BUS 201 - Lecture 2

 Initial prices might be low

o To initiate sales so the word gets around
 Initial prices can be high
o So people think it’s a prestige product
 Do products follow the same life cycle?
o No.
o Music industry for example
 People used to buy cassettes, records, DVDs etc
 That started to die
 Now subscription services have taken over
 Price is not the only thing that matters to customer
 Building relationships goes beyond a transactional relationship which provides incentives for
customers to return
 Customer satisfaction is for when a product has met or exceeded expectations
 Customer value is the value a customer will give to a business

 Participants in the distribution channel

o Agents/brokers
 Brings buyers/sellers together
 Usually hired on commission by buyer/seller
 Go-between to make deals
 Does not take possession of products
o Industrial Distributers
 Independent wholesalers that sell to industrial users
o Wholesalers
 Buys from manufacturer or other wholesaler for resale
o Retailers Buys from manufacturer or wholesaler for resale

 Intermediaries
o As the number of intermediaries increase, the price will increase
 Production Processes decisions
o Mass Production
 All products are exactly the same
o Mass customization
 Not all consumers want the exact same products
o Product duration
 Long vs short production runs
BUS 201 - Lecture 2

 Think about setup times, cost to change the line over or product shelf life
 SWOT is one of the basic analytic models
o Strengths
o Weaknesses
o Opportunities
o Threats
 Internal
o Strengths
o Weaknesses
o Organization environment
 External
o Opportunities
o Threats
o Organization does not control environment

 Business Activity Cycle

o Financial Manager’s
 Identify a firm’s long-term investments needed to achieve strategies
 Obtain funds to pay for those investments
 Conduct firm’s every day financial activities
 Help manage risks that a firm takes
o What do all businesses need
 Financing
 Investing
 Operating
 Fund, grow and run the business
o Setting up your Business
 1. Fund the business
 Issue shares
 Pay dividends
 Borrow money
 Repay loans
 2. Grow the business
 Acquire assets
 Dispose of Assets
 3. Run the business
 Revenues
 Expenses
 Short term
o Line of credit
 Stage 1 – Short Term Funding
BUS 201 - Lecture 2

o Accounts payable
o Line of Credit
o Trade Credit
o Commercial paper
 Secured – collateral provided
o Borrower pledges assets
o Usually lower interest rate
o Good for firms with low credit
 Un-Secured – no collateral provided
o Usually specified amount
o Funds are taking as needed
o Stable, well-established firms may issue commercial paper (sold at a discount, repaid at
face value)

 Long Term Funding – Stage 1

o Stocks
 Selling % of ownership company
 Investor hopes for appreciation
 Market values: current price
 Book value: historic sale
 Private of public
o Investor A gave the company cash to expand operations
o Hybrid: A fixed interest payment
o No maturity day (most cases)
o No voting rights
 Loans and bonds
o Loans paid back over time = interest

 Stage 2 - Investing
 Availability of production inputs
o How close is the facility to raw materials? To transportation links?
 Marketing Factors
o How will location affect customer service?
 Manufacturing environment
o Are there benefits to being in certain areas?
 Local incentives
o Will different levels of government offer incentives?
 International locations
o Are there benefits to setting up in another country
BUS 201 - Lecture 2

 Stage 3 Operations
o How much inventory needs to be purchased or manufactured?
o How much money is owed to the organization by customers? (Accounts receivable)
o How much money does the organization owe to suppliers (accounts payable)
o Revenue
 How much revenue generated?
 How is revenue generated?
o Expenses
 What kind of expenses are there?
o What is left over at the end?