product
managers should do more than simply ride along with or defend their mature products- a good
offense is the best defense.

Marketing Strategies in the Maturity Stage

In the maturity stage, some companies abandon their weaker products. They prefer to
concentrate their resources on their more profitable products and on new products. Yet by
doing so they may be ignoring the high potential that many old products still have. Marketers
should systematically consider strategies of market, product, and marketing-mix modification.
Market Modification: The Company might try to expand the market for its mature brand by
working with factors such as:
 Convert nonusers: the company can try to attract nonusers to the product.
 Enter new market segments: the company can try to enter new market segments-
geographic, demographic, and so on; that use the product but not the brand.
 Win competitors’ customers: the company can attract competitors’ customers to
try or adopt the brand.
 More frequent use: the company can try to get customers to use the product more
frequently.
 More usage per occasion: the company can try to interest users in using more of
the product on each occasion.
 New and more varied uses: the company can try to discover new product uses and
convince people to use the product in more varied ways.
Product Modification: Managers also try to stimulate sales by modifying the product’s
characteristics through quality improvement, feature improvement, or style improvement.
A strategy of quality improvement aims at increasing the product’s functional
performance, i.e., its durability, reliability, speed, and taste.

36
 A strategy of feature improvement aims at adding new features (for example, size,
weight, materials, additives, accessories) that expand the product’s versatility, safety, or
convenience. A feature improvement strategy has several advantages. New features build
company image of innovativeness and win the loyalty of certain market segments who
value these features. Some features can be adopted or dropped quickly or made optional to
the buyer. They provide an opportunity for free publicity and they generate sales force and
distributor enthusiasm.
A strategy of style improvement aims at increasing the product’s aesthetic appeal.
Marketing-Mix Modification: product managers might also try to stimulate sales by
modifying other marketing-mix elements. Price, promotion, place (distribution) and product
(goods and services).
Marketers often debate which tools are most effective in the mature stage.
4. Decline Stage
At this stage, sales of products may plunge (or fall) to zero, or they may drop to a low level
where they continue for many years. As sales and profits decline, some firms withdraw from
the market. Those remaining may reduce the number of products they offer. They may
withdraw from smaller market segments and weaker trade channels, and they may cut their
promotion budget and reduce their prices further.

Sales decline for a number of reasons, including technological advances, shifts in consumer
tastes, and increased domestic and foreign competition. All lead to over capacity, increased
price cutting, and profit erosion.
Carrying a weak product can be very costly to a firm, and not just in profit terms. There are
many hidden costs. A weak product may take up too much of management’s time. It often
requires frequent price and inventory adjustments. It requires advertising and sales force
attention that might be better used to make “healthy” products more profitable. A product’s
failing reputation can cause customer concerns about the company and its other products. The
biggest cost may well lie in the future. Keeping weak products delays the search for
replacements, creates a lopsided product mix, hurts current profits, and weakens the company’s
foothold on the future.

37
Marketing Strategies during the Decline Stage
In handing its aging products, a company faces a number of tasks and decisions.
Identifying the Weak Products: The first task is to establish a system for identifying weak
products. The company examines these weak products and makes a recommendation for each
doubtful product-leave it alone, modify its marketing strategy, or drop it.
Determining Marketing Strategies: some firms will abandon declining markets earlier than
others. Much depends on the presence and height of exit barriers in the industry. The lower the
exit barriers, the easier it is for firms to leave the industry, and the more tempting it is for the
remaining firms to stay and attract the withdrawing firm’s customers. The remaining firms will
enjoy increased sales and profits.

The appropriate decline strategy depends on the industry’s relative attractiveness and the
company’s competitive strength in that industry. For example, a company that is in an
unattractive industry but possesses competitive strength should consider shrinking selectively.
A company that is in an attractive industry and has competitive strength should consider
strengthening its investment.
The Drop Decision: When a company decides to drop a product, it faces further decisions. If
the product has strong distribution and residual goodwill, the company can probably sell it to
another firm. If the company cannot find any buyers, it must decide whether to liquidate the
brand quickly or slowly. It must also decide on how much parts inventory and service to
maintain for past customers.

3.3 Market Growth and Relative Market Share

3.3.1 Growth-Share Matrix
According to the growth-share matrix, developed during the 1970s by the Boston Consulting
Group (BCG), two relatively simple factors predict whether an individual business will be a
cash producer or a cash user.
i . The growth rate of the market within which the business competes and
ii. The market share of the business in that market.
Businesses in fast growing markets usually have a greater need for cash to scale up production,
open new facilities, advertise, develop new products, and so on. On the other hand, businesses

38
in declining markets may have already lived through their peak periods of product demand and
are more likely to have sufficient assets to serve the present dwindling demand. Businesses in
this situation generally produce considerable cash but do not have a ready place to invest it.
Thus, businesses in growing markets may need more cash than they have, while businesses in
mature or declining markets may have more cash than they need. Additionally, businesses with
large market shares are more likely to enjoy economies of scale and greater experience curve
benefits. Lower costs mean higher profits, and higher profits mean greater cash flows. In short,
the BCG’s framework suggests that higher market shares are associated with greater cash
flows.

The matrix classifies the businesses of a firm into four distinct categories on the basis of the
above evaluations, i.e., on the basis of the two parameters, industry growth and market share
relative to other main players:
 Stars
 Question Marks
 Cash Cows
 Dogs
Stars and Question Marks are both company businesses that operate in high growth industries.
What distinguishes a Star from a Question Mark, though both belong to high-growth industries,
is the firm’s market share relative to other main operators in the industry. Whereas a Star is a
market leader, a Question Mark is a follower.

Similarly, Cash Cows and Dogs are both company businesses that operate in low-growth
industries. It is the market share position that distinguishers a Cash Cow from a Dog, though
both operate in low-growth industries. A Cash Cow is a market leader while a Dog is a poor
follower.

Market Growth
High Low
* $
Stars Cash High
Cows
? X 39
Question Dogs
Marks
Market share

Low

Figure 3.3: BCG Growth- share Matrix

Stars: Stars are net users of resources. A Star needs a good deal of investment support as it
operates in a high-growth market. It normally does not bring in immediate profits, but
holds out great potential for the future. The recommended strategy is to nurture them,
maintaining their health and waiting for market growth to slow so that cash flows will
increase. Theoretically, the cash-hungry Stars will be transformed into Cash-rich Cows
that can be milked to nurture still another generation of business.
Question Marks: Question Marks too are net users of resources. But, unlike the Stars, their
future is uncertain. In addition, they are in the high-risk category while Stars are in the
medium-risk category. Developing a strategy for Question Marks means either investing
large sums in hope of gaining a viable market share or not investing and possibly missing
a growth market.
Cash Cows: Cash Cows are net generator of resources. A Cash Cow brings a lot of cash to the
company. It also brings in higher profits. It does not need heavy investment; being in a
low-growth market, expansion possibility and hence investment needs of a Cash Cow, are
minimal. Such businesses are often “milked” to finance other businesses on which the
future of the corporation may depend.
Dogs: Dogs being businesses with weak market shares in low-growth markets are generally a
drag on a company and its resources. They are actually cash traps. A strategy often
suggested for such businesses is to “harvest” them by not investing in them and instead
shifting cash flows to more promising businesses.
The firm locates the position of each of its business in the Growth-Share Matrix: one or two
businesses may be Stars, one or two may be Cash Cows, a few may be Question Marks and a
few may be Dogs. The purpose of the exercise is to decide what to do with each business.
Actually, when the firm completes this exercise, the cards are clearly laid out. The position of

40
the various businesses is located in the matrix. The position of the businesses vis-à-vis the
industry and competition points to what should be done with each one of them. With the
exercise, the firm finds it easy to secure answers to questions such as:
 What to do with the Question Marks?
 Are some of them likely to turn into Stars tomorrow, with the support of the
right investment and promotion?
 What should be done to strengthen and nurture the Stars?
 Is the time ripe to totally mulch any of the Cash Cows?
 Which ones among the Dogs should be sold out immediately?

3.3.2 Relative Market Share

Market share refers to the actual measurement of sales, by percentage, in relation to total
industry sales. In other term, market share is the ratio of sales revenue of the firm to the total
sales revenue of all firms in the industry, including the firm itself.

The followings are the four measures of market share:

1. Overall Market Share: The Company’s overall market share is its sales expressed as a
percentage of total market sales. Two decisions are necessary to use this measure:
i. To use unit sales or dollar sales to express market share.
ii. How to define the total market.
2. Served Market Share: The Company’s served market share is its sales expressed as a
percentage of the total sales to its served market. Its served market is all the buyers who
are able and willing to buy its product.
A company’s served market share is always larger than its overall market share. A
company could capture 100% of its served market and yet have a relatively small share
of the total market.
3. Relative Market Share (To top three competitors): The company’s relative market
share to its top competitor expresses its sales as a percentage of the three largest
competitors’ combined sales.
4. Relative Market Share (To leading competitor): Some companies track their shares
as a percentage of their leading competitor’s sales.

41
 UNIT FOUR
MANAGING THROUGH DELEGATION
5.1 Adapting Teamwork
The distinction between the terms ‘team’ and ‘group’ is made to indicate the differences in
operating characteristics of each. A group is simply a collection of people. A team meets the
following criteria:
• The output of the group is greater than the sum of the outputs of the individuals,
example, a team can engage in creative processes (idea generation) for more effectively
than a collection of individuals;
• A greater range of options can be considered by exploiting differences in individual
thought processes;
• Decision – making by the team is likely to be better;
• More openness to taking risks, as the risk is shared between the team rather than carried
by one individual;
• Higher overall level of motivation, as there is an inherent responsibility to others in the
team and a desire not to let them down;
• Better support for the individuals within the team, who are more likely to be included in
a greater range of activities than they would normally be exposed to, but without them
having to work alone.

42
 5.1.3 Advantages of Teams
1. More complete information and knowledge. By aggregating the resources of several
individuals we bring more input into the decision process.
2. Increased diversity of views. In addition to more input, groups can bring heterogeneity
to the decision process. This opens up the opportunity for more approaches and
alternatives to be considered.
3. Increased acceptance of a solution due to participation or involvement. Many
decisions fail after the final choice has been made because people do not accept the
solution. However, if people who will be affected by a decision and who will be
instrumental in implementing it are able to participate in the decision itself, they will be
more likely to accept it and encourage others to accept it. This translates into more
support for the decision and higher satisfaction among those required to implement it.
4. Increased legitimacy. Our society values democratic methods. The team decision-
making process is consistent with democratic ideals and, therefore, may be perceived as
being more legitimate than decisions made by a single person.
5. better understanding of problems
6. better in catching errors
5.1.5 Disadvantages of Teams
Of course, team decisions are not without drawbacks. Their major disadvantages include:
1. Time consuming and slow process. It takes time to assemble a team.
2. Social Pressures to conform (‘group think’). There are social pressures in groups.
The desire by team members to be accepted and considered as an asset to the team can
result in squashing any overt disagreement, thus encouraging conformity among
viewpoints.
3. Domination by the few. One or a few members can dominate team discussion. If this
dominant coalition is also composed of low-and medium-ability members, the group’s
overall effectiveness will suffer.
4. Ambiguous responsibility. Team members share responsibility, but who is actually
accountable for the final outcome? In an individual decision, it is clear who is
responsible. In a group decision, the responsibility of any single member is watered
down.
5. more costlier

43
 6. tendency of team members to rely on others to do more of the job (free riders)

5.2 Negotiating in a Team Environment

Negotiation is the process in which two or more parties exchange goods, services and ideas
and attempt to agree with parties in the exchange. Negotiation and bargaining are used
interchangeably. Negotiating occurs when two or more parties- either individuals or groups-
discuss specific proposals in order to find a mutually acceptable agreement. Negotiation is a
common way of setting conflicts in business. Individuals use negotiation to reach agreement
on everything. Mangers and workers use it to reach agreements on such issues as how much
responsibility a worker should take and what an employee needs to do to be promoted.
When poorly handled, it can leave a problem still unsolved and perhaps worse than before.
When negotiation is handled skillfully, though, it can improve the position of one or even
both parties.
5.2.1 Negotiation Styles
Negotiations can be approached in three ways.
1. Win-Lose Orientation- this is the approach taken by competitive communicators. The
win-lose orientation is based on the assumption that only one side can reach its goals and
that any victory by that party will be matched by the other’s loss.
Despite the fact that it produces losers as well as winners, a win-lose orientation can
sometimes be the best approach to negotiating. If the other party is determined to take
advantage of you and cannot be convinced that collaboration is possible, then you
probably need to adopt a competitive stance out of self-defense.
2. Lose-Lose Orientation – with lose – lose orientation, a conflict plays out in away that
damage both parties to such a degree that everyone feels like a loser. Nobody starts out
seeking lose – lose outcomes, of course; but sometimes when people feel that a
negotiating partner is blocking them, they wind up seeking revenge. Example, if the boss
denies a request for a special day off, a resentful employee might not work his /her
hardest.
3. Win-Win Orientation– the collaborative approach to negotiation, known as the win –
win orientation, assumes that solutions can be reached that satisfy the needs of all parties.
A win-win approach differs significantly from the preceding negotiating styles. Most

44
 important, it looks beyond the conflicting means of both parties (my way versus your
way) and focuses on satisfying the ends each is seeking.
5.2.2 Conflict and Conflict Management
Interpersonal relations in all organizations are bound to create occasional conflicts.
A conflict is a disagreement between people on substantive or emotional issues. In general,
managers spend a lot of time dealing with conflicts of various forms.
Substantive conflicts– disagreements over goals, the allocation of resources, distribution of
rewards, policies and procedures and job assignments.
Emotional conflicts-feelings of anger, distrust, dislike, fear and resentment and also
personality clash. Both forms of conflict can be destructive and cause problems in the
workplace. However, when managed well they can be helpful in promoting high performance,
creativity and innovation.
Destructive and Constructive Conflict
Whether or not conflict works beneficially for the organization depends upon 2 factors:
1) the intensity of the conflict
2) how well the conflict is managed.
Too much conflict overpowers the organization and its people. It is distracting and interferes
with other more task-relevant activates. Too little conflict prevents organizations and people
from achieving a creative performance edge. It offers little challenge or stimulation for change.
Destructive conflict: - is dysfunctional and works to the disadvantage of the people and the
organization. This occurs when 2 employees are unable to work together because of
interpersonal hostilities (a destructive emotional conflict). Any destructive conflict can reduce
the effectiveness of individuals, groups and organizations. The disadvantages include lost
productivity, lower job satisfaction, unnecessary or overpowering stress and decreased concern
for common goals.
Constructive conflict: - is functional. It results in benefits instead of disadvantages for the
people and organization involved. The potential benefits of constructive conflict include
increased creased creativity and innovation, greater effort, increased cohesion and reduced
tension.
Conflict Sources
Conflicts may arise for a variety of reasons.

45
Hostile negotiation set the stage for conflict. When negotiations focus on win-lose outcomes
or end with poor relationships, conflict is likely in the future.
Role ambiguities can create conflict. Unclear job expectations and other task uncertainties
increase the probability that some people will be working at cross- purposes at least some of
the time.
Resource scarcities make conflict likely. Having to share resources with others or to compete
directly with them for resource allocations.
Task interdependencies create conflicts. When individuals or groups must depend upon what
others do in order to perform well themselves, conflicts often occur.
Competing objectives lead to conflict. When objectives are poorly set or reward systems
are poorly designed, individuals and groups may come into conflict as they work to one
another’s direct disadvantage.
Unresolved prior conflicts typically lead to future conflicts. Unless a conflict is fully
resolved, it may remain latent in the situation as a lingering basis for future conflicts over the
same or related matters.
Interpersonal Conflict Management Styles
People respond to conflict in different ways. A person’s interpersonal style in conflict situation
can be descried in 2 dimensions of behavior:
a) co-cooperativeness is the desire to satisfy another part’s needs and concerns.
b) assertiveness is the desire to satisfy one’s own needs and concerns.

Alternative Interpersonal Conflict Management styles

46
The diagram shows 5 interpersonal styles of conflict management, which result from various
combinations of degree of cooperativeness and degree 0f assertiveness. These styles involve
the following behaviors:
Avoidance: being unco-operative and unassertive; downplaying disagreement, withdrawing
from the situation, and /or styling neutral at all costs.
Accommodation or smoothing: being co-operative but unassertive; letting others’ wishes
rule; smoothing over differences to maintain superficial harmony.
Competition or authoritative command: being unco-operative but assertive; working against
the wishes of the other party, engaging in win-lose competition, or forcing through the exercise
of authority.
Compromise: being moderately co-operative and assertive but not to either extreme;
bargaining for ‘acceptable’ solutions in which each party wins a bit and loses a bit.
Collaboration or problem solving: being co-operative and assertive; trying to fully satisfy
everyone’s concerns by working through differences; finding and solving problems so that
everyone gains.
The various interpersonal styles of conflict management can create quite different outcomes.
Conflict management by avoidance or accommodation often creates lose-lose outcomes. Here,
no one achieves his or her true desires, and the underling reasons for conflict often remain
unaffected.

47
Competition or authoritative command and compromise tend to create win-lose outcomes.
Here, each party strives to gain at the other’s expense. In extreme cases one party achieves its
desires to the complete exclusion of the other party’s desires.
Collaboration or problem solving tries to reconcile underlying differences; it is often the most
effective conflict management style. It is a form of win-win outcome whereby issues are
resolved to the mutual benefit of all conflicting parties.

5.3 Delegating Subordinates

5.3.1 Definition
Some of the definitions are:
- Delegation is a process which enables a person to assign a work to others and delegate
them with adequate authority to do it
- Delegation is the primary formal mechanism by which the network of authority
relationship is established.
- Delegation is conferring authority from the executive or organizational unit to another
in order to accomplish particular assignments.
- Delegation consists of granting authority or the right to decision making in certain
defined areas and charging the subordinate with responsibility for carrying through an
assigned task.
5.3.2 Importance of Delegation
1. Basis of effective functioning: - delegation lays the basis for effective functioning of an
organization. It creates the relationship with others and achieves various objectives of
the organization.
2. Saving of time: - delegation of authority enables the superior to allot more time to important
matters like planning, organizing, staffing, directing, co-ordination, controlling and
decision-making.
3. Reduction of work: - delegation relieves the superior from attending to the routine matters.
Normally, the routine matters are allocated to subordinates. It helps the superior to
carryout more responsible work alone.
4. Opportunity for development: - delegation of authority gives a very good opportunity to
the subordinate to grow. It helps in identifying the best person among the various
subordinates for development.

48
5. Benefit of specialized service: - delegation helps the superior to get the benefit of
specialized knowledge of various persons at lower levels.
6. Delegation of authority enables effective managerial supervision.
7. Efficient running of branches: - if the business has any branch, the branch affairs or
activities are looked after by a separate person. He/she is supposed to be in charge of
this branch. When he/she set adequate authority with responsibility he/she could work
for the smooth and effective functioning of the particular branch.
8. Interest and initiative: - whenever the delegation of authority takes place, the subordinate
may do the work with interest. In certain cases, the subordinate by him/herself takes
initiative do the work properly.
9. Satisfaction to subordinates: - delegation of authority will satisfy the self-actualization
needs of the individuals.
10. Expansion and diversification of business activity:- the subordinates are fully trained in
decision making in various fields of the business by using the delegation of authority.
5.3.3 Limitations of Delegation
I. Hesitation on the part of Superior
1. Perfectionism - many superiors think that he/she is better than others. This is true to
some extent. The reason is that the superior may have had experience in doing and
developed a degree of skill. If such a practice is followed by a superior, he/she is not a
loyal employee of the organization. He/she should open the door to the subordinate to
develop his/her abilities by delegating authority.
2. Autocratic attitude -some superiors prefer retains powers in their hands. These
persons don’t have belief in the delegation of authority and they interfere with the limited
authority of their subordinates.
3. Directions- many superiors lack of the ability to direct the subordinates. Subordinates may
misinterpret the instructions, which the superior gives. Then, the superiors cannot get the
expected efficiency from the subordinate.
4. Confidence- superiors also tend to show lack confidence in subordinates.
5. Control- the superior wants to retain the control over his/her subordinates and keep up the
importance of his/her role. Further, the superior feels that he/she might be dominated if
he/she delegates his/her authority.
6. Avoidance of risk- risk may arise through the delegation of authority to a subordinate.

49
7. Competition-subordinates learn much than the superior by taking advantage of delegation
of authority. This results in the emergence of more talented persons than superior. The
superior does not like this and he/she avoids competition in future.
8. Inability of the subordinate- the subordinate does not have any ability to accept any new
work. The superior, who knows this fact, hesitates to delegate powers.
9. Inability of the superior- if the superior is an inefficient person, the work method and
procedures designed by him/her are likely to be faulty. So, the superior wants to keep all
the authority with himself.
II. Hesitation on the part of Subordinates
1. Love of spoon-feeding- if a subordinate has been given a chance to take a decision, he/she
may not like to decide things him/her self.
2. Easier to ask- subordinates often find it easy to ask their superior for an answer than to
find it out for themselves.
3. Fear of criticism- sometimes, a subordinate may fear that even for a silly mistake in a
decision, his/her superior may criticize him/her.
4. Lack of information (or) resource- a subordinate may hesitate to accept new work due to
lack of information or resource to do the work effectively.
5. Lack of self- Confidence-lack of self-confidence in a subordinate is also one of the
reasons for not accepting any authority.
6. Other work- subordinates may feel that they will not be able to finish any additional work
along with the existing work.
7. In adequate incentives-a subordinate may not come forward to accept any authority if there
is no personal gain in doing so.
8. Fear of failure- some subordinates feel that they may fail and so they do not want to accept
additional responsibilities.
5.3.4 The Process of Delegation
1. Establishment of definite goals- the purpose of delegation is to enable efficient
accomplishment of organizational objectives. But delegation will be meaningless if the
objectives are not properly defined. Subordinates may hesitate to accept the authority, if
they do not know exactly what is expected to them

50
2. Developing personal discipline for supervision-superior should have faith in the ability of
his/her subordinates and tolerate the mistakes committed to them. Then, every subordinate
will be ready to accept the authority for efficient performance.
3. Establishment of definite responsibility- the authority and responsibility of each
subordinate should be in clear terms. This will avoid the duplication of delegation.
4. Motivation- subordinates are ready to accept the responsibility if proper motivation is
available to them. Motivation may be by means of increased wages and the like.
5. Determine what to delegate- this will necessitate the appraisal of the capacity of the people
and needs of the jobs. Only authority appropriate to be delegated will be considered.
6. Training- subordinates should be properly trained in handling delegated work. Technical
and non-technical training should be given to the subordinates. The non- technical training
includes the development of the morale, self-confidence and leadership qualities of the
subordinates.
7. Report- after delegation of any authority, the subordinate is expected to submit a report on
them. Only in this way, the superior will be freed from authority jobs to concentrate on
other important functions.
8. Control- the superior is held responsible to the top management even after the delegation of
authority. So, it is necessary to establish a situate control system to keep a careful watch
over the performance of subordinates. If the superior finds a deviation from the
predetermined procedures, he/she should take corrective action in time

51
 UNIT FIVE
TRANSFORMATIONAL MARKETING
.
5.1 Browsing the Internet business sites
5.1.1Introduction to the Internet

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Internet is the world’s largest computer network, the network of networks scattered all over the
world. The Internet uses a standard of communication, called a Protocol that enables one
computer network to “speak” to another. From a handful of computers and users, today the
Internet has grown to thousands of regional networks that can connect millions of users. This
global network is not owned by any single individual, company, or organization. Now a days
we live in the Information Age, where knowledge is power. The Internet helps in three obvious
ways:
♣ To get information
♣ To provide information
♣ To compile information
 Getting Information
You could get information about people, products, organizations, research data; electronic
versions of the printed media, etc form the Internet. The most recent and very successful
attempt at presenting information over the Internet is the World Wide Web (WWW).
 Providing Information
Most of what you want to provide could be to consider global advertising. The best and most
inexpensive way to let people know who you are, what you are doing/have done, and how. For
an organization, or institution, setting up a home page is a good way to let the world know
what products and services you are in.

 Compiling information
This is obviously a special case of “getting” information. It is possible to get specified
information from the web. If, for instance, you wanted to poll the readership for a magazine or
conduct a survey to detect the pulse of a selected community, Web provides you an
opportunity. Using forms, e-mail, etc, you can conduct surveys and get opinion of people
across the world.
What you can do on the Internet
The following are among the things that you can do on the Internet:
Electronic mail (e-mail)
Much of the traffic on the Internet today is electronic mail. Indeed, it is estimated that well
over 4,000 messages are sent each second of the day on the Internet. Being able to send

53
messages in seconds to users anywhere in the world is probably the single most important
reason so many companies find the Internet so appealing. The Internet is also cheaper and
more cost-efficient than comparable commercial on-line networks.
Research
Imagine that every book in your local library was actually a gateway to another library and that
each of those libraries had another two to fifty times as many volumes as the first one. That’s
what makes the Internet such treasure-throw of information for your business. For starter, the
Internet provides.
 access to the major university libraries in the
United States;
 world health statistics;
 security and exchange commission corporate &
financial reports;
 international weather forecasts (including up-
to-date from satellite pictures); and
 United Nations information
Competitive tracking
One of the most important ingredients of business success is being aware of what your
competitors, are doing. Some of the frequently asked questions in business include: Are my
competitors working on a new product? What areas of research are they contributing expertise
to on the network? What do customers say about their products, both good and bad? All these
information which are on the Internet are awaiting your careful analysis.
Collaboration
The Internet can also help your company work with colleagues throughout the world to
develop new products and services. By using the Internet to exchange and search for
information, many businesses are facilitating collaboration and lowering the costs of research
and development.
Marketing and advertising
With more than 20,000,000 users world wide –many of which are affluent and highly educated
professionals, the Internet is a fertile field for companies advertising everything form silicon
chips to luxury cars. Businesses that explicitly target the Internet’s technocratic culture can

54
gain a competitive edge and boost sale. Advertising on the Internet can be unsafe, however,
especially for those who don’t know or don’t respect the Internet culture.
Customer service
Increasingly, companies are turning to the Internet to set up customer support bulletin boards
offering technical advice, monitoring customer satisfaction, providing new product
information, and making software upgrades available electronically. For many companies, it’s
a cost-effective way to do business. By supporting customers electrically, they save the
expense of corporate newsletters announcing upgrades. Customers meanwhile, save on long-
distance phone calls.
5.1.2 Over view of network
A network is a connection of two or more (usually many) computers using cables, microwave
or satellite so that resource sharing, communication and information exchange among the
connected computers is possible; Network can also be defined as a system of electronic
components, which share a common function. So, network is the tying together of many
communications devices in so many ways that is changing the world we live in. Generally, the
reason way we have to have network is to share expensive devices and programs and for easy
and fast communication.
From a networked environment:
• You can use programs and documents from another computer without passing
floppy disk back and forth;
• You can print documents on a printer attached to another computer;
• You can get access of the internet; and
• You can connect to your work computer from home,

Network Types Depending on the Area Covered

Depending on the area coverage of the network (the distance between the net worked
computers), there are two main types of network.
1. Local Area Network (LAN)
2. Wide Area Network (WAN)
A Local Area Network (LAN): is a network of computers where the connected computers
are not far apart geographically. The computers may be found in same room or building. In this

55
type of network the connection made using network cables. An example of LAN can be the
network of computers in computer center of colleges and universities.
A Wide Area Network (WAN): is a communications network that covers a wide geographical
area such as a state or a country. In WAN, computers are connected using telephone line,
microwave, or satellite. An example of WAN is the Internet.
Network Topology:
The physical configuration or layout scheme of the connected computers is called network
topology. This refers to the way computers are connected to one another using a cable or the
arrangement of the cabling. There are three common type of network topology:
a. Linear or Bus.
b. Ring, and
c. Star.
a. Linear or Bus: When computers are connected linearly, i.e. when computers at the two
ends of the network are not directly connected, it is called linear or bus topology. It is
the simplest type of topology. This type of topology is advantageous because it requires
relatively small amount of cable. But, problems may occur if several nodes transmit
information simultaneously (resulting in a bottle neck). The pictorial presentation for
this of topology is shown below.
Computer 2 Computer 3 Computer 4
Computer 1

b. Ring: Each PC is connected to two other PCs, to the one that precedes it and to the one
that succeeds it. When the overall arrangement is viewed, the cabling makes a closed
ring. This topology consumes relatively large amount of cable because computers are
connected from both sides. The pictorial representation of this topology is given below,

Computer 4

Computer 1
Computer
3
Computer
2

56
 c. Star: In the star configuration, all workstations are connected to a single location called
a hub by cable. Each computer has a direct path to the hub, through which all traffic
passes. The hub is usually the only component attached to resources shared by the
network. This topology is easy to modify and troubleshooting. Because tracing can be
conducted from the hub. However, the star requires a great deal of cable. In addition if
the hub ever fails, the network as a whole would fail. The pictorial representation for
this topology is shown below.

Computer 2 Computer 1

HUB

Computer 4
Computer 3

5.1.3 World Wide Web (WWW)

The Internet component that is currently drawing the attention is the World Wide Web
(WWW). It is a series of servers that are interconnected through hypertext. Hypertext is a
method of presenting information, in which certain text is highlighted and when this
highlighted text is selected, displays more information on the selected topic. These highlighted
items are called hyperlinks and allow the users to navigate from one document to another that
may be located on any one of the different servers.
The World Wide Web is referred as WWW or 3W where the world of information is available
via hypertext transfer protocol (HTTP). HTTP allows us to create a link from one piece of
information to another which includes Sounds, Graphics, and Movies, etc.
Popular Uses of the Web
1. Performing research: the web provides access to a vast amount of
research material, including resources from libraries, museums, and research
institutions.

57
 2. Chatting: some web sites provide chat rooms, which are a way to
socialize with a group of other individuals interactively and in a casual manner.
3. Obtaining news: you can expect to get the latest news on the web,
because most major news sites are updated throughout the day.
4. Downloading software: Many users download freeware, shareware and
commercial software from the web.
5. Taking classes: most colleges now offer courses via the web, enabling
you to earn college credit, diplomas, and degrees form home using your computer.
6. Shopping: if you cannot stand parking hassles, limited store hours, and
checkout lines, the web may provide a shopping alternative.
5.1.4 Search Engines
A Web Search Engine is an interactive tool to help people in locating information available via
the WWW. Web search engines are actually databases that contain references to thousands of
resources. There are many search engines available on the web. A web search engine provides
an interface between the user and the underlying database. This interface allows user to type in
a search string, which may be a word, a phrase, a data or some other criterion and a way to type
the request. The web search engine runs the search string against the database, returns a list of
resources that match the criteria and displays the result desired by the user.
Actually, search engines are web sites that allow the users to search on keywords or a
combination of keywords. If the user wants information on music then the user can type the
keyword music in the edit box. The user can also select any of the headings specified on the
page. Search engines allow the user to access various levels of information.
Some of the most poplar search engines are:
1. Yohoo! (http://www.yaho.com.)
2. Excite (http://www.excite.com.)
3. AltaVista (http://www.altavista.digital.com)
5.1.5 Electronic Mail (E- Mail)
The conventional mailing by post can take several days to travel across the country and weeks
to go around the world. That is why nowadays it is referred to as ‘snail mail’. In recent times,
e-mail or electronic mail is being used to send and receive messages. It saves time and money,
is fast, easy to use and less expensive than the post. You can send e-mail practically to anyone
with an e-mail address, anywhere in the world. So what is e-mail? In its simplest form, e-mail

58
is an electronic message sent from one computer to another. You can send or receive personal
and business related messages with attachments like pictures or other documents.
E-mail messages are a lot like letters. There are two main parts. Header and body. The header
contains your name and address, the name and address of the person it’s being sent to, the
name and address of anyone who is being copied, the date of the message and what the
message is about (subject). Just like with regular mail, you need the correct address. If you use
a wrong address or mistype it, your message will get bounced back to you-the old ‘Return to
Sender, Address Unknown,’ routine. When you receive an e-mail from someone, the header
tells you where it came from, what it is about, how it was sent, and when. The body is the meat
of the message where you write the content of what you want to communicate. The keys to
make people read your messages are simplicity, directness, and brevity.
E-Mail Addresses
E-mail addresses are composed of a user ID, followed by an @ (“at”) symbol, followed by a
domain name. A domain is simply a location on the Internet. Consider the following address:

Deme@ethio.net.et

User ID Domain root domain country

(Location) (Domain type)

Domain Name
The user ID tells, who is at the address- in this case, Deme is the recipient. The domain, which
is located after the @ symbol, tells the location and type of address. Domain name components
are separated by periods (called “dots”). The location portion of the address provides specific
information about where the message should be delivered, and the root domain describes the
type of location. Currently there are six root domain types.
♣ . com= commercial organizations
♣ . edu= educational and research organizations
♣ . gov = government organizations
♣ . mil = military organizations

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 ♣ .net = gateway or host network
♣ .org= nonprofit or miscellaneous organizations
Some domain names will also include the country name, as in example (“et,” for Ethiopia).
E-Mail- Advantages and Disadvantages
It is difficult sometimes to comprehend all the benefits and values of electronic communication
technology. There is now access 24 hours a day from anywhere in the world to endless
amounts of data and information. Global Communication is easier. The technology also has
opened the door for more types of professionals to work at home, because they can still tap into
corporate information. Thus, work can now be done anywhere a computer can be plugged in.
But there is a dark side to the technology. First, it has created an information overload. People
are swamped by junk mail and finding what is relevant and need to be read from the hundreds
of mails that one receives can become a daunting task. Second, the very existence of electronic
communication has perpetuated the myth that it will lead to better communication. But that is
not true, if you are not a good communicator with out electronic technology, you will not
become a good communicator just because you use the technology. Technology improves our
ability to communicate, it extends the reach of our communications, and it can reduce long-
distance communications time lines, but it is the individual using the technology that makes the
communications better or worse. Another disadvantage of the e-mail is that it can become a
distraction and can prevent people from doing any productive work.
5.1.6 File Transfer Protocols (FTPs)
FTP stands for File Transfer Protocol. It is a protocol, or a set of rules, which enables files to
be transferred between computers. File transfer protocol is a powerful tool, which allows files
to be transferred from “Computer A” to “Computer B” or vice versa. A client program enables
the user to interact with a server in order to access information and services on the server
computer. The files that can be transferred are stored on computers called FTP servers. To
access these files, an FTP client program is used. This is an interface that allows the user to
locate the file (s) to be transferred and initiate the transfer process.
Some of the FTP client software programs that you can freely use are given below:
1. Byte Catcher (http.//www. save.it.com)
2. Cute FTP (http.//www.cuteftp.com)
3. File Hound (http.//ww.frii.com)

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 5.1.7 Why do some people worry about the Internet?
Many people worry about the Internet for its long-term negative impacts. These include:
 It separates and isolates people;  It enables piracy and sabotage;
 It distributes unreliable,  It enables fraud;
unchecked information;  It invades privacy;
 It spreads hate;  It carries unrestricted
 It creates job insecurity; pornography; and
 It threatens national security;  It empowers the few and
excludes the many.
1. Internet separates and isolates people: This particular argument is as old as the telephone.
People who inhabit an electronic neighborhood of Internet companions can experience human
interaction with out ever leaving their desks. This may ultimately isolate them, making them
uncomfortable with face-to-face interaction. The Internet is not the only culprit in that
development –the phone, home video, telecommuting, and other homey trends are “cocooning”
us in ways that divide us and make us unable to communicate with one another, the theory
goes. Despite the fact that it can interconnect people with infinitely varied backgrounds and
interests, the Internet can also foster a certain narrow field of contact, because people can
restrict their communications to only those who share their interests.
2. It distributes unreliable, unchecked information: As a news medium, the Internet is faster
than newspapers or most television, and it benefits from the news noses for about 30 million
potential reporters. On the other hand, few of the reporters are trained journalists, and the
accuracy of their work does not bear the scrutiny and checks that good journalism demands.
Like any largely unedited intercourse, the Internet can be terrific medium for unsubstantiated
rumors, gossip, libel, misunderstandings, misinformation, disinformation, and flat-out lies.
3. Internet creates job insecurity: The virtual corporation (VC) is new, emerging business
models in which the large company staffed with permanent workers is replaced by a small
team of executives who manage an eve-changing field of freelancers who are hired and let go
as needed. The Internet is an important part of enabling the VC because it provides a way for
VCs to locate, hire, and communicate with freelancers wherever they may be.
4. Internet enables piracy and sabotage: You’ve probably read about hackers who break into
computer either to steal information or simply to scramble the works. You’ve probably also

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heard about computer viruses, nasty little programs that sneak their way into computers and
destroy data at a predetermined time or in response to some selected event. Obviously, by
making it easier for people to connect to other computers, the Internet creates opportunity for
computer crooks and also provides a nice growth culture for computer viruses.
5. Internet enables fraud
As business use of Internet expands, the logical next step is to allow Internet users to order
products through the Internet and to pay for them by giving their credit-card numbers. Users
are already paying for goods and services this way, and the credit-card traffic is expected to
increase as more commercial resource debut on the Internet.
Credit-card commerce has always experienced a high fraud rate, especially since people began
giving their credit-card numbers over the phone to telemarketers. But given the dangers of
computer break-ins and data harvesting, “it invades privacy”, allowing people to expose their
credit cards to the Internet seems like an invitation to fraud. Just as hackers and unscrupulous
system administrators have the power to read others’ e-mail, they could easily steal credit-card
numbers, use them to make purchases, and then cover up their tracks before the credit-card
owner knows what is happening.
6. Internet carries unrestricted pornography
You learned that the curious can get sexually explicit writing and pictures through the Internet.
Whether that’s a problem or not is up to you. Like nearly all pornography, nobody forces it on
anybody. You have to go looking for it to get it. But some people are offended by the very idea
that it exists, and others have considerable concern that their curious, computer- literate
children my find the stuff. The Internet is unlikely to be censored any time soon, so the only
solution for grownups that worry about the pornography is: Don’t go looking for it and you
won’t find it. For those concerned about their kids, the options are:

a) Keep your kids off the Internet

b) Supervise your kids.
c) Teach your kids well, and then trust them.

7. Internet empowers the few and excludes the many

Here, may be the most far-reaching sociological Internet debate. In the above topics it is
pointed out that the Internet brings together people from many different countries, cultures, and

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backgrounds, and that such cross-cultural interplay maybe good for global understanding and
harmony. Then again, the Internet may also divide people.
Consider the basic similarities among Internet users. They all:
 Can read and write;
 Have access to a computer;
 Have the education to use that computer and the Internet successfully; and
 Have the money to pay for an Internet connection, or have the support of an
organization that has the money.
The privileged group that meets all four criteria can get more information far more quickly
than everybody else. That gives them a tremendous advantage in today’s world. They can
locate a job before it even appears in a newspaper. They can stay abreast of world events that
others may not even hear about. These “haves” will tend to be better-educated and wealthier
than the “have-nots” in the first place, and their access to the information on the Internet may
tend to widen both the educational and economic distinctions.
5.2 Marketing via Electronic Channel
5.2.1 Introduction to E-commerce
E- Business involves the use of electronic plat forms like intranets, extranets and the Internet to
conduct a company’s business. The Internet and other technologies now help companies carry
on their business faster, more accurately, and over a wider range of time and space. Countless
companies have set up Web sites to inform about and promote their products and services.
They have created intranets to help employees communicate with each other and access
information found in the company’s computers. They have set up extranets with their major
suppliers and distributors to assist information exchange, orders, transactions, and payments.
E-commerce is more specific than e-business. E-business includes all electronics based
information exchanges within or between companies and customers. In contrast, e-commerce
involves buying and selling processes supported by electronic means, primarily the Internet.
Benefits of e-commerce: Internet marketing benefits final buyers, business buyers and
sellers in many ways. These include:
1. Provides with easy shopping.
2. Saves operating costs by eliminating human intervention in order processing
3. Higher degree of personalization in serving the customer is possible.

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 4. Provides round the clock advantage to the customer or provides buyers with greater
product access and selection.
5. Allows fast and flexible execution and response to market opportunities.
6. Customer’s online buying habits can be learned.

Challenges of e-commerce
Using electronic channels for marketing activities has the following disadvantages for both buyers and sellers.
1. Inability to browse a virtual store for merchandise
2. Customer cannot look back and revive his/her choice for merchandise.
3. Order checking, cancellation, and monitoring are not possible.
4. Easy entry into and exit form web may not be possible.
5. Widens the gap between haves and have-nots.
6. Customer relations may be in jeopardy
7. Change in the organization culture is required.
5.2.2 E-commerce Domains
There are four (4) major Internet domains.
These are: 1. B 2 C (business to consumer) 3. C 2 C (consumer to consumer)
2. B 2 B (business to business) 4. C 2 B (consumer to business)
Targeted to consumers Targeted to business

B2C B2 B
(Business to Consumer) (Business to Business)
Initiated by business C2C C2B
Initiated by consumers Consumer to Consumer (Consumer to Business)

Figure 6.1 E-marketing Domains

1. B2C (Business to Consumer): B2C (business-to-consumer) e-commerce is the online
selling of goods & services to final consumers. The popular press has paid the most
attention to B2C e-commerce. Now-a-days online consumer buying continues to grow at a
healthy rate. The largest categories of consumer online spending include travel services,
clothing, computer hard ware, and software, books, etc.
2. B2B (Business to Business): B2B (business-to-business) e-commerce is using B2B trading
networks, auction sites, spot exchanges, online product catalogs, barter sites, and other

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 online resources to reach new customers, serve current customers more effectively, and
obtain buying efficiencies and better prices. Most major business-to-business marketers
now offer product information, customer purchasing, and customer support services online.
Much B2B e-commerce takes place in open trading networks-huge e-market spaces in
which B2B buyers and sellers find each other online, share information and complete
transactions efficiently.
3. C2C (Consumer to Consumer)
C2C (Consumer-to-consumer) e-commerce and communication occurs on the Web between
interested parties over a wide range of products and subjects. It is a means by which consumers
can buy or exchange goods or information directly with one another.
4. C2B (Consumer to Business): C2B (consumer-to-business) e-commerce is online
exchanges in which consumers search out sellers, learn about their offers and initiate
purchases, sometimes even driving transaction terms. Thanks to the Internet, today’s
consumers are finding it easier to communicate with companies. Most companies now
invite prospects and customers to spend in suggestions and questions through company
Web sites.
5.3 Customer Database
5.3.1Definition of Customer Database
Effective direct marketing begins with a good customer database. A customer database is an
organized collection of comprehensive data about individual customers or prospects, including
geographic, demographic, psychographic, and behavioral data. The database can be used to
locate good potential customers, tailor products and services to the special needs of targeted
consumers, and maintain long term customer relationships.
Many companies confuse a customer mailing list with a customer database. A customer
mailing list is simply a set of names, addresses, and telephone numbers. A customer database
contains much more information. In B2B marketing, the salesperson’s customer profile might
contains the products and services the customer has bought; past volumes and prices, key
contacts (and their ages, birthdays, hobbies, and favorite foods); competitive suppliers; status
of current contacts; estimated customer spending for the next few years; and assessments of
competitive strengths and weaknesses in selling and serving the account.

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In consumer marketing, the customer database might contain a customer’s demographics (age,
income, family members, birthdays), psychographics (activities, interests, and opinions),
buying behavior (past purchases, buying preferences), and other relevant information.
5.3.2 Benefits of Customer Database
Companies use their databases in four ways:
1. Identifying prospects: many companies generate sales leads by advertising their
product or offer. The ad generally has some sort of response feature, such as a business
reply card or toll free phone number.
2. Deciding which customers should receive a particular offer: companies use the
database to profile customers based on previous purchasing and to decide which
customers should receive particular offers.
3. Deepening customer loyalty: companies can build customers’ interest and enthusiasm
by remembering their preferences; by sending appropriate gifts, discounts coupons, and
interesting reading material; and so on.
4. Reactivating customer purchase: companies can install automatic mailing programs
(automatic marketing) that send out birthday or anniversary cards, Christmas shopping
reminders, or off-season promotions to the customers in their database.
Like many other marketing tools, database marketing requires a special investment. Companies
must invest in computer hardware, database software, analytical programs communication
links, and skilled personnel. The database system must be user-friendly and available to
various marketing groups, including those in product and brand management, new–product
development, advertising and promotion, direct mail, tele marketing, Web marketing, field
sales, order fulfillment, and customer service. A well-managed database should lead to sales
gains that will more than cover its costs.

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