4.

THE DEVELOPMENT OF ENTREPRENEURSHIP

Learning Objectives:

1. Enumerate the forces in the development of successful entrepreneur

2. Discuss the different starting point in the making of successful entrepreneur
3. Enumerate the demands in the development of entrepreneur
4. Discuss the qualities that makes successful entrepreneur
5. Enumerate and discuss the managerial skills necessary in the making of entrepreneur

4.1 The Challenges for Entrepreneurship

The new generation of young entrepreneur should look up the high standard of values and
character of entrepreneurs who got up the ladder of success. Success in entrepreneurial activity is based
in the inner compulsion to achieve the undeterred difficulties. The values and character of JUAN TAMAD
has no place in the world of entrepreneurial vocabulary.

1. The new entrepreneur must be a doer and willing to work hard and long until he achieved the task
he wanted for himself.

He must possess the versatility for success and self-confidence that could be overcome
risk with his strong determination. The exploration of the total business environment must be put
into total perspective as it interplay with the development of new opportunities and the risk that is
attached to it.

2. Personal attention and comprehensive awareness for the progress of the business is not trusted
on other people.

The entrepreneur must be in direct control of operation and not indirect control. He must
be able to measure the desired results. He must personally verify the data and financial figures
that were spent and earned in the operation of the business.

3. The entrepreneur must have high sense of integrity that he stands firm on his principles and
ideals.
His word of wisdom is a contract to depend on. He looks at high things in different
perspectives and approaches things will varied alternatives to attain what he wants. In short, he is
a visionary, innovative and would not stop until he achieved the goal he sets for himself.

4. Emotional stability is an important factor in the making of an entrepreneur.

While he is impatient for mediocre performance and lazy bones, his temper must remain
in control. Interpersonal relationships must be the banner in negotiations and effective personal
communication is the key factor in closing business deals.

5. The built in self-starting mechanism that drive entrepreneur to success is his executive ability to
manage people and resources. This executive ability refers to how he plans, organizes, directs
and controls the physical and material resources under his disposal. Many entrepreneurs were
described to have shrewd judgement in character that induced them to see things the way it
should be. He has passion for excellence and mediocre performance has no place in his
entrepreneurial vocabulary.
The new entrepreneurs and those who believe in their capacity for long hour of work to
get things done, spend 75 percent in dreaming innovation and putting them into action. Dreams
are built around creativity as he conceived original idea out of his imagination.
The entrepreneur is like a multi-awarded artist with a handful of trophy of accomplishment
equipped with inner drive in transforming idea into tangible reality. Sacrifice for long working
hours and abandonment of personal life pleasures make the entrepreneur achieve their target
goals. They organize and develop their idea into achievable activities and surpass the factor of
risk.

The Starting Point of Entrepreneurial Success

1. Start to be on your own

An individual can never attain success in entrepreneurial activity unless he starts his
own business and releases himself as an employee for the rest of his life. Income from
employment is never enough as it is good only until the 15 th and end of the month. Never

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 have we find an ordinary employee who get rich except those who are connected with the
government and amass wealth through graft and corruption.

You may start as an employee, get new ideas and develop your own entrepreneurial
style from experience and education. Start dreaming and be independent. Learn to save
money and be sure to put it in proper investment then make it as starting capital to operate
your enterprise. Make that money work for you as you think to make it grow bigger from the
dreams you have crafted out of your imagination for success.

2. Explore the Business Environment

The Philippines being a haven of opportunities is wide open for people who dream to
be rich and amass fortune as we have all the natural resources. Find the things you can do
best and you must have the talent and interest in doing it. Remember that the central
objective of any business is to produce the best goods and those provide better service.

With the talent you acquired in conducting feasibility studies in your college days or
those that you learned from experience, apply your knowledge in SWOT analysis. Consider
opportunities for expansion as business growth is possible under good management.

3. Be in Control

The entrepreneur must be in driver seat of his business. You cannot trust your business
to somebody who does not own the ideals and aspiration of the enterprise. Be in control of
the operation as you develop people whom you can work with dedication and with values the
same as yours. Invest your time with people who are achievers and do not lose your
valuable time with losers.
Motivate people to excel and make their desire burning for success with their
accomplishments. Make them partners in decision making and develop their ego needs for
proper recognition. People are young assets that can help you propel success in your
business. Think that improving efficiency and effectiveness will create more space for growth
and development.

4. Have a Good Accountant or a Trusted Financial Adviser

While you, as an entrepreneurship is busy with the management of the business, a

good accountant or financial adviser is needed to help you out in the financial activities of the
enterprise. They can help you re-invest your money to other profitable operation.

While trust and confidence can be given, you must also have the knowledge of the
entry in financial statements. Develop procedures that you are still in command I approving
transaction involving money and its disbursements. While you economize your expenditure,
be sure that every peso is spent wisely without sacrificing quality in products or service.

5. Seek the Advice of Professionals

You are not a superman to know all the legal and other matters related to the
operation of the enterprise. Seek the services of legal consultant on matters with legal
implications. Have your income tax prepared by good accountant lawyers or certified
accountants that know how to deal with government regulating body in terms of tax
payments.

All legal matters and intricate government transactions must be entrusted to people
with the right connection and knew how to deal with business problem as the government as
a regulating body may affect the business operation especially in the period of expansion.

Entrepreneurial Management Demand

Many successful entrepreneurs in the Philippines and those in the foreign countries are not
making of known schools of management. Most entrepreneurs came from scratch and have acquired
managerial expertise in making business empires through shared hard work and dedication. They
possess characteristics and intelligence to make things happen rather than wait for things to happen.

While schooling and learning management could guide the making of successful entrepreneur,
the individual talent and intelligence coupled with strategies akin to other people are totally inherent to the
entrepreneur.

The demands for entrepreneurial success are common in most successful businessman.

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 1. The entrepreneur is Alert to Opportunities and Perceptive to Make Things Happen.

The entrepreneur looks at things much ahead of other people. He sees things in different
ways and develops strategies to make things happen the way he perceived it to be. An
entrepreneur is starter but makes sure that when he started, he pursues until he succeeds in
making it happen.

2. The entrepreneur has the Health and Endurance to Work Long Hours.

The dreamer entrepreneur could not stop working until he finds solutions to his perceived
idea. He spends 75 percent of his 24 hours time thinking and working until he gets to the
realization of his dream. He is willing to sacrifice personal pleasure in his quest for the true
meaning of his ideal set up of the business enterprise.

3. The Entrepreneur of Flexible and Adapts to Change.

The entrepreneur does not have a one track mind. He finds new avenue or courses of
actions as he senses some danger zone with his plans and programs. He makes easy revision
but he makes sure that the track on hands is still towards the direction he wanted to achieve. He
crafts new alternatives solutions and devises ways to make a difference.

4. The Entrepreneur is Self-Assured

The entrepreneur could not easily be rattled with problems or uncertainties. He has great
trust in his capability to develop new things. His intelligence and self-confidence is always ta high
level. He is guided also by his faith in God that his good intentions and actions deserve to be
fulfilled.

5. The Entrepreneur Seeks Other’s Opinion or Make Researches.

He believes that a person who asks question could only be fool for a minute but one who
ask no question could be fool for a lifetime. He seeks the advice of other professionals that will
help make things happen. He indulges in research activities to find new solutions.

4.2 Profile of a Successful Entrepreneur

Successful people in the field of business are creators of things with difference. They are no
ordinary Juan dela Cruz who can be seen around the corner. They are people with great ambition and are
alert to the environment that they can explore towards successful venture. They possess eagle’s eye that
can see and dive hundreds of feet down and make catch the prey of opportunities.

Most successful entrepreneurs are described to possess the following profile:

1. The Entrepreneur has Strong Desire for Independence.

An entrepreneur would not like to be attached to his employment. He seeks independence and
strives to develop his own business. As he acquires new insights and opportunities he would seek that
sense of independence. He thinks differently and would venture in trying to satisfy his own curiosity. He
assumes responsibility with pride and determination.

2. The Entrepreneur Develops Strong Drive to Succeed.

Success is for people with the profound need to achieve their dreams and life aspiration.
Achievements are the ego of people with inner desire for independence. He does not depend on others
as he thinks that his success lies on his own making. He is a good organizer and leads others to
successful venture. He finishes things he started and leaves no stone unturned to get his way.

3. The Entrepreneur has Strong Determination in Decision Making.

The strong personality of the entrepreneur carries with it the power to make decisions. He is
aware of developing new markets and creates new things to satisfy customers’ needs and wants. He
capitalizes on his inner drive to make profit before anyone else could take that opportunity.
Innovativeness and creativity go with the power to make decisions.

4. The Entrepreneur Develops Feedback Mechanism for Results.

The development of feedback mechanism is one important factor in the development of

successful business entrepreneur. He goes back to where he started and finds out things the way they

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are. He believes that one who does not look back cannot go miles away from his starting point.
Feedbacks are factors for analysis and decision making. He needs data and figures to make wise
decisions.

5. The Entrepreneur is a Result-Driven Individual

Profit is the result of accomplishment. His achievement are the driving force that keeps him
awake for more opportunities. He expects results for activities he planned. Employees with mediocre
abilities and low sense of feeling for accomplishment have no place in his organization. He expects
results to be on time and with highest quality. He is impatient for poor performance and expects quality
output.

Managerial Skills that Makes a Successful Entrepreneur

Being hardworking and industrious are no guarantee in the making of business activities while
they play an important role in the success of the enterprise. While many successful entrepreneurs have
not gone to business schools to acquire managerial theories in the management of the enterprise, they
have developed managerial skills through share observation, or an inherent leadership ability and
intelligence.

The Entrepreneur has the following managerial skills:

1. The ability to Plan and Conceptualize.

Conceptualization and planning go together. Good concepts need to be put in the planning table
avoid risk factor. The entrepreneur is able to forecast the future by seeing it that the risks involve are
properly controlled.

He must be able to visualize the direction of the business towards successful take off. He must
see that the products or service, the pricing strategies, the cost of production, and inventory will generate
reasonable profit and return of investment. The take-off point of any business is the generation of profit
based on plans and programs.

2. The Ability to Organize the Resources of the Enterprise.

A good business organizations is based on around people and resources. An entrepreneur works
with others and needs people with the same values and working ability. Efficiency and effectiveness in the
work arena are the working of people with dedication and talent to do the job properly.

The material and physical resources must be put in place. Waste of time and money has no place
in a good organization. The entrepreneur must be able to give specific direction and work activities that
will redound to efficient delivery of the necessary services to customers and clients.

3. The Ability to Direct and Motivate People in his Organization.

People are like machines that need oil that will make them work smoothly and efficiently and
effectively. Machines will bug down if no oil is put into its chamber while in operation. The same principles
work with people. They need proper compensation and mostivation for them to deliver the necessary
output.

Compensation and benefits are no guarantee for effective performance while it may serve as
important ingredients. The entrepreneur must be able to communicate ideas and plans to his subordinate
with sense of humanity. Good communications and human relations will drive people to be motivated to
perform their task with pride.

4. The Ability to Control

Controlling the whole operation is a difficult task for the entrepreneur. Safeguards and control
mechanism could put in place with carefully crafted policies and procedures. Such policies and
procedures must be carefully disseminated and understood by all who will implement them.

In the implementation stage, check valves through monitoring and feedbacks mechanism must be
worked out through reports and at times conference with key people. The progress of operation and other
activities related to finance and marketing must generate the necessary reports as bases for more plans
and actions. Controlling cost and none essential expenses will save important profit that could be invested
in profitable operations.

5. The Ability to Manage Time.

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 Time management is a very essential ingredient to the success of an entrepreneur. Because of
the numerous activities to attend to the entrepreneur must be able to log on his time schedule so that
important activities could be attended to on time.

Meetings and conferences occupy most of the time of entrepreneurs. They must be scheduled
properly that they will not complicate with important paper works in the office.

Some entrepreneurs who burn themselves out with stress die early and do not see the fruits of
their labor. They must have schedule for his family his religion and enjoy some personal pleasure that will
eliminate the stressful task of managing his business.

6. The Ability to Adapt to the Changing Environment of Business.

Business today is fast changing with the advent of technology and innovation. The new
entrepreneur must be able to adapt this changes in business landscape for him to go with time of
progress and expansion.

Consumers’ tastes and preferences are gradually changing to better quality products and
services. Competition is shifting to more affordable quality products and entrepreneur must be aware of
this changing customer demand. Changes are applicable and adaptability should be given attention to
gain continuous customer patronage.

While the above discussions are the theories and elements of good management, an
entrepreneur without formal training should attend seminars and advance schooling to get further into
realms of better management theories that will help in the operation of the enterprise. Learning is not the
sole property of those in school. Reading and attending various management interventions would make a
great difference.

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ACTIVITY 1

Select the best answer. Write your answer on the space provided before the number.

_______1. The entrepreneur is in driver’s seat of the business organization.

_______2. The entrepreneurs are impatient for results but remain to control his temper and feeling in
times of problem.
_______3. His word of wisdom is a contract to depend on and approaches alternative to various situation.

_______4. The entrepreneurs look at things kilometre ahead of other people and see things at different
perspective.

_______5. The entrepreneur would not like to attach himself to employment as he assumes business
responsibility with pride and determination.

_______6. The entrepreneur is not a one track mind as he crafts new alternative solutions.

_______7. He gets data and figures before making concrete and viable decisions.

_______8. People are like machines that needed oil or motivation to operate properly and effectively in
the performance of their assigned task.
_______9. The entrepreneurs are busy people and they have to attend to various activities.

_______10. Business is fast changing with the advent of computer and other electronic application.

a. High sense of integrity f. Flexibility and adaptability

b. Feedback mechanism g. Be in control
c. Adaptability to change h. Alert to opportunities
d. Strong drive for independence i. Time management
e. Emotional Stability j. Ability to direct and motivate

ACTIVITY 2

Elaborate or explain the questions below. Write your answer below the questions.

1. In your own perception, what are the other characteristics and skills a person must possess to
become a successful entrepreneur? Explain your answer

2. If you are an entrepreneur how are you going to motivate people in an organization?

3. Discuss the starting point towards the development of entrepreneur.

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 5. ROLE OF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT

Learning Objectives:

1. Explain the different factors in determining economic growth

2. Examine the contributory determinants in the making of our economy
3. Discuss the role of employment and education as contributory factor in economic development
4. Identify the important provisions of RA 6977 and RA 6810

The Philippine Economic landscape remains to be the spring board of questions when economic
development is the focus of discussion. The leaders of this nation aim greatness for the Filipino people
especially during the time of election. Their honest intention of improving the economic condition is their
battle cry that catapulted them into power, yet in spite of many promises Filipinos remain poor. Instead of
improving the living condition of the Filipinos they amassed wealth as a preparation for the next election.
Politics becomes an investment for power and money and it is not the true essence of public service. Two
important factors hinder our growth as a nation:

1. Poverty is the making of its people and the kind of leaders that holds the wheels of economic
fortune.
Our country is still dominated by poverty and the unjust distribution of wealth. Income is
in the hands of the few opportunists. Power is in the hands of traditional and family politicians as
they amass wealth through graft and corruption.
2. Population explosion is another factor that contributes to the poverty of our nation.
We cannot increase the size of the land that is cultivated by the farmers, yet his family
size continues in number. Productivity in agriculture remains the same through the years.
Economic activities in the countryside remain in the hands of few entrepreneurs who take
advantage in the marketing of products to the urban center.

The following factors are contributory determinants to our slow growth in economic development.

5.1 The Filipino Values and Culture

a. Love for Imported Products

The country’s colonization for centuries has developed in the Filipinos a culture of dependence
and love for foreign products. We still feel that imported products are superior in quality and we look upon
our own products as inferior.

We love the taste of imported chocolates, the taste of apple rather than our local guava, the taste
of grapes rather than local berries, and love for imported clothing rather than made in the Philippines.
Buying imported goods develops the economy of the foreign countries and drains the Philippine economy.

b. Our Values of Bahala Na

A true Filipino entrepreneur will not put his destiny in the hands of the BATHALE. He must act
with strong determination and push for the development of his ideas. Innovation and the creation of more
goods and services are in the hands of entrepreneur who has the ability to make new and innovative
products or create a new channel of their distribution.

BAHALA NA is the concept of belief in BATHALA, the gods of the lazy of bones and undermined
individuals. Faith in GOD could be the driving force of any entrepreneur to make things happen as he
believes that his power to think and innovate comes from the true GOD that guides the destiny of man.

c. Our Crab Mentality

Crab mentality is the action of people to pull down others who are about to get out of the verge of
poverty and reach for their success. Enviousness is the making of people who could not think better for

7
himself. There are many of us who destroy others yet when we look at the mirror we are not better than
them.

This could be a clear example of Pedro opening a SARI-SARI store and JUAN opening the same
kind of business in the next corner. Thinking that someone on the other corner is making good in selling
barbeque or a LITSONG MANOK, he opens the same outlet not thinking that competition is pulling down
both of their profit. Why we not think of anything better rather pulling the other fellow in his entrepreneurial
activity?

d. The MAÑANA HABIT.

MAMAYA NA or BUKAS NA is a culture that is brought to us by the colonizers who were fond of
SIESTA after lunch time. We take time in stride wasting time. The real entrepreneurs do not believe in
siesta as they keep working until things are done according to their plans.
Hard work and dedication are the qualities in the making of successful entrepreneurs. In all books
and records of successful people that developed economic fortune, we find in their economic dictionary
that success carries with it love for work and time management. They would not keep any work unfinished
during the day. Persistence is a value that we have to develop to make our economy successful.

e. The Value of Time

Relative to the above discussion is our lack of value to the precious time given to us, 24 hours a
day and 364 days in a year. We are always late in the start of the program, coming on our classes,
attending to office work and even in important meetings and appointment. We take all time in our hands,
not thinking that the meaning of progress rest in our value of this precious gift of time.

The Japanese, our Asian neighbor, are noted for their sense of value for time. They became
successful because they are always on time. Meeting with them is meeting on the dot or else you will not
be able to get important business with them. Time wasted is opportunity lost in making a fortune. Time is
gold as saying goes. Entrepreneurs get the golden opportunity as they do not lose time to make money
and fortune.

f. Our Values of HIYA

HIYA could be a positive value in dealing with business condition. It could be a propelling reason
for us to create better service and proper dealings in business transaction. There are still many of us who
make shortcuts in business dealings. Good in its face value but with hidden agenda of fraud and
deception.

Tourism could be a haven for economic development if our people love to treat our visitors with
HIYA of cheating them with taxi fares and services. Our beautiful country is noted for hospitality, a value
that many people of the world admire, yet many foreigners are afraid to go to our country because there
are still some of us who have WALANG HIYA.

Economic progression the countryside and even in the urban centres could have come in if we
have developed the basic services in education and social development. Our political and social systems
have not developed the value of HIYA, as graft and corruption still exist because of our love for material
things, money, and power. Power is the hands of WALANG HIYA that amass the wealth of the people’s
taxes which are supposed to eliminate poverty, and develop and improve education.

g. Fiesta and Social Occasions

The celebration of Fiestas of Saints that we inherited from the Spanish colonizers could be
another factor in the slow development of our economy. People especially in the country side would have
all their savings spent in a day of the fiesta, entertaining guest, only to find out the next day that there is
no more rice to feed their children.

The fattest pig is slaughtered and the best food is prepared and all the BONGA is shown to the
visitors. People with spend for the best clothes and attend the coronation of the REYNA with all the fan
fares of the local politicians who are there thinking of the coming election.

There could be nothing wrong with celebration as it is a part of happy Filipinos. The negative side
is the little money that we could be spent in more important business that would generate more profit in
the long run. Spending money in birthdays, baptism, and other social occasions is no means for an alarm
but if we need to make loans with highest rates, then that creates problem with our daily budget.

Economic progress and development are the making of all people but it must come from the top,
the leaders of this nation. We need to harness our talents and skills towards economic development. We,
as a people, are not lazy. We are made the way we are because we have not changed our values to a

8
more positive system. Proper education could help us develop our values towards work and proper
dealings with other people. Graft and corruption should be taken out of the political and social system in
the management of our people. It must start from us if we want this nation to develop economically.

Employment Opportunities

Employment opportunities remain to be elusive among Filipinos. The industries n the economic
zones and other urban centers could not accommodate the growing employable people. Most still receive
minimum wages that barely support the needs of five members of the family.

a. Employment id One Great Factor in Economic Development.

The entrepreneur provides the necessary work for people that propel the economic
development of the nation. The money in circulation for wages and salaries will help local
industries to develop new products and services that generate more small and medium
enterprises.

Contractual employment is still the name of the game in most factories as multinational
corporations still take advantage of the low labor cost. Workers are lured to this opportunity as
there exist o better employment. The national labor laws still favour multinational interest for fear
that they will pull out their investment when better employment terms will be implemented.

There are some multinational corporations operating in the country with great concern for
their employees who give them medical benefits and better wages terms and condition of
employment. The government should look deeper into these firms and give them tax incentives
that would not necessarily reduce their taxes.

More regular employment also mean more income taxes from employees. Economic
factor along this area for the country could be two tone factors for the better services of those
employed. Security of tenure will provide peace of mind among local employees to support their
children’s education.

b. Income Opportunity in the Countryside is Still Subsistence in Nature.

Most people are still dependent on old farming and fishing system. We have not
introduced modern farming technology and the proper culture of our fishery resources. Our corals
and fish sanctuary are damaged by destructive methods of fishing. Our vast shoreline could be
developed into haven for fishery development if new methods and technologies could have been
put in place to supply the food of the nation.

Strategies for economic development should be focused on the countryside as most

Filipinos are still in the rural areas. Internal migration to urban centers are the dream of those
living in the poverty stricken areas as they think that MANILA is the dream paradise. The bright
lights attracted dreams of wealth and fortune that could be found at the end of the rainbow. Most
ended up to be squatters of political correct term, informal urban settlers.

The theory that agriculture is an essential key to economic development must be pursued
vigour by the government and those people in the rural setting. Agricultural productivity will
minimize internal migration to urban centers. This could be an entrepreneurial venture in the
economic development of the countryside.

We need to introduce new technology to make farming productive with the introduction of
new technology to improve irrigation, to improve working condition, and to increase productivity of
the farmers. Technology is one important factor in the development of the economy and
entrepreneurial activity.

5.3 The Failure to Develop Better System of Education

The mandate of education is the development of its people for economic prosperity and
development. Our investment in education should cascade the line for development of sustainable
income for those who finished high school and more so for those who graduated in college.

The government spent billions of money for education to prepare the population for gainful
employment or to become small and medium entrepreneurs. Our aim is to develop them to be morally,
spiritually, and economically stable for them to live decently as we eradicate them from the bondage
poverty.

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 We produce so many college graduates in the field of nursing with the hopes of them passing the
licensure examination and getting employed locally or abroad. The quality of education failed to make
them pass the examination and many ended in other occupation or employed in PA-LAMININ NG
MAGULANG who spent millions of money to get that covered diploma. The dwindling opportunity for
employment abroad and the hope of fortune in earning the green bucks are becoming elusive.

The opportunity for those taking courses in the field of Marine Transportation and Engineering,
although he road to fortune and travel worldwide is tempting, is becoming elusive for those who could not
practice apprentice as a passport to taking the examination. An apprenticeship on board vessels is a
requirement before taking the licensure examination.

The Quality of Training and Education

Another factor is the quality of training as a contributory element in their failure to hurdle the
difficult test conducted by the PRC. Many ended up as factory workers, security guards, or going back to
the province to help their parents. Many of those who dreamed mortgaged their property in order to
provide their children with quality education.

In the field of commerce and accountancy, many ended up in fast food chains as service crew, a
job that is more appropriate for mere high school graduates. For failure to end up in office employment,
others become factory workers on contractual basis or doing menial jobs as sales clerk in malls with
minimum or below minimum wages under the employment agency for a period of 5 to 6 months.

There are other courses that suffer the same failure. In the field of education, many cannot be
employed as they failed the licensure examination. We have so many graduates in all major fields of
educational endeavour because of our failure to regulate the course being offered.

An intensive study and research should be done in the regional and national level as to the need
for manpower and those for exportable ones. The product of education should match the need of the
industry. A mismatch is a wasted investment.

Education becomes a commercial entity. Most of those who hold the break for the proliferation of
courses are blind to realize the price to pay for this educational mismatch. Again, graft and corruption is
the making of those power and in the government.

The K to 12 Education Program of the Aquino administration could be an answer to this elusive
educational development that will propel the economy of the country. While we bestow hopes, we are still
in great search for the answer to this dream.

We lack necessary classrooms and educational facilities to implement the program. We are
wanting in the quality of teachers in terms of their training and preparedness to handle courses. We lack
books and reference materials including the necessary visual aids to make teaching and learning
meaningful.

Improvement in instruction needs new technology such as computers and other equipment to
train working hands in its proper operation. We need linkages with industry in the training of those in the
senior level so that employment could be generated after graduation.

Again let us look and think with deeper insight if we can do this gigantic program with limited
resources in our hands. The economy of the nation is at stake. Failure is the making of people with high
ambition but they lack the power to make things happen.

Grasping all the grain of sand with on hand would not make wonders for our economic development.
We need high level of political will power and efforts of all those in the education sector to make things
happen. You and I must start seeing the brighter things ahead of us today as tomorrow maybe too late.
Education is an investment to economic prosperity and you and I must work towards that goal.

5.4 Availability of Needed Capital

The banks are sources for limited capital for small and medium enterprises. These resources are
available in the banking institution. The poor people are not aware of these great opportunities and they
do not know how to go about it to avail of the funds.

A. Republic ACT 6977, known as the Magna Carta for small Enterprise provided the necessary
funds for the development of entrepreneurs in the countryside.

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 Under this act, are small and medium enterprises engaged in industry, agribusiness, and other
services. These funds could be availed by single proprietorship, cooperatives, partnership or
corporation.

The amount of operating capital investment that can be availed exclusive of lands,
building or equipment are divided into the following categories.

a. Micro-enterprises -Less than - P50,000.00

b. Cottage Industries -P50,001.00 -P500,000.00
c. Small Enterprises -P500,001.00 -P5,000,000.00
d. Medium Enterprises -P5,000,001.00 -P20,000,000.00

The intention of the law is to provide the promotion, growth and development of SMAAL AND MEDIUM
ENTERPRISES by assisting government and RELEVANT AGENCIES (capitalize for emphasis) in tapping
local and foreign capital and the use of existing guarantee funds.

The management of the fund is headed by the Secretary of Trade and Industry whose members
are also Department Secretaries from labor and Employment, Agriculture, DENR, DOST, and other
members who come from Luzon, Visayas and Mindanao and some members from the banking industry
are appointed by the President.

Under the law of SMALL AND MEDIUM ENTERPRISES DEVELOMENT COUNCIL has some of
the important powers that could develop the country side and those of the local enterprises.

1. To recommend to the President of the Philippines and Congress on policy matters affecting small
and medium enterprise.
2. To coordinate and integrate various government and private sector activities relating to small and
medium scale enterprises.
3. To monitor and determine the progress of various agencies geared towards the development of the
sector.
4. Provide appropriate policy guidelines and coordinate frame work in assisting relevant government
agencies in tapping of local and foreign funds for small and medium enterprises.
5. To assist in the establishment of modern industries estates outside the urban centers.
6. To promote the viability of small and medium enterprises by way of directing or assisting relevant
government agencies in the national, regional and provincial levels towards the following:
a. Technical training courses and those related to business operation, like simple accounting and
bookkeeping.
b. Labour and management relation and improve working condition.
c. Product development and quality assurance and product diversification.
d. Improve production techniques and the use of technology in production and the utilization of
indigenous community resources and raw materials.
e. Provision and assistance in the marketing and distribution of products.
f. Provide for concessional interest rates, lower financing fees, and incentive for prompt credit
payments, as well as arrangement tying amortization to business cash flows, effective
substitution of government guarantee cover on loans for barrower’s lack of collateral.
g. It provides for the setting of a RELIEF SYSTEM for distress enterprises as preventive bankruptcy
measures and the setting up of insurance against-extraordinary disasters.
h. It provided for INTENSIVE INFORMATION CAMPAIGN and ENTREPRENEURIAL EDUCATION
(the intention of which is to give opportunity for all those with entrepreneurial talent and interest.)
i. The law provide easier access and availment of tax credits and other tax and duty incentives as
provided for in OMNIBUS investment code and other laws.
j. Provision for product research and development and system of experimentation and access
information on commercial technologies.

B. Republic Act No. 6810 is the establishing the MAGNA CARTA FOR COUNTRYSIDE AND
BARANGAY BUSINESS ENTERPRISES, granting exemptions from n=any and ALL government
rules and regulations and other incentives and benefits and for other purposes.

The important provisions of this ACT are the following:

1. To achieve development of countryside business enterprises in the BARANGAY level through the
absence of BUREACRATIC RESTRICTIONS and granting of incentives and other benefits.
2. The number of employees should not be more than twenty (20) at any time for the purpose of
undertaking a productive business enterprise that will help the economy in the area.
3. The productive enterprises shall be principally engaged in the following activities:
a. Professional service

11
 b. Retailing
c. Wholesaling or Trading of Commodities, products or merchandise.
4. Assets at the time of registration do not exceed FIVE HUNDRED THOUSAND PESOS before
financing.
5. The principal office and location of business in the countryside or BARANGAY.
6. The countryside business shall pay the registration fee of TWO HUNDRED FIFTY PESOS
(P250.00) to the Municipality or City where the principal business is located.
7. ALL COUNTRYSIDE AND BARANGAY BUSINESS ENTERPRISES (CBBE) shall be exempted
from payment of all taxes, national or local, licenses, and building permit fees and other
BUSINESS TAXES, except real property and capital gain taxes, import duties and other taxes on
important articles.

Based on the above discussion and the important provisions of the laws mentioned, entrepreneurial
activities in the local levels and the countryside have not develop when all the opportunities were provided
by the government for local entrepreneurs. We remain to be poor and the budding entrepreneurs continue
to search for available funds to finance their enterprises.

Analysis of the prevailing conditions and the business laws that grants these incentive points to
following failures in the implementation program:
1. An honest political will to implement the program to develop the countryside and the local
entrepreneur. Information dissemination fails to cascade down to all sectors interested in the
program.
2. Vested interest groups takes advantage of the program by establishing NON GOVERNMENT
AGENNCIES in the disguise of helping the lowly business sector but it turned out that it is for their
benefit. They established financing agencies with interest rates that benefited their organization.
Some NGO’s lost interest after taking advantage of the government money and now they are
nowhere to be found to be persecuted for their acts of corruptions.
3. Banks and lending institutions required so many paper works beyond the comprehension of small
businessmen who don’t have formal training as they provided for the law.

12
ACTIVITY 1

Write true if the statement is correct and FALSE if the statement is wrong. Write your answer on
the space provided before the number.

________1. Buying imported goods is a great determinant for our economic growth.

________2. The real entrepreneurs do not believe in siesta as they keep working until things are done
according to their plans.

________3. Contractual employment is a positive economic agenda9 for the people as it give more
employment for the many jobless Filipinos.

________4. HIYA is a positive value as we can amass wealth and profit with inferior goods and services.

________5. The aim of education is to develop morally, spiritually, and economically stable individual for
them to live decently.
________6. Technology is one important factor in the development of the economy and entrepreneurial
activity.

________7. The strategies from economic development should not focus in the countryside as more
people live in the urban areas.

________8. Hard work and dedication are the qualities in the making of successful people.

________9. Republic Act No. 6810 is intended to provide the promotion, growth, and development of
small and medium enterprises.

________10. Proper education could help us develop more positive value toward work and other ethical
standards I dealing with other people.

ACTIVITY 2

Elaborate or explain the questions below. Write your answer below the questions.

1. Discuss the important factors that contribute to slow growth of our economy.

2. Discuss the government programs that help develop entrepreneurship in the country.

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 6. STRATEGIC PLANNING AND BUSINESS DEVELOPMENT

Learning Objectives:

1. Explain the importance of environmental scanning and selecting proper business location
before venturing in new business
2. Discuss the important roles of SWOT analysis before starting the business
3. Identify the business opportunities in the countryside

The entrepreneurs are not discouraged with the constraints along the causes of our economic
malady. It should be turned into positive note and new solutions must be made to make them different
from other individuals. There are also lots of opportunities for entrepreneurs who are hardworking,
creative and resourceful, and would like to take the calculated risk.

Business opportunities are wide open for people who would like to invest their money into gainful
business activities. They need to find out this new venture that interests them and how they can harness
their technical knowledge of the trade.

The search for business opportunity should start with the individual entrepreneur. He has to find
out the skills and talent for that particular type of business activity. His talent and skills are the beginning
of his great investment in the trade. He must have the passion for independence and willingness to work
hard and long to keep up with his dream of being an entrepreneur.

Before venturing into the field of business the new entrepreneur should look into the following
factors.

1. Know your Product or Service.

First, you must believe on the product or service that you will offer to your customer. If it is a new
idea or concept then you must be able to convince that you have a unique product that would satisfy
customer’s needs and wants. Customers want to try new products but it must be better than those
existing in the market.

2. Analyze the Market Potentials.

The customer base will determine the success of your business venture. The wider the market
potential, the more chances of growth and success. The entrepreneur must know his needs and wants
and figure out how to satisfy this needs. Analyze customer’s profile as to their buying habits, their income,
and social status.

3. Determine the Marketing Strategy.

A unique product or service needs effective distribution strategy to get customer into the basket of
demand potential. Continues supply determines product growth. Customers must have access to the
product when they need it. Outlets must be developed that would answer customers’ demand. The
customers must be able to make suggestions as to product quality and availability as they are the kings
and queens of the entrepreneur.

4. Know the Competitors.

In launching a product with existing competitors you must know their strengths and weakness.
Develop new product and marketing strategy and turn their weaknesses as new opportunity for your
product. Continuous innovation and research would mean better quality products or service. Make things
better and serve your customers with loyalty and dedication and it will make a great difference.

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 5. Do not set your Laurels.

The landscape of business id continuously changing. Your initial success in your business
activities needs more proactive analysis for expansion and growth and overcome possible competitions.
Develop advertising and promotion strategy to penetrate the wider market. Develop budget for expansion
and diversification either horizontally or vertically. Get new resources and develop new materials. Invest
in research projects that will enhance the quality of your products.

6.1 Environmental Scanning

The environment of business is vast with opportunities and the entrepreneur must have a greater
look into this potential as well as the conditions prevailing in the community. The entrepreneur’s ultimate
objective in diving into the business world is to make profit. Investment in money and effort should
generate financial gain for the entrepreneur.

To generate income for his project or service he must be able to deliver customer satisfaction.
The following factors are contributory to the development of customer satisfaction:

1. Business Location for Small entrepreneurs.

A retail outlet would need a site that is convenient to prospective customers in terms of parking
space or availability of transportation. A restaurant or an entertainment center would need ample
parking area where customers would not worry on where to leave their cars while enjoying their stay.
The same could be true with a grocery store.

In choosing the location, the following factors must be looked into by the entrepreneur:

a. Rent and Space – the cost of rent is a regular monthly expense and it must be sustained with
the possible income that will be generated. It is the operating cost that will be added to the
price off the product or service. The price input must be competitive enough with those in the
same location.

b. Terms of Lease Agreement – The term least must be studied carefully as some owners of
space might take advantage of lessee. The owners increase the rent of the space when the
business condition becomes favourable and then take over the business.

c. Types of Goods or Merchandise – A convenient store is located where there are pedestrians
passing by. They need quick and easy access to the store and would not spend a lot of time
to purchase their goods.

d. Income level of Prospective Customer – The type of pedestrians and the income level of
customers must be taken into account. A good barber shop or a beauty salon with facilities of
air conditioning units and other amenities need to be located in the community with higher
income bracket.

e. Prospective Sales Volume – High density sales volume need to be located in shopping area
where customers conversed to buy essential goods. Lower sales volume could be located in
the community or secondary areas like subdivisions or the barangay.

f. Municipality or City Ordinances including taxes and fees – The location must not violate city
or municipal ordinances and the taxes and fees must be reasonable for the owners of
business. Excessive taxation will not encourage the growth of business in the area.

g. Location of the Areas – The area must be free from floods and other calamities that will
endanger the business. It must be free from fore hazards or other environmental factors that
will disturb the operation of the business.

2. Location of Small Industrial Plant or Manufacturing Facilities

Environmental factors in locating a manufacturing plant or industrial facilities need to be

studies carefully as plant location is a great factor in the investment of funds and its profitability in
the long run. The industrial facility must be suitable to the kind of operation. It must comply with
government zoning regulations related to pollution and environmental laws.

The following are important factors to consider:

15
 a. Land Area – The contour of the land, its size, and shape must be suitable to the plant site. It must
be free from floods or other environmental hazards that will disturb operation. The assess value
of the property must be reasonable as expenses to start up of operation requires a lot of money.
The assess value is also a factor in the payment of taxes.

b. Facilities for Expansion – The land area must have ample space for plant expansion and
provisions for parking facilities for customers and employees. Anticipation of growth and
expansion in plant facilities should be considered as additional site in the future may create a
problem.

c. Power and Utilities – Availability of power supply and the cost of electricity involve in the
operation are great factors in the production of goods. Continuous power supply is needed to
keep the plant in operation for its target production. Water supply is also needed and the proper
disposal of waste must be put in place to comply with environmental laws.

d. Building and Other Utilities – The building must be within the restrictions code of the municipality
or city. The utilities like canteens and other employees’ facilities must be put in place in
compliance with the labor code. Sidewalks and gutters are important component in employees’
safety while in the plant site. Fire safety and hazards signs are mandatory requirements.

e. Plant Site Accessibility – The plant site must be accessible to public or service transport for its
employees and valued customers. It must be near highways or expressway to provide ease n
travel time and reduce cost in the transport of raw materials and finish product. Delay in transport
systems are added cost that must be avoided.

6.2 Strengths Weaknesses Opportunities and Threats

SWOT ANALYSIS is an entrepreneurial tool in determining the profitability of the business

operation. Opportunities carries with it some risk involved and this should be look into carefully. The
strength and weaknesses are internal factors to the entrepreneur while the opportunities and threats are
external factors.

The entrepreneur must look at how strong he is to combat the weaknesses on his side and this needs
strong determination to succeed with caution. He may need long working hours and advanced thinking to
overcome the possible threats. Planning and environmental analysis is needed to keep opportunities
moving to his side of profitability. Investment in money and effort should turn the tide of profit t the side of
the entrepreneur and these needs careful study and analysis.

The product must be evaluated along the following areas:

1. Product Strength in the Market must have the following:

a. Available Technology in Product Processing - Technology is an important component in producing the

product as the economies of scale determines the price index. The more product is produced, the lower
the price it can be offered to the market. Technology, on the other hand, improves product quality and
customers want those items with technical standards.

b. The Source of Raw Materials must be Abundant and at Lower Price – The constant supply of raw
materials is an important factor in the production of the product. Cheap raw materials that are processed
into good products would be able to penetrate the market as its price could be competitive. Continuous
production will eliminate distribution disruption hence maximum supply to the target market.

c. Skilled Workers must be Available – Technology must have the component of skilled workers that shall
operate the machineries and other equipments. They may need training in machine operation as quality
products also come from skilled workers. Workers efficiency and productivity must be looked into as they
are lifeblood of any production line.

d. Capital Investment and Operating Expenditures – A starting venture may have little investment in terms
of machinery and equipment but starting with small capital should generate profitable operation. As the
enterprise expand its market base investment in operating capital should expand to meet the growing
demand of the customer.

e. Expertise and Technical Skills of the Management Team – A good product is the making of a well-
conceived ideal of the management team. Improvement’s in product quality is a continuing process and t

16
must be the management objective to get customers patronage. Customers seek better products and
taste for quality changes over time.

2. Characteristics of Weak Products and Weak Management:

a. Poor Quality and High Price – The entrepreneur should not launch a poor product in the market as it
will surely fail to advance in the sales and profit. It is not wise to invest in the production of poor products.
The entrepreneur must see to it that products has undergone customer taste and acceptance before it
gets into the production line.

b. Product design and Appeal – Product design should appeal to customers demand. Poor design of the
product is the making of people with no technical expertise in handling customer wants in terms of
features. Artistic designs are conceptualized and approved by the possible users. Product appeal in terms
of color and features are important ingredients for customer patronage.

c. Production Cost – Production cost is the price determinants. Entrepreneur cannot make maximum
profitability on products whose production cost cannot survive market competition. Production cost may
be attributed to high labor cost and the availability of cheap raw materials.

d. Supply and Demand – Intermittent supply to the market will make customers shift to other products.
The supply chain management must be put in place to make the products available to valued customers.
The supply chain management must be able to capture the widest market possible to sustain product
development.

e. Weak Product Management – Weak management is created when people at the top of the organization
fail to sustain a vigorous effort for expansion and growth when management sets on his initial laurels and
ventured on vices and other extra activities that will lose his total investment. Some people who acquired
money, became too complacent and forgot all about expanding thereby competition gets them out of the
market place.

3. Sustainable Product Opportunities in the Market:

a. Product Demand – Product demand is the greatest opportunity of the entrepreneur. Demand is the
sense of profit and this must be sustained by the entrepreneur before wide completion appeared in the
market place. The absence of other products will expand production operation and thereby generate
opportunities to expand into other ventures of vertical and horizontal expansion.

b. Presence of Poor Quality in the Market – The presence of poor quality product in the market place is an
opportunity for the entrepreneur. The alternative is on the side of the entrepreneur to supply the market
with quality product and sustain patronage. The product must be superior in quality and the price must be
reasonable compared with that of the competitor.

c. Government Policies and Support – The government support to local entrepreneur is an opportunity for
greater expansion. The government should support the local entrepreneur in terms of taxes and
government incentives. Regulation on the importation of important foreign products where local products
are available is one important government program that will sustain economic growth of the local
enterprise.

d. Liberal Credit Terms and Interest Rates – Liberal credit terms by banks and other government
institutions will generate expansion for the local entrepreneurs. Banks and financing institutions serve as
conduit of business in their expansion program. Credit terms given by suppliers of raw materials and other
production inputs are opportunities for the growth of the business.

4. Treats to Product Profitability and Market Expansion:

a. Entrance of Competition – The entrance of many competitors in the market place will definitely give
problem to the entrepreneur. Competition will reduce profitability as the price has to be competitive with
those in the market place. When profit drops, expansion will be limited and innovation will drain the
opportunity for growth. Advertising and promotion cost has to be sustained in order for the product to get
patronage.

b. The supply of raw materials will be limited as other competitors will be getting the same suppliers. As
demand for raw materials become competitive in prices, production inputs go higher and this will affect
product pricing. Increased production cost means changes in product price.

c. The Emergency of Leftwing Labor Unions – Many companies close shops with the advent of labor
unions with leftist philosophy as they want more wages and benefits that the company could not give.
Company strikes and lockouts are deterrent to the expansion and company’s growth. Most entrepreneurs

17
would try to avoid Unions if possible, as leftists elements usually come into the picture that will affect the
opportunities of business growth and expansion.

d. The Presence of Double Taxation – The government already imposed a lot of taxes to the
entrepreneur. Honest businessmen could not profit in their operations as there are lots of taxes that the
government would like to collect. Still related are the unfavourable treatment given by the tax collectors to
businessmen that they have to put in grease money for a little favor. Taxes are collected by the
government and another tax by unofficial tax collectors.

e. Peace and Order in the Area of Business Operation – Peace and order are components of business
growth. Criminality and Killings would drive away investors. Killing competitors by those riding in tandem
syndrome scares people to go into business. Hold up gangs and robbery syndicates are not good to
business growth.

Coupled with this problem is the revolutionary tax collected by the leftist elements. If you not pay
the revolutionary tax surely your business will go into flames. These are some greater threats to the
expansion of business in the countryside.

f. The Cost of Power Supply – Cost of production increases with the cost of utilities like currents and
water. The government private partnership in the operation of power and water utilities has increased the
cost of power by about 400 percent. This contributed to increased production cost and pose threat to our
competitiveness in the world market. Power an water utilities should be regulated by the government in
order to sustain growth in our industries.

The Entrepreneur should look deeper into the following areas:

1. The Management Team.

Management must be able to set the direction of the enterprise with a clear MISSION AND
VISION as the guiding tools for its plans and programs. Plans and programs are tentative activities that
will make a definite step towards the accomplishment of target objectives. Objectives set into motion the
goals of the enterprise to profitability.

The technical and manpower complements are important factors in the success of the business.
The entrepreneur cannot do the task alone as he needs people with the same outlook and perseverance
as he has, especially at the early stage of the business. They must work hard, persistent and must focus
on the mission of the business.

Manpower complement may need some training and indoctrination of company’s operation.
Motivated employees will perform better and they need to be looked into by top management. They must
know the management philosophy. They must be involved in the planning process to get their utmost
cooperation in the undertaking the enterprise activities.

The management must introduce new technology to make work easier for the working team.
Technology in the workplace is a motivating factor for the employee to produce more products or better
service. Product quality is improved and customers will always look for quality as vital component in
continuous patronage.

2. The Production Process.

Product specifications must be maintained accordingly to product standards that are acceptable
to customers. Product quality is now the name of the game in business. Customers are now aware of
product quality and they must be able to get their money’s worth. The physical properties must be
attractive and mechanical and electronic component must appeal to customers demand.

The management must look into cheap available raw materials in the production of goods. Good
quality materials should not sacrificed in terms of price as poor quality will affect the production of quality
products. Quality and price must be looked into carefully by the management.

Production schedule must be made together with product specifications. Work schedules must be
followed to save on energy and time. Production capacity must be followed according to target production
so that delayed in shipment could be avoided.

The rated daily production and monthly plant output must be put in graph and charts for easy
reference. Production rejects must be at minimum level. Inventory reports must be available and
warehousing activities are supervised accordingly.

For serving industries like restaurants, hotels, beauty salon, barber shops or even water stations,
the customers must be served with dignity and smile. Front line production crew must have the

18
personality, clean in looks, and proper attire. The place must have and ambiance of cleanliness and the
service must be prompt and must follow and approved procedure.

3. The Marketing Program.

The marketing program needs demand analysis for the last 5 years as to the major users of the
product. A new product would need customer view point before it is launched into the market. Products
samples may be necessary at the initial stage so that customers’ tastes and preferences could be
considered before mass production.

The demographic profile of the target customer must be taken into account as the success of the
product depends on the target customer. The target market must be specified accordingly and their needs
and wants must be satisfied. Customers would like to have a lot of choices yet when they like the product
we turn them into regular customers.

Product competitiveness is determined by quality and price. A demand and supply analysis must
be conducted through marketing research. Marketing research will determine the true picture of the
market demand and the product competitors. This had to be looked into carefully by the entrepreneur as
the success of the product depends greatly on the market size and its demand.

The growth in market demand needs channels of distribution. The channels of distribution should
be measured in terms of the capacity of distributors to handle the product. It must reach the customer at
the time they need it and price that is affordable to them. Various channel of distribution in the prevailing
market conditions should be studied carefully as it is the lifeblood of customers’ wants and needs.

4. The Financial Management

Venturing into business needed financial resources. Money is needed to finance the activities of
business. Whatever capital is available determines the kind of business operation. Many small
entrepreneurs start with limited capital but they were able to make business empire as they knew how to
invest their money in profitable operation. Savings and wise investments are characteristics of successful
business entrepreneur.

Then internal source of capital will come from the savings and assets of the starting entrepreneur.
Liquid assets in cash or in banks are the usual starting point. Real properties and personal properties may
be put in as guarantee for loans that may be used for operating expenses.

Banks and external sources of funds. They are willing to help businessmen with clear vision and
good business acumen back up by good feasibility studies. Bank loans must have reasonable interest
rates that it could be paid at reasonable period until the company would be able to operate on its own
funds. Real properties are usually accepted by banks as loan guarantee.

Other sources of funds are partnership and stock options. While funds could source from other
people, the entrepreneur must look into the controlling management of the business. Careful choice of
partners or investors must be looked into as he may lose control of his projected venture with the
interference of the other partners in the business. Some partnership disbands after a few years causing
business collapse.

The Identification of Business Opportunity

The entrepreneur’s desire to establish his business is a visible idea yet it must come into a test
whether it is a viable business option. It needs a careful analysis of opportunity evaluation. The
entrepreneur who fails to evaluate his noble idea because of his eagerness to plunge into the business
world often discovers later than he has more problems to solve and at times abandons the idea after
spending his time and money.

The following steps will help the prospective entrepreneur evaluate the idea before going into
business.

1. The Starting Point of Conceiving the Idea of the Type of Business:

Conceiving a new product is a new process of innovation and when this come into reality, the
product must be different from an existing product.

New product needs a customer evaluation and this process needs exposure to the target market
as to its economic value. This new product must satisfy customer’s needs and wants. It needs market
exposure and public acceptance before it could take off the ground.

19
 The entrepreneur must find a new approach to win customer on his side if the product of service
is similar to what is existing in the community. The new venture must be able to present a new alternative
or different approach for him to take off.

He must know the strengths and weakness of his competitor and thereby devise a new system of
promotion and advertising such as product discounts, cash discounts, raffles, and other package of
prizes. Emphasis should also focus on good customer service.

2. The Technical Feasibility and Time Frame:

An idea is not only concentrated on one entrepreneur. The entrepreneur might have conceived an
idea that is also in the mind of other person. The case of cellular phone is a concrete example. Many
companies tried the venture but the leader in the industry is still NLOKIA. Others begin to follow and
strong competition emerged in the process but the leading brands has taken off the ground before others
followed tailing behind.

The new product must have its technical feasibility and time to launch the product must be
immediately done to take ahead before others take the idea. The entrepreneur must analyse the market
demand and how he will be able to meet his demand on time. He must be able to determine the risk
involved in the new venture and investments in terms of money and time.

The new product needs testing as to its technical capability to satisfy customers’ needs and
wants. Some customers prefer branded products, those that are produced by big names in the industry.
Filipino innovators and inventors find it difficult to convince the local consumers that their product is good
or better than those imported, hence may are selling their idea to foreign investors.

In the food industry the growing fast food chain is crowded with growing senior citizens who have
money to buy yet they have not discovered their need for health foods with less cholesterol. A good
restaurant or fast food with fish and vegetables and some wellness program may do the trick for
demographic sector. This may work wonders in some developing urban sectors outside Metro Manila as it
works wonders in some known restaurant in the metropolis.

20
ACTIVITY 1

Read the statements below and fill in the blanks with appropriate words.

1. Technology must have the component of ______________that shall operate the machineries and
equipment.

2. __________________ is an entrepreneurial tool in determining the profitability of the business

operation.

3. ________________ is an important component in producing the product as the economies of scale

determines the price index.

4. Entrepreneurs must know the strengths and ________________ of his competitor and thereby devise
a
new system of promotion and advertising.

5. A unique product or service needs ___________ distribution strategy to get customer into the basket of
demand potential.

6. Product must reach the customer at the time they should need it and price that is ___________to them.

7. ___________is the sense of profit and this must be sustained by the entrepreneur before wide
completion appeared in the market place.

8. For serving industries like restaurants and hotels the place must have an ambiance of _____________
and the service must be prompt and must follow and approved procedure.

9. ___________must be looked into carefully by the entrepreneur as the success of the product depends
greatly on the market size and its demand.

10. _____________needs a customer evaluation and this process needs exposure to the target market
as
to its economic value.

ACTIVITY 2

Elaborate or explain the questions below. Write your answer below the questions.

1. What are the factors that the entrepreneur should look into before venturing in a new
business?

2. What are the factors that contribute in the customer satisfaction?

ACTIVITY 3

21
 1. Identify an industry where small or large business compete with each other. If you own one of
the competing small businesses, what strategy would you adapt?

7. FORMS OF SMALL BUSINESS OWNERSHIP

Learning Objectives:

1. Differentiate the different forms of business ownership and their advantages and
disadvantages
2. Identify the different causes of business failure

One of the most important decisions a prospective entrepreneur or SBO has to make is the form
of ownership that has to be adapted. The decision must be clear at the inception of the business. Each
form has its own unique character and the inherent advantages and disadvantages of each must be taken
into consideration before the decision is made.

The choice would depend largely on the resources and personal objectives of the prospective
owner.

The forms of ownership applicable to small business are sole proprietorship, partnership, and
corporation.

7. Sole Proprietorship

A sole proprietorship is a business owned and operated by a single person. Majority of business
are owned by sole proprietorship and this is an indication of the popularity of this particular form. Most
business owners choose this form business of certain advantages unique to sole proprietorship.

Advantages of Sole Proprietorship.

Sole proprietorship are afforded with advantages pertaining to the following:

1. Ease and cost of formation,

2. Secrecy,
3. Distribution and use of profit,
4. Control of the business,
5. Government regulation,
6. Taxation, and
7. Closing the business.

Ease and Cost of Formation. Among the three forms of ownership, the sole proprietorship is the easiest
and least costly to establish. The only requisites for its legal existence to commence are the following:
1. The sole owner’s resolution to start operating, and
2. Getting the required permit and license.

There are many activities that a sole proprietorship can do which cannot be done in a partnership and
corporate set-up. An example is the setting of the date for the actual start of operations. The sole
proprietor may change this date arbitrarily without getting the approval of anybody. This kind of
advantage is very important especially when business are in tight competition with one another.

22
 Another advantages is that the cost of forming a sole proprietorship is less than either the
partnership or corporation.
Secrecy.
One way of effectively competing with others is for the business person to determine the plans as
well as the strengths and weaknesses f his competitors. The sole proprietor is ahead in this regard
because he has the advantage of keeping his intention secret. This is possible because he does not
have, and he is not required by law, to share information with anyone. Thus, he can proceed with his
activities in secretly. His competition can only guess what his intended moves are.

Distribution and Use of Profit

If, because of his efforts, his business made large profit, the sole proprietor is the sole
beneficiary. He does not have share the profits with anymore.

If he decides to invest his profits for expanding his business, he is not required to consult
anybody. He may decide to use it any way he pleases and he free to do so.

Control of Business.
The power to control the business is vested solely to the single proprietor. This authority is very
important especially under critical moments of competition.

For instance, a consumer is confronted with a situation where he must choose to buy a product
from either a sole proprietorship, a partnership, or a corporation. If all the prices quoted by the three firms
are indicated and the consumer is asking for a 10 percent discount, the sole proprietor has the advantage
of making an instant decision. On the other hand, the partners will have to consult one another, and the
corporation will be ready with reply after undergoing a process. If the customer is in a hurry, he will decide
in favor of the sole proprietor.

Government Regulation.
The sole proprietorship is spared from various government rules which cover partnerships and
corporations. Also, sole proprietorships are required to submit fewer reports to the government.

Sole proprietorship are also spared from charter restrictions on operations. A corporation
producing movies for example, cannot engage in the production of vegetable crops. In contrast, a sole
proprietorship manufacturing “pastillas de leche” can switch to the manufacturing of kitchen utensils
without violating any legal restriction.

Taxation.
The net income of the sole proprietorship is regarded as the personal income of the sole owner
and is taxed accordingly. This is not so in the case of partnership and corporation wherein net incomes
are taxed and will be subject to taxation again when the owners individually receive their share of the
profits.

Closing the Business.

Sole proprietorships can be dissolved at will. Although this is done only when necessary, it
remains an option of the owner. Once the owner makes a decision to cease operations, he does not need
to seek the approval of co-owners or partners because he is the sole owner.

Disadvantages of Sole Proprietorship

The following disadvantages are inherent to sole proprietorships;
1. The possibility that the owners lacks ability and experience;
2. The difficulty in attracting and keeping quality employee;
3. The difficulty in raising additional capital;
4. The limited life of the firm; and
5. The unlimited liability of the proprietor.

Owner’s Lack of ability and experience.

The success of sole proprietorship will depend largely on the management and entrepreneurial
skill of the owner. The firm will need a generalist with sufficient exposure to the various specialized
functions required, like marketing, production, finance, accounting, personnel, and research and
development.

Unfortunately, it is hard to find qualified generalist to manage the sole proprietorships. If the sole
proprietor lacks the skills of a generalist, then it will be hard for the firm to succeed.

Difficulty in Raising More Capital.

In a proprietorship, the amount of capital that could be raised will depend on the financial
resource of the sole owner. Even if he can obtain credits, the amount will depend on his sole capacity to

23
pay. This problem is especially felt when business expansion is required and more difficult when credits is
getting tight and interest rates are going up.

Limited Life of the Firm.

The existence of the sole proprietorship depends on the physical well-being of the owner. Ill
health on the part of the owner could cause bankruptcy. His death will mean liquidation of the business.

In any case, employees, customers, and creditors feel some degree of anxiety about the limited
life of the sole proprietorship. This limits the number and magnitude of transactions undertaken by the
firm.

Unlimited Liability of the Proprietor.

Any liability incurred by the sole proprietorship extends to the owner’s personal assets. In theory,
the sole proprietor could love even his shirt if all his other assets have been exhausted in liquidating all
claims against his business.

7.2 Partnership

A partnership is a legal association of two or more persons as co-owner of an un-incorporated

business. A partnership is formed with the purpose of eliminating some of the disadvantages of sole
proprietorship while retraining some of their advantages.

Advantages of Partnerships
Partnership have advantages pertaining to the following;
1. Ease of formation;
2. Pooling of knowledge and skills;
3. More source of capital;
4. Ability to attract and retain employee’s; and
5. Tax advantages.

Ease of Formation. Like sole proprietorships, partnerships are easy to form. The only requirement
before the partnership starts to operate is for the partners to agree on basic aspects of the business like
the nature of business, location, capitalization, and the like.

A written agreement called partnership agreement is drawn to formalize what has been agreed upon.

Pooling of Knowledge and skills. The combined knowledge and skills of the partners provide the
partnership with a distinct advantage. One partner, for instance, may be very good at marketing, while
another may have a proven track record in research and development. These skills may be used to the
advantage of partnership. This condition leads to specialization which is a very important competitive tool
in business.

More Source of Capital. The combined resource of the partners provide a bigger source of
funding. Also, the partnership can enjoy the benefits of a higher credit rating. A combination of the
resource potentials of the partners and a high credit rating is regarded as a formidable financing capability
of the firm.

Ability to Attract and Retain Employees. Attracting and retaining good employees is a difficulty
inherent to sole proprietorships. Partnerships are able to overcome this difficulty by offering partner status
to valuable employees. This advantage also minimize the potential harm that may be done when a key
employee moves over to another firm.

Tax Advantage. The income of the partnership is not taxed separately from the partners’
incomes. Any profit derived by the partners are taxed as their individual incomes.

Disadvantages of Partnerships
Operating partnerships are hindered by the following disadvantages;
1. Unlimited liability,
2. Limited life,
3. Potential conflict between partners, and
4. Difficulty in dissolving the business.

Unlimited Liabilities. Partnerships, like sole proprietorships, are saddled with the disadvantage
of unlimited liability. Although one or more partners may opt to have limited liability, the remaining
partners carries the burden of unlimited liability.

Limited Life. When a partner dies or withdraws from the business, the partnership is terminated.
In essence, the life of the partnership is more limited than that of the sole proprietorship. This is so

24
because the life of a sole proprietorship depends on the state of health and willingness of the sole owner
to continue while the life of a partnership depends on the state of health and willingness of the partners to
continue. If there are five partners, the risk of the termination of the life the partnership is five times
greater than that a sole proprietorship.

Potential Conflict Between Partners. There are occasions when partners disagree in certain
ways of operating the business, and there are many potential areas for disagreement. Among these are
the following;
1. Adding new products or services carries by the business;
2. Hiring new employees;
3. Decision on credit extensions; and
4. The grant of additional benefits to employees.

When conflict between partners persists, operating are affected. The condition may even lead to
bankruptcy. For instance, an employee may be at the receiving end of conflicting orders from the
partners. The ensuing confusion may affect the employee’s performance.

Table 7
Forms of Business Ownership: Implication on Various Aspect

ASPECT Sole Proprietorship Partnership Corporation

1. Liability of
Unlimited Limited/unlimited Limited
owner/s

2. Ease of
not easy Not easy Easy
expansion

Dependent on the Not dependent on the

3. Life of firm Dependent on the partners
owner owners

4. Decision-
Swift Moderately fast Take time
making

5. Taxation of
Once once Twice
income

6. Ease of
Easiest easy Take time
formation

7. Ease of
Easiest Not so easy Take time
dissolution

Difficulty in Dissolving the Business. Partnerships are not as easy to dissolve as sole
Proprietorships. Whatever assets or liabilities are left after dissolving a sole proprietorship is the concern
of the sole owner. In a partnership dissolution, it may not be easy to divide whatever assets are left for
distribution to the partners as some of the assets may be fixed or immovable.

The more difficult the dissolution becomes when certain debts are to be shared by the partners.

Types of Partnerships
Partnerships may be classified according to the liability of the partners. They are as follows:
1. General partnership, and
2. Limited partnership

A general partnership is an association of two or more persons, each with unlimited liability, and
who are actively involved in the business.

A limited partnership is an arrangement in which the liability of one or more partners is limited to
the amount of assets they invested in the business.

Partnership Agreements
The possibility of disagreement between partners is always present in a partnership. There are
certain operational concerns that could be the subject of disagreement. For instance, the partners may
disagree on the choice of location of the business. Disagreement oftentimes negatively affects employee
morale and work attitude. It is important for the firm to be spared of such difficulties.

25
 The partners agreement is a document designed to prevent or at least minimize disagreements
between partners. It usually covers the following:
1. The purpose of the business;
2. The terms of the partnership;
3. The goals of the partners and the partnership;
4. The financial contribution made by each partner at the beginning and during the lifetime of the
business;
5. The distribution of profits and losses;
6. The withdrawal of contributed assets or capital by a partner;
7. The management powers and work responsibilities of each partners;
8. The provisions for admitting new partners;
9. The provisions for expelling a partner;
10. The provisions for continuing the business in the events of a partner’s death, illness, disability or
withdrawal;
11. The provisions for determining the value of a departing partner’s interest and method of payment
of that interest;
12. The methods of setting disputes through mediation or arbitration; and
13. The duration of the agreement and the terms of dissolution of the business.

7.3 Corporation

A corporation is a legally chartered enterprise with most of the legal rights of a person, included
the right to conduct a business, to own and sell property, to borrow money, and to sue and be sued.

The corporate form of business is the third ownership option available to the entrepreneur or the
small business owner. Corporations are owned by stockholders. They are issued certificates of ownership
called stocks. When large amounts of capital is needed by the firm, the corporate form is the most
appropriate.

Advantages of Corporations
The advantages inherent to corporations are the following:
1. Limited liability;
2. Ease of expansion;
3. ease of transferring ownership;
4. relatively long life; and
5. greater ability to hire specialized management.

Limited liability. The liability of a stockholder is limited to his shareholders. He may lose the
entire value of his stocks in the event of a bankruptcy. Beyond the said value, he has no more liability.

The advantage of limited liability attracts all kinds of investors, big or small. A person who has
only a few thousand pesos to spare may become a part owner of the corporation by purchasing a
limited number of shares. Those who have more money may a bigger number of shares.

Ease of Expansion. The authority granted to a corporation to sell its own share and stock
provides a means to pool large amounts of funds. The price per share of the stocks can be made low
enough to attract even the smallest investor. As the ownership of the shares of stock can be easily
transferred, this feature motivates further the prospective investor to buy shares.

The above-cited features make it easier for the corporation to consider expanding operation.

Ease of Transferring Ownership. If a stockholder loses interest in maintaining part ownership of

the corporation, he may disassociate himself from it by selling or donating his shares to another
person. This feature allows the corporation to change ownership as often as required without actually
dissolving it.

Relatively Long Life. Corporation are established to have a life of up to 50 years and is
extendible for longer periods. Because ownership is readily transferable, the death or withdrawal of
any or stockholders do not terminate corporation. This advantage makes the corporation the most
stable among the three forms of ownership.

Greater Ability to Hire Specialized Management. The expanding operations of corporations

make it possible to subdivide the overall task into smaller specialized positions. As the created
positions will be quite dissimilar from each other, the demand for management expertise well be a
little more exacting than those for sole proprietorships and partnerships.

26
 The said requirement paves the way for hiring fully trained management experts. With specialized
management, the corporation is provided with an opportunity to grow and develop more vigorously.

Disadvantages of Corporations
Corporation also have disadvantages. They are the following:
1. More expensive and complicated to organize;
2. Double taxation;
3. More extensive government restrictions and reporting requirements; and
4. Employee lack personal identification and commitment.

More Expensive and Complicated to Organize. Among the three forms of ownership, the
corporation requires more time and money to organize.

A corporation may start operations only after receiving from the Securities and Exchange
Commission (SEC) a certificate incorporation. The SEC will only issue the certificate of incorporation after
reviewing the articles of incorporation previously submitted by the initial set of corporate officers.

The articles of incorporation contains the following:

1. The name of the corporation;
2. Specific purpose or purposes;
3. Principal office of the corporation;
4. Term of existence of the corporation;
5. Names, nationalities and residence of incorporations;
6. Number of directors;
7. Amount of authorized capital stock; and
8. Other matters.

The treasure’s affidavit indicating payment of minimum subscribed capital stock is also a
requirement.

The articles of incorporation and the treasurer’s affidavit must, point by point, conform with the
requirements of the Corporation code. Complying with these requirement takes time, however.

Double Taxation. The profits derived by stockholders are taxed twice by the government: first,
when the corporation realizes profits, and second, when individual stockholders declare as part of their
personal income the dividends they received from the corporation. This is not the case with sole
proprietorships and partnerships.

More Extensive Government Restrictions and Reporting Requirements. Corporations are

subject to stringent government restrictions and are requires to submit various reports on a periodic basis.
An example of a restriction is the prohibition of certain actions without the approval of the SEC. For
instance, corporations cannot distribute stock dividends without prior approval of the SEC.

The submission of financial statements is an example of annual reports required by the SEC. the
reports submitted give competitors the chance to take look at the company’s status. Competitors do not
enjoy this privileges when they are competing with sole proprietorships or partnership.

Employee Lack Personal Identification and commitment. Many stockholders are detached
from the daily operations of the corporation. Those who are employed by the corporation mostly do not
own even a share of the company’s stocks. The relationship between the corporation and the employees
are too impersonal. Employees do not feel identified with the corporation and therefor, lack commitment
to their work. The extra concern provided by employees of sole proprietorships and partnerships
sometimes spell the difference between success failure. Such concern is rarely present in a corporate
work atmosphere.

Causes of Business Failure

The success of the entrepreneur can be viewed from several situations namely:

1. Business profitability is to provide high benefits to the employees such as profit sharing.
2. Survival from an economic crisis is ability to stay in the industry amidst financial difficulties that causes
closure and bankruptcy of other establishments most particularly the competitors.
3. Incremental sales and share of the market is the introduction of new product lines and design that
expands market share and attract new market segment.
4. Expansion of market area and product lines such as opening of new outlets, branches and attracting
new dealers by offering new product designs and images.

27
5. Acquisition and ownership of plant machinery and premises in buying or acquiring new plants, factory
and other fixed assets shows success in the industry.
6. Getting a long term business contract with the government or a big business entity.

Success is having avoided the causes of failure which the entrepreneur is supposed to avoid.
These causes are avoidable but they must be known and made clear to the entrepreneur. They are as
follows:

1. Undercapitalization – The entrepreneur must make sure that before the business started, there must
be a contingency fund if in case the expected ROI (Return of Investment) is not operational. The
capitalist, investors, and fund managers neglected a conservative forecasting so as predicted an
exaggerated, over estimation and unrealistic prediction on the business operations. The organization
must consider peak and lean season to avoid this problem and anticipate the future potential problem that
might occur if unrealized expectations will not be considered.
2. Poor Business Location – The location must be strategic enough to the suppliers of the raw
materials, accessible to the customers, convenience to the future market. The demographic profile of the
target market which includes the age, gender, income level and civil status are the main variables for
market research to determine product desire and acceptability.
3. Negligence to Public Policy – “Ignorance of the law is not an excuse” emphasize that the business
organization must be aware of the existing and proposed law that can affect the operation of the entity.
Public policy contains rules and regulations that sometimes helps or hinder the organization to expand
and limits the market share. The makers of plastic bags and non-biodegradable materials affected by the
law on prohibiting the usage of public bags and the like in one locality can cause business failure.
4. Unprepared to Risk – The entrepreneur may not be able to control the market situation but there is
surely a way to manage the risk in business that arises from fortuitous events like fire, flood, or theft.
Risks of this nature are insurable so that the burden of loss or damage is shifted from the insured to the
insurer under non-life insurance policy. The value of insurance coverage usually gets appreciated by the
entrepreneur only after the fortuitous event has occurred. To avoid risk and even failure, the business
organization must be insured under a non-life insurance policy.
5. No New Product – The entrepreneur must be creative and innovative to promote new product design
and image. Product or service of one organization will establish popularity to the owners or the top
management team. Obsolescence will result business failure because customer wants new product and
they need changes in product design and features.
6. Unsatisfactorily Performance of Relatives – Blood is not thicker than water when workers consider
their employment by relatives (even family members) is a matter of privilege rather than a duty to be
sincere and productive. The unsatisfactorily performance of relatives working for the entrepreneur slowly
erodes the business and eventually fails. Sometimes the commitment in the company that should be
rendered by the worker if they are relatives becomes a problem.
7. Irregular Attendance – The absentee entrepreneur will not be there to make the critical decision. The
presence of the owner can guarantee commitment from the subordinates. Whenever problems arise, the
immediate decision coming from the owners needed to continue the operation of the business. During the
earlier stage of the business proper monitoring and follow-ups to the design business will be observed.

28
ACTIVITY 1

Match column A with column B.

1. sole proprietorship a. a potential area for disagreement between partners

2. if firm make large profits b. an advantage of corporations

3. limited life of the firm c. certificate of ownership of a corporation

4. decision on credit extensions d. contained in the articles of incorporation

5. ease of expansion e. relationship between the corporation and the employeee

6. partnership agreement f. more expensive and complicated to organize

7. stocks g. document designed to minimize disagreements between

partners

8. specific purpose h. sole proprietorship is the sole beneficiary

9. too impersonal i. disadvantage of sole proprietorship

10. corporations j. business owned by one person

ACTVITY 2

Elaborate or explain the questions below. Write your answer below the questions.

1. In your own perception, what are the strategies to avoid business failure?

2. What are the similarities and differences between the advantages and disadvantages of sole
proprietorship, partnership and corporation?

ACTIVITY 3

29
 Make a list of at least five (5) business which are specifically owned as sole proprietorship, as
partners and as corporate owners.

Sole Proprietorship Partnership Corporation

e.g. Frontrow

8. PRODUCT DEVELOPMENT

Learning objectives:

1. Gain understanding on product planning

2. Determine the types of products: goods or services, consumer or industrial
3. Analyze the new product planning process as it applied in developing new product
4. Comprehends the stages in the product life cycle

8.1 Product Planning

Product Planning is a systematic decision-making relating to the totality in the development and
management of a firm’s product, including its branding and packaging. It should pinpoint opportunities,
develop appropriate marketing programs, coordinate a mix of products, maintain successful products,
upgrade faltering products, and remove undesirable products.

Product consists of the following:

1. Features are the attributes of the product which includes characteristics and its uniqueness.
2. Function are the uses of the product and its contribution for customer satisfaction.
3. Benefits are the positive effect that the product will going to give the customers after buying the
product.

A product is anything that can be offered for satisfaction it may be an idea, a physical entity (a
good), a service, or any combination of the three. Product is that bundle of satisfaction which the buyer
receives as the result of a lease or purchase. It include the physical good or service itself (its form, taste,
smell, color and texture), the function of the product in use, the package, the label, the warranty, the
manufacturer’s and retailers’ services.

Level of Products

1. Tangible Products - are basic physical or appearance, it can be a service or an idea having precise
specifications and is offered under a given or specified description or model number.

2. Augmented Product – includes the image and service features of a certain entity. It gives emphasis on
the intangible benefits that the customer will be getting form buying the product.

30
3. Generic Product – focuses on what a product means to the consumer, not the seller. This will qualify
the purpose of its existence and primary objective in creating the product.

Types of Products

GOODS are sale of the physical products from the manufacturer to the consumer or final and
ultimate user. These are tangibles that satisfaction can be measured with result or evidences as
manifested through physical development.

1. Durable goods are the physical products that are used over a long period of time. These products are
expensive because of the quality of materials used.

2. Non-durable goods are the physical products that are quickly and easily to consumed or worn out,
become obsolete, unfashionable or no longer popular. These products are inexpensive and can easily be
damaged.

SERVICES are rental of goods, alteration or repair of goods owned by consumers and personal
services. These are intangible products that satisfaction can be measured in future preference.

1. Rented Goods Service – The consumer rented the facility or products of the sellers in a certain
period of time.
2. Owned Goods Services – Repair and maintenance services rendered by the sellers to the
products of the consumer.
3. Non-good Service – Personal service on the part of the seller; most common are the expertise
and the profession of the seller.

Characteristics of Services

1. Intangibility – Services cannot be displayed, transported, stored, packaged or inspected before buying.
The credibility of the service provided most of the time counts.

2. Perishability – Services cannot be stored for future sale. The skills of the provider must enhance and
develop to better serve the customer.

3. Inseparability – Service provider and services cannot be separated. It cannot accomplish the purpose if
one is missing.

4. Variability – Service is difficult to standardize because it varies upon the performance of the provider.

Consumer Products
Consumer products are goods and services destined or produced for the final consumer for
personal, family, or household use. The use of the goods or services designates it as a consumer
product.

Classification of Consumer Products:

1. Convenience Products – are those purchased with the minimum or less of effort because the buyer
has knowledge of product characteristics prior to shopping. The consumer is not willing to search or look
for information and will accept a substitute rather than visit another store.

a. Staples – low priced items that are routinely purchased on a regular basis. Basically, these are the
products for everyday used.

b. Impulse Products – items that the consumers does not plan to buy. The customer is attracted to buy
the product for some reasons like the very impressive promotional campaign or low or sale items.

Classification of impulse products:

 Pure – escape buying out of normal or everyday routine
 Reminder – previous and past experience remembered
 Suggestion – an item seen, analyzed and evaluated for the first time
 Planned – purchase based on a sale offer.

c. Emergency – items purchased out of urgent need. These products are needed immediately to lessen
the possible future problems.

2. Shopping Products – are those which consumers acquire further knowledge or information in order to
make a purchase decision. Consumers will exert effort in searching and looking for information because
these products have high prices and bought in frequently.

31
 a. Attribute-Based Shopping Products – customers get information and evaluate product features,
performance, options, warranties and other factors.
b. Price-based Shopping Products – customers judge product attributes to be the same and look
around for the least expensive item.

3. Specialty products – are the particular brands and stores to which consumers are loyal. They are
willing to make a significant or specific or specific effort to acquire the brand desired and will pay a higher
or above the other price than competitive products. Substitutes are not acceptable.

Industrial Products

Industrial Products are goods or services purchased for use or consumption in the production
and manufacturing of other goods or services, in the operation of a business or for resale to other
customers.

Industrial Products are categorized based on degree of decision-making involved cost, rapidity of
consumption, role in product and change in form.

1. Installation – very expensive, non-portable goods which are used in the production process and
do not become part of the finished product. They last for many years and do not change in form.
They involve a high degree of consumer decision making.

2. Accessory Equipment – moderately priced portable goods which last a number of years
requiring a moderate amount of consumer decision making. They become part of the finished
product.

3. Raw Materials – unprocessed primary materials from extractive and agricultural industries.
Natural environment promotes a good source of raw materials.

4. Component Materials – semi-manufactured goods which undergo further changes in form to be

a part of the finished products. The quality of these materials strengthened the credibility of the
product to the public.

5. Fabricated Parts - finished products of other companies (bought from them) which form part of
the manufactured product without further changes in form.

6. Industrial or Operating Supplies – inexpensive convenience goods which are rapidly consumed
and are necessary for the day-to –day operation of the firm. They do not become part of the
finished product.

8.2 Elements of a Product Mix

1. Product Item – a specific model, brand, size of a product that a company offers to the public.

2. Product Line – group of closely related product items of the company.

3. Product Mix – consists of all the different product lines a company offers for satisfaction.

4. Product Mix Width – number of different product lines the company offer to the market.

5. Product Mix Depth – number of product items within each product line designated to the market.

6. Product Mix Consistency – relationship among product lines in terms of common end-use that
the company design, distribution outlets or dealers, consumer group and price range levels.

Product Positioning

The entrepreneur must create image to the public on how they want to position the product. The
customers are target market must be well informed about a new product – what is it, what can it do, is it
better than the other products, and who should buy it.

The company must inform the market on the different concepts a product must be:

1. low price and high quality

2. high price and high quality
3. low price and low quality

example:

32
 Ariel detergent soap: they claimed that their products are high price and high quality.
Surf detergent soap: they claimed that their products are high quality but low in price.

Industrial Services

Acts rendered to the industry or company for the purpose of attaining its goals and objectives.

A. Maintenance and Repair Services – includes painting, machinery repair and janitorial services.
B. Business Advisory Services – management consulting, advertising agency services,
accounting services and legal services.

Product Life Cycle

The Product Life Cycle concept describes a product’s sales, profits, customers, competitors, and
marketing emphasis from its beginning until it is removed from the market.

STAGES IN THE PRODUCT LIFE CYCLE

I. Product Development – the company must think of a new product.

A new product is a modification, creation, and innovation of an existing product which makes
the product more meaningful to the customer.

The new product planning process involves a series of steps:

1. Idea Generation – searching and looking for new product or business opportunities. The
employees, channel members, competitors, and customers can be a great source.

Methods:

a. Brainstorming – all the members of the group can contribute in sharing ideas, comments, and
suggestions.

b. Analyzing Existing Products – a successful product tat captures great market can be
analysed as a basis in creating a new product.

c. Reading Trade Publications – an inspiration story of a successful entrepreneur can lead into
a development a new product.

d. Visiting Suppliers’ Facilities – suppliers raw materials can be used a method to innovate and
modify existing product.

e. Surveys – getting feedback coming from the customers and potential market.

2. Idea Screening – Ideas which are unsuitable, unattractive or poor are junked. Ideas are rated on
the basis of a rating 1-10 together with attributes.

Ideas are rated on the following categories: general, marketing, and production characteristics.

3. Concept Testing – ideas which have passed the screening stage will now require feedback from
the consumer. It measures consumer enthusiasm by asking potential consumer to react to a
picture, statement or oral description of a product.

4. Business Analysis is a review of market factors, revenues, cost and trends.

a. Demand Projections – sales potential; sales growth; rate of repurchase; distribution intensity.

b. Cost Projections – per unit cost; raw materials cost; cost of existing facilities and resources;
breakeven point.

c. Competition – Market share of company and competitors; strengths and weaknesses of

competitors; potential competitors.

d. Required Investment – engineering, patent search, product development, testing; promotion;

production; distribution

33
 e. Profitability – time to recover initial cost; per unit profits; distribution intermediaries; control
over price; Return on Investment

5. Product Development – ideas are converted into tangible form. This stage involves:
a. Product Construction: type and quality of materials, methods of production, production time
and cost requirements per unit; plan capacity, sizes and colors
b. Packaging: materials used promotion or storage; cost; sizes; and color;
c. Branding: choice of new or existing name; exclusivity; trademark protection;
d. Product positioning: selecting a market segment
e. Consumer attitude and usage testing.

6. Test Marketing – involves of a selling of a fully developed product in a selected city and
observing the actual or on the spot performance under the chosen marketing plan. Depending on
the results, a firm can decide to go ahead, modify the product or services, modify the marketing
plan or drop or delete the product.

7. Commercialization – this involves the actual marketing of the product in the target market. The
different activities to introduce the product to the market must be presented.

II. Introduction

A new product is introduced into the market place and the objective is to generate customer
interest. The rate of sales growth depends on the desirability of the product, competition is limited or
selected, losses are experienced because of high production and marketing costs. Initial and immediate
customers are called innovators who are willing to take risk because the product is new in the market.
Promotions must be informative and free samples may be desirable.

III. Growth

The product gains wider consumer acceptance and the objective is to expand distribution and the
range of available product alternatives. More firms enter the profitable and tested market. Profits are high
because the mass market buys from a limited group of firms. Basic models are modified and chosen;
distribution is expanded coupled with mass advertising to meet new goals.

IV. Maturity

The product’s sales level and companies try to maintain lower price, better product features for as
long as possible. Market is saturated, penetrated and competition is at its highest level. Company profits
decline because discounting becomes popular and high cost in advertising. Products are available at
most outlets at varying prices. Promotion is very competitive.

Strategies for mature products:

1. Develop new uses or functions and new purposes for products.

2. Develop new or add latest product features.
3. Find new classes of consumers for modified products.
4. Increase product use for new product users.
5. Change marketing

34
ACTIVITY 1
Identify the answer that corresponds to each question. Write your answer on the space provided
before the number.

________________1. A specific model, brand, size of a product that a company offers to the public.

________________2. Describes a product’s sales, profits, customers, competitors, and marketing

emphasis from its beginning until it is removed from the market.

________________3. Bundle of satisfaction which the buyer receives as the result of a lease or
purchase.

________________4. These products are categorized based on degree of decision-making involved cost,
rapidity of consumption, role in product and change in form.

________________5. The product gains wider consumer acceptance and the objective is to expand
distribution and the range of available product alternatives.

________________6. These are the positive effect that the product will going to give the consumer after
buying the product.

________________7. Product which consumers acquire further knowledge or information in order to

make
a purchase decision.

________________8. It involves the actual marketing of the product in the target market.

________________9. A modification, creation, and innovation of an existing product which makes the
product more meaningful to the customer.

________________10. These are unprocessed primary materials from extractive and agricultural
industries.

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ACTIVITY 2

Enumerate the following correctly.

1. Enumerate at least ten (10) products. Identify the levels and types of the product according to
the lecture.

Product Level of Product Types of Product

2. Enumerate at least ten (10) consumer product and identify if it is staples, impulse product or
emergency product.

9. PRICING STRATEGY

Learning Objectives:

1. Define the meaning of price and its importance

2. Determine the appropriate strategies in pricing a certain product

9.1 Price

A price determine the value of a good or service to the buyers even to the sellers. It is the amount
of money needed in order to acquire a product or service and its accompanying services. Price is the
amount of money charged for a product or service or the sum of the values that consumers exchange for
the benefits of having or using the product or service.

Price can be set in monetary or non-monetary forms. Monetary and non-monetary exchanges
combined. Product can be exchanged through money in a form of a bills, coins, credit cards, and even
promissory notes. It cannot be sold without a value for exchange both for the seller and buyer.

Price planning includes a step by step action in decision making by an organization regarding all
aspects of pricing either goods or services. It involves activities and methods including policies to better
appreciate the value of a product. It should contain action for management to promote profit and stability
to the market.

Pricing promotes advantages to both seller and buyers such as:

1. Price is the major key component of exchange to achieve fairness to both parties.
2. Greater price competition among rivals maintains its sale ability. Company uses price to attract its
target market so as to gain their loyalty.
3. Cost and prices have risen rapidly. A certain variable affects its sale ability.
4. Technology advances led to intense price competition which sometimes increases the price of a
certain product.
5. Service orientation firms are more concerned about how they set prices. It helps identify their
competitive advantage among others.

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Market must be segments in order to meet individual needs and wants

Consumers may be divided into:

1. Price Shoppers- This group is interested in the best deal for a product. They are commonly
called PRAKTIKAL and price conscious.

2. Brand-Loyal Customers- This group believe that their present brands are superior to others and
are willing to pay fair prices for products just to acquire it.

3. Status Seeker- People who are interested in prestigious or called (signature) brands or known
product categories and willing to pay at any price.

4. Service or Feature Shopper- This group seeks a high value on customer service and product
features and will pay for them.

5. Convenience Shopper – People who value nearby location, long stare hours and are willing to
pay for easier shopping.1

9.2 Pricing Strategy

The company must provide ways to conceptualize actions to attract customers patronage using
the price.

Five steps on developing a price strategy:

1. OBJECTIVES
Objectives may be: Sales-Based, Profit-based and status-quo based.
a. Sales-Based- The firm is interested in sales growth and maximizing market share. The
concern of the company is to increase sales by offering new product design, product lines
and promotional items.
b. Profit-Based- The firm is interested in maximizing profit, earning a satisfactory profit,
optimizing the return on investment and securing an early recovery of cash. The company’s
thrust is to satisfy the investors and stockholders by providing them immediately return of
investment.
c. Status Quo Based- the firm seeks to avoid reasonable government actions, minimize the
effects of competitor actions, maintain good channel relations, discourage the entry of
competitors, reduce demands from suppliers and stabilize prices. The company’s goal is to
maintain good image to the community by creating projects and program that protect
company’s welfare and goodwill.

2. BROAD PRICE POLICY

A broad price policy provides producers, rules and methods to act in one specific situation. It links
price with the target market, image and other marketing elements. It makes sure that pricing decisions are
coordinated from each other.

a. Penetration Pricing- Uses low prices to capture or attract the larger and mass market for a
product or service. The preference of the mass majority of the market will be the basis on the
price set.
b. Skimming Prices- Uses high prices to attract the market segment more concerned with
product quality, uniqueness or status than price. The seller chooses high price in order to
determine who will really patronize the product.

3. PRICE STRATEGY

Price strategy are ways or some action to accomplish its goals and objectives of the company in
gaining profit.

Price strategy may be cost, demand and competition based.

a. Cost-Based Price Strategy- The firm sets prices by computing merchandise, services, and
overhead costs then adds the desired profit to those figures. After combining all the expenses
incurred during the production of the product, the seller must also decide the best profit as part of
the price of a product.
b. Demand-Based price strategy- The firm sets after researching costumer desire and makes sure
the range of prices are acceptable to the target market. The firm conducts researches regarding
the saleability of the product if found out that the product meets the criteria of the market the firms
can raise the price of the product because it can assure profit based on the market demand.

37
 c. Competition based Price Strategy- The firm sets prices in relation to the competitors. The
entrepreneur must research the prices set by their companies.

4. IMPLEMENTING A PRICE STRATEGY

The firm’s readiness to sell the product would be effective if even an attractive price strategy
listed below:
a. Customary Pricing- One price is maintained over an extended period of time. Normally the
price of the product will not be easily changed. The entrepreneur must consider that the price
of the product which are affordable to majority of buyers.

b. Variable pricing- price responds to cost fluctuation or differences in demand. The

entrepreneur must consider the law of demand and supply. If there are sufficient supply and
few of demand the price will increase and vice versa.

c. One price policy – One price is charged to all customers buying the product or service under
similar conditions. The entrepreneur will set one price for all products available for sale even
though it differs from design.

d. Flexible Pricing- pricing is based on customer’s ability to negotiate or is based on the buying
power of the customer. The entrepreneur must meet the needs and wants of the customer so
as they need to adjust the price just to ensure continuous patronage and loyalty.

e. Odd Pricing- prices are set a levels below even values. The entrepreneur uses odd number
too attract customers in pricing a product.

f. Price Quality Association- Costumers believed that high price represents high quality and
low prices represent low quality. The entrepreneur instilled to the mind of the customers that
having a high price contain high quality materials.

g. Prestige Pricing- Customers set price floor and will not buy at prices below those floor.
Above price ceilings. Items would seem too expensive. The entrepreneur must consider that
products must follow the price floor and ceiling set by the government.

h. Leader Pricing- Selling key items at low prices to gain costumer interests in its product line.
It is hoped that the customers will buy regularly priced products together with the specially
priced one. The entrepreneur must be aggressive to win the respect of the competitors so as
they can value the actions that will take place.

i. Multiple-Unit Pricing – A firm offers discounts to consumers for buying in large quantities.
The entrepreneur must consider that selling more units will produce more profits. To prevent
overstocking and maintain proper inventory selling in bulk can increase profit and promote
growth.

j. Price Lining – Instead of setting one price for a single model of a good or service, the firm
sells two models (different quality and features) at different prices.

k. Price Bundling – A firm offers a basic product, options and customer service for one total
price. The entrepreneur will combine product and service to the price set in the product.

l. Unbundled Pricing – Firms sells by individual components and allow customer to decide
what to buy. The entrepreneur will set price of the product item from the other. It can be sold
separately and individually.

m. Geographic Pricing – Prices are set depending on the distance between buyers and sellers
normally this activity done if both parties are far from each other. The two parties must agreed
to the price before the transaction can take place.
 FOB Factory – The buyer pays for all freight charges regardless of the distance the
buyer must be willing to pay all the expenses incurred during the transfer of the
product from one place to another.
 Uniform Delivered Pricing – Buyers pay the same delivered price for the same
quantity of goods. The entrepreneur shall consider the quantity f goods in setting the
price of the product.
 Zone Pricing – Buyers within the geographic zone pay a uniform delivered price. The
entrepreneur must provide a same measure of charges to one particular location.
 Base-Point Pricing – the cost transporting goods are computed from base point
nearest buyer. In setting prices the most accessible and nearest buyer need to
determine as a base point in distributing the product.

38
 n. Terms – are price agreements, including discounts, timing of payments and credit
agreements.

Discounts are reduction in the selling price given to customer for varying reasons on paying in
cash, performing certain duties, buying in large quantities or in bulk, and off-season buying.

5. PRICE ADJUSTMENTS

Changes in cost, competitive conditions and consumer demand required changes in price. The
following situations listed below:

a. List prices are regularly quoted prices to consumers as in catalogue, price tags, and purchase
orders. The salesman must have a clear and updated price so when the negotiation takes place
the minor correction of price will be made.
b. Escalator Clauses – clauses in the contract which allow for price increase after the sale is
concluded but before delivery is made. The seller must communicate to the buyer that there is a
price adjustment due to some reasons or increase of raw materials or gasoline price and must
agree to the new price.
c. Mark-ups –raise regular selling prices because demand is unexpectedly high or costs are rising.
The entrepreneur must be careful to increase the price of the product since it can affect
customer’s continuous loyalty and patronage.
d. Reduction from original selling prices to meet lower prices of competitors, overstocking, shop-
worn merchandise, and increase customer traffic can affect profit generation.

ACTIVITY 1

Elaborate or explain the questions below. Write your answer below the questions.

1. Discuss why stores offers discounts.

2. Discuss the situations that cause price adjustments.

3. Differentiate Penetration from skimming price policy.

ACTIVITY 2

Give a list of at least ten (10) different products and make a comparison of their prices. If you are a buyer
what are you going to patronize.

Example. Bath soap – Safeguard P36.00 - I’d better choose shield bath soap
because it is
Shield P25.00 affordable and the quality is good

PRODUCT PRICE COMPARISON REASON

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 10. PLACE OF DISTRIBUTION

Learning Objectives:

1. Describe the nature of distribution planning and its importance

2. Distinguish the basic type and intensity of channel coverage
3. Evaluate the appropriate strategy in distributing product
4. Identify the major kinds of transportation services companies and categories of transportation
firms

10.1 Distribution Planning

Distribution Planning is a systematic design decision making regarding the physical transfer of goods
and services from the manufacturer to the final user. This includes the following functions:

1. Transportation – These are the ways on how to transfer the finished goods from the producer
and manufacturer to the ultimate buyer and consumer.
2. Inventory Management – These are the process of keeping the product safe and maintaining its
stock to avoid shortage of supply.
3. Consumer Transactions – It describes follow-ups on consumers including the feedback and
satisfactory level after buying the product.

40
 Channel of distribution are made up of people or organizations involved in the distribution
process.

Channel members who may either be:

1. Manufacturer – are the makers or producers of a final product.

2. Service Providers – are the one who provides intangible product to gain satisfaction from the
customers.
3. Wholesalers – are engaged in the activity of selling products to retailers, organizational users or
other wholesalers and selling product for resale.
4. Retailers – are selling goods in small quantity directly to the consumer.
5. Marketing specialist – one who is expert on the field of marketing.
6. Consumers – are the final and ultimate users of the product.

The term middlemen (who act as go-between the producer and consumer).
It refers to the following:
1. Wholesalers – they provide bulk quantity of products for resale.
2. Retailers – they sell in pieces to the final users.
3. Marketing specialist – one who provide expertise in the field of marketing.

Basic Types of Channel Distribution

1. Direct Channel Distribution – is a transfer or movements of goods and services from

manufacturer to final user (customer) without the intervention of independent middleman. This is
the channel (intermediaries) chosen when the firms want to control the entire marketing program,
have close contact with consumers, and have limited target markets in the business location.
2. Indirect Channel of Distribution – Is a transfer or movements of goods (tangibles) and services
(intangibles) from manufacturer (producer) to independent intermediaries to costumer. This
channel is utilized by firms who want to expand their markets (users), increase sales volumes and
growth, give up many distribution functions or uses and costs, and are willing to relinquish some
channel control and consumer contact in target place of transactions.

Intensity of channel coverage

1. Exclusive Distribution – limited number of middlemen used in a geographic area. The

middleman is assigned to agent a specific brand.
2. Selective Distribution – moderate number of wholesalers and retailers used and tries combine
some channels control and image with good sales volumes and profits. The middlemen shall
choose a location for selling.
3. Intensive Distribution – large number of middlemen used to obtain widespread market
coverage, channel acceptance and high sales volume and profits. The middlemen can distribute
the product using this type of intensity to capture the whole market.
4. Dual Channels of Distribution – uses a combination of the above to appeal to different market
segments by selling through two or more different channels. The middlemen can either use
exclusive, selective and intensive to obtain faster service and high profit.

Physical Distribution
Physical Distribution covers the broad range of full activities in connection with the efficient
delivery of raw materials, semi-finished goods or even finished products to designated places, times and
in proper conditions. The distributor must see to it that they obtain legality in delivering those items.

Physical distribution may involve:

1. Customer Service – The ability of the organization to satisfy the customer to its maximum level.
2. Shipping – The ability to transfer a durable product from one location to the other normally a far place.
3. Warehousing – The ability to properly store the raw materials, semi processed goods used to produce
a final product.
4. Inventory Control – The ability to provide sufficient supply of raw materials at the right quantity, time
and quality.
5. Packaging – The ability to make the product presentable before the physical appearance including its
taste, color, size, weight and shape.
6. Receiving Materials Handling – the ability to properly manage the materials for the final production.

41
Transportation

Transportation is the ability of the organization to transport the available goods into the customer
custody. It helps in the proper distribution of products for customer satisfaction and continuous patronage.

Five basic transportation forms:

1. Railroads – Carry heavy, bulky items that are low in value over long distances. Some of the
product are inexpensive and low selling price.
2. Motor Carriers – Transport small shipments over short distances or in nearby town. Some of the
product need immediate delivery normally it is low cost of production.
3. Waterways – Move goods which are low in value but high-bulk freight on barges via inland rivers
and on tankers, freighters, and inter-coastal shipping. Some of the products are high in bulk and
transported form one region to another.
4. Pipelines – Reliable, continuous movement of liquids, gases and semi-liquid. Pipelines have
been modified to accept products for the safety and accessibility of the customers.
5. Airways – Fastest, most expensive form for perishable and emergency goods that needed to be
transported separately from the other to avoid delay. Some of the products are highly designed
for upper class customers.

Transportation Services

Transportation services companies and organizations are marketing specialists that

predominantly handle the shipments of small and moderate sized packages to avoid delay and
disturbance from the other sector of the society.

The three major kinds of services companies are government parcel post, private parcel (UPS)
and express (FedEx).
1. Government Parcel Post – are the documents send in the custody of the local or national level
to avoid loss and delay of delivery. The government sectors provide security both for the sender
and receiver of package.

2. Containerization – Placing goods in sturdy containers that can be loaded safely on trains, trucks,
ships, or planes. These sealed containers are safe until delivered thus reducing damage and
pilferage of goods.

3. Freight Forwarding – Specialized firms consolidate small and distinct shipments of less than
500 lbs. each and comes from several companies and organizations. They pick up merchandise,
finished goods, and arrange for delivery at buyer’s door and custody.

Categories of Transportation Firms

1. Common Carriers – Transport the goods of any firm (normally the private individual) or individual
interested in their services to properly transfer the goods. They cannot refuse any shipment from
the customers unless the carrier’s rulers are broken and defective that will not function as it can
be.

2. Contract Carriers – Provide one or a few shippers and specific goods with transportation
services based on individual even in a group agreement. They are not required to maintain fixed
route or schedules and rates may be negotiated according to their agreement prior to the
delivery.

3. Exempt Carriers – Excused from legality and must only comply with safety requirement.
Commodities and most agricultural goods are exempt and free from economic restrictions that
sometimes lead into specialty products being catered.
4. Private Carriers – Shippers used their own facilities, subject to safety rules and regulations from
the local or national regulations. Normally the products are produced and manufactured by them
to assure safety of its delivery to the customers.

10.2 Inventory Management

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 Inventory management’s objective is to provide a continuous flow of goods (tangible) and to
match the quantity of goods kept in proper inventory as closely as possible with sales demand to meet the
required profit in the production and delivery of products both to the organization and individual clients.

Two Concepts in Inventory Management

1. JUST IN TIME (JIT) INVENTORY SYSTEM – it reduces the amount of inventory it keeps on hand
by ordering more frequently and in lower quantity of raw materials even the semi processed
goods. This requires better planning, forecasting and information on the part of the purchaser and
producer; improve buyer-seller good relationships and better production of materials and
distribution facilities to the recipient of the product. Another name for this is the QUICK
RESPONSE (QR) INVENTORY SYSTEM that the main objective is to immediately act in
accordance with the required units of materials that are needed in the production of goods.
2. ELECTRONIC DATA INTERCHANGE (EDI) – Computer linkups between suppliers and their
manufacturers and wholesalers to increase sales through its timely monitoring of available stocks
needed in the production both raw materials and the semi processed goods. It reduces
markdowns by maintaining sufficient supply and reduces inventory carrying cost by helping to
speed the flow of information and merchandise to the organization.

Warehousing

Warehousing involves the physical facilities used primarily for the storage of goods and
maintenance of supply for efficient delivery held in anticipation of sales and transfers within a distribution
channel in the organization.

1. Private Warehouse are owned, managed and operated by firms that store and distribute their
own products. There are no other parties involved. The owner are the user of the facility so as
they control the whole operation of the warehouses.
2. Public Warehouse provide storage, safekeeping of the inventory and related physical distribution
services to any interested firm or individual on a rental basis either daily, weekly and monthly
manner.
3. Bonded Warehousing is where imported or taxable merchandise of the organization are stored
and can be released for sale only after the appropriate taxes are paid. The items cannot be
released without the sufficient payment of tax payer or the customer.
4. Field Warehousing is where a receipt is issued by a public warehouse for goods or tangible
products stored in public warehouse or in transit to consumers and services as collateral for a
loan either in the bank or any financial institutions that provides borrowings.

Retailing

Retailing refers to those business activities involved with the sales of goods and services to the
final and ultimate user of products for personal, family or household use. The activities are the last stage
in the distribution of products wherein the products are in the custody of the customer and eventually to
the customer.
Retailing function in distribution:
1. Participates in the sorting process by collecting an assortment of goods and services. It divides
each segment of the goods and services produced by the organization.
2. Provides accurate information to consumers through advertising, displays and signs or sales
personnel to avoid problems in the product use and functions.
3. Research about product features and details to provide support given to other channel members.
4. Stores merchandise, mark prices, place items on the floor, and pay suppliers for items before
selling them to the final consumers for proper monitoring and evaluation.

Types of Retailers

I. Method of Ownership

1. Independent Retailer – Operates only one outlet because of limited resources such as the manpower,
machine, materials, method, money and the market. It offers personal service, a convenient location and
close customer contact through its personalized or customized service.

43
2. Retail Chain – Involves common ownership of multiple outlets through its dealership, with centralized
systematic purchasing process and efficient decision-making, dispersed target or specific markets and
well-known company name as well as the organization.
3. Retail Franchising – Contractual arrangement between a franchisor and a retail franchisee, which
allows a franchisee to conduct a certain form of business or establishments under an established name
and according to a specific set of rules and regulations.
4. Leased Department – Department in a retail store that is rented to an outside party. The organization
can attract other enterprise to maximize the place by providing enough incentives to the lessee especially
if the building is new and unoccupied.
5. Consumer Cooperative – A retail firm owned and managed by consumer members who invest and
share profits. The members can decide what products to be sold and what incentives are to be given to
the consumer which are the members of the organization such as cooperatives.

II. Store Strategy Mix

1. Convenience Store – Food store that is located along passerby with long working hours,
products are needed mostly by the consumer but with limited items.

2. Conventional Supermarket – Food store with a wide range of product items and related
products with affordable prices, self-service and one stop grocery shopping for customer.

3. Superstore – Sells food and non-food items like office supplies, apparel, beverage, bakeshop
products and small household appliances plus a supermarket in one location.

4. Combination Store – Combines food or grocery and general merchandise sales and enables the
retailer to operate efficiently and effectively, increase the number of consumers, sell high turnover
but low profit food items and low turnover but high profit general merchandise to attract other
segments in the organization.

5. Specialty Store – Provides one service line or line of goods to attract same line of customers. It
can easily distinguish the specific market in one particular product line.

6. Variety Store – Sells a wide and variety of assorted inexpensive and popularly priced
merchandise that are tailored for consumers’ needs and wants.

7. Department Store – Sells a general line of apparel, linens, furniture, home furnishing and
appliances etc.

a. Traditional department stores – organization with a high name recognition, fashion effective
leader and often dominates the stores around the vicinity.
b. Full-line discount store – department with affordable prices, broad merchandise and
variations, self-service with shopping carts, sells house ware needs for households, hardware
needed by the consumers, electronics, and health and beauty aids, with linens, toys and
sporting goods for customer choices.

8. Retail Catalogue Showroom – Customers shop at a warehouse-type store, consumers write up

their own orders during the exhibit or after browsing the catalogue or brochures because products
were usually stocked in back room. There are limited displays and no actual or physical
representation to the customers.

III. Non-stop operations

1. Vending Machines – Coin or card operated machine which dispenses goods or services. It
eliminates the needs for hired sales personnel, allows 24-hours sales operation and can be
placed outside of the store even without monitoring.
2. Direct Selling – Includes personal contact with consumers in their homes and telephone
solicitations to attain satisfaction by providing convenience and safety to the customers.
3. Direct Marketing – Exposing the consumer to a good or service via a non-personal medium and
orders by phone or telemarketing or through internet using email.

Store Location

It is looking for a better place selling a certain product. There are factors to be considered in
looking for a better location. They are as follows:

44
 1. Accessibility to the market
2. Free from danger
3. Convenience to the supplier

Basic Forms of Store locations:

1. Isolated Store – retail outlet which are located on a street where there are no adjacent store that
draws customer traffic which captures the interest as well as impact to the passerby.
2. Unplanned Business District – Two or more stores are located close to one another that
sometimes produce healthy competition by attracting more customers.

Kinds of unplanned business district:

i. Central Business District (CBD) – Center of retailing in the city nearby other towns, contains
the largest commercial and shopping facilities that attracts different markets segment in one
locality.

ii. Secondary Business District (SBD) – found at the intersection of two major streets in the city
with a medium sized department store, a variety store, some specialty stores, and several similar
smaller shops in town.

iii. Neighborhood Business District (NBD) – Satisfies the convenience shopping and service
needs of a neighborhood in the locality by having a number of small stores or sari-sari stores with
a major retailer being a supermarket drugstore or a variety store and is located on the major
streets in the streets in the area for immediate needs of the customers.

iv. String – Composed of a group of stores or shops with similar or compatible product lines even
items situated along the highway or main road.

3. Planned Shopping Centre – Centrally own or managed facilities operated as an entity for the
customers and with balanced tenancy. It means that the number and composition of stores within
the center are related to the overall needs of the surrounding population to supply the unmet
needs in the location.

Three types of planned shopping center:

i. Regional – Sells mostly shopping goods to a dispersed and various customers. Normally it will
take about half an hour to reach a regional center.

ii. Community – has branch department store, variety, store, large specialty store, and several
other smaller stores to be included under this center. This sells mostly convenience goods and
shopping goods or service for community safety and security.

iii. Neighborhood – sells mostly convenience goods and services with a large supermarket and
drugstore and several smaller stores that will cater to the overall needs of the people in one
vicinity.

SCRAMBLED MERCHANDISING

It takes place when a retailer put together goods and services that are unrelated to teach other or
the original business of the retailer that captures the different market segments.
Reasons:
1. Retailers seek to convert their stores to one-stop shopping centres that encouraged customer
patronage and loyalty.
2. Use scrambled can lead to competition among unrelated retailers so to attract other market
segment.

Wholesaling

Wholesaling is the process of buying, carrying and merchandising its subsequent resale to
organizational customers, retailers and other wholesalers but not the sale of significant quantity to final
consumers.

Types of Wholesaling

45
 a. Manufacturer Wholesaling – The manufacturer or producers control wholesaling and performs all
the functions such as owns the products which does not receive payment until a retailer buys,
and deals with a smaller group of customers to maintain customer patronage.
b. Merchant Wholesaling – Wholesaler controls wholesaling such as buying in a bulk of units and
performs many functions such as warehousing and inventory control. It then buys products from
the manufacturer and resells to the retailer.
c. Agents and brokers – The manufacturer owns the product and lets the broker sell the property
and pays the agents commission, payment is made after the products are sold. The broker will
get much higher commission compare to the agent because the latter do not have any license
compare to the broker which is a passer of a professional examination intended to them.

ACTIVITY 1

Read the situation or the scenario stated below and make an analysis. (Minimum of 500 Words)

When her youngest son, Mat, graduated Magna Cum Laude in Horticulture at the University of
the Philippines in Los Banos, Mrs. Tumangan was very much elated. Her husband was happy that they
are now finally relieved of educating their children. She may now proceed with her dreams of expanding
her business as a flower shop in a garden and resort.

Mrs. Tumangan is now 60 years old and about to retire from government service and sooner will
be getting money from the retirement.

Mat is willing to manage the business but the first consideration is looking for a potential location
for the business.

There are several possible places to put up a business:

1. Location A – accessible to customers but not to the suppliers.

2. Location B – accessible to the suppliers but not to the market.
3. Location C – accessible to both to the market and supplier but with high rental fee.

The bank is willing to lend money for this business and other member of family just to sustain for
the realization of Mrs. Tumangan’s dream.

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Guide Question

What is the best site for Mrs. Tumangan’s business? Why would she consider it as the
best site for her business?

ACTIVITY 2

Write TRUE if the statement is correct and FALSE if the statement is false. Write your answer on
the space provided before the number.

______________1. Private warehouse provide storage, safekeeping of the inventory and related physical
distribution services to any interested firm or individual on a rental basis either daily, weekly and monthly
partner.

______________2. Central Business District is composed of a group of stores or shops with similar or
compatible product lines even items situated along the highway or main road.

______________3. Wholesaling is the process of buying, carrying and merchandising its subsequent
resale to organizational customers, retailers and other wholesalers but not the sale of significant quantity
to final consumers.

______________4. Direct marketing includes personal contact with consumers in their homes and
telephone solicitations to attain satisfaction by providing convenience and safety to the customers.

______________5. Superstore are located along passerby with long working hours, products are needed
mostly by the consumer but with limited items.

______________6. Field Warehousing is where a receipt is issued by a public warehouse for goods or
tangible products stored in public warehouse or in transit to consumers and services as collateral for a
loan either in the bank or any financial institutions that provides borrowings.

______________7. Another term for just in time inventory system is quick response inventory system.

______________8. Airway is the most expensive form for perishable and emergency goods that needed
to be transported separately from the other to avoid delay.

______________9. Consumers are the final and ultimate users of the product.

______________10. Customer service is the ability to properly store the raw materials, semi processed
goods used to produce a final product.

ACTIVITY 3

Elaborate or explain the questions below. Write your answer below the questions.

1. Differentiate direct channel of distribution and indirect channel of distribution.

2. Why is selecting a location an important business decision?

3. Distinguish the warehousing from retailing.

ACTIVITY 3

Identify a vacant lot in your area and determine what type of business is most appropriate to
locate in it. What products or service offerings will give the business a better chance for success?

47
 11. PROMOTION

Learning Objectives:

1. Appreciate the importance of promotion

2. Distinguish the different tools of promotion
3. Identify the types of advertising and task of advertising management
4. Understand the objectives of sale promotion

11.1 Importance and objective of promotion

Promotion is any form of verbal or written communication used to inform, persuade and remind
people about an organization’s or individual’s goods, services, image, ideas, community involvement, or
impact on the society by providing satisfaction.

Promotion planning is systematic decision making relating the whole organization both micro and
macro level of the organization or individual communication efforts to sustain information to the
customers.

The communication channel is anything that carries a message or transmit a message to

receivers in any form of communication. Such channels may be interpersonal or mass communication
channels. Interpersonal is a type of channel that provides direct contact between the sender and the
receiver much effective through its available resources. A mass communication channel is a type of

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channel that provides contact between the sender and a large number of receivers simultaneously that
creates significant effect to the whole segment in the community.

Objectives and Importance of Promotion

OBJECTIVES OF PROMOTION
1. To create awareness both the customer and consumer.
2. To provide information that effectively reached the other market.
3. To explain the organization’s action by providing sufficient information.
4. To conduct product trials that encourages customer purchases.
5. To include intermediaries to stock a product for future patronage.
6. To retain loyal consumers to the organization’s good and services.
7. To increase amount and frequency of usage in organization’s product.
8. To reduce target sales fluctuations that eliminates losses and expenses.

IMPORTANCE OF PROMOTION
Promotion is a key element of the marketing mix by attracting customers through communication.
Customers must be informed through different media regarding items and their attributes for satisfaction,
loyalty and continues patronage. Promotion can establish good image, provides good presentation of
features, creates awareness, answer consumer questions, reinforce or remind loyal customers and
provide competitive and advantage.

PROMOTIONAL TOOLS

A promotion mix is a careful combination of the different tools to accomplish an organization’s

promotion objectives.

1. Advertising – is a paid, non-personal communication that captures the mass majority of

customers about goods, services, organizations, people, places and ideas that is transmitted
through various media with identified in the advertising message as the sponsor.

2. Publicity – is a non-personal verbal and non-verbal communication regarding goods, services,

organizations, people, places and ideas that is transmitted through various media but not paid for
by an identifies sponsor rather by some group of individual or concern organization.

3. Personal Selling – involves oral or face to face communication with one or more prospective
buyers by paid sales representative for the purpose of making sales for the attainment of
organizational goals and objectives.

4. Sales Promotion – involves paid marketing and non-personal communication which activities are
to stimulate consumer purchases by offering incentives after buying or using the product.

Hierarchy-of-effects Model

1. AWARENESS can be gained through the ability to capture the interest of the customers.
2. KNOWLEDGE can be attained by providing enough and sufficient information about the goods
and services.
3. LIKING can be measured through customers inquiry regarding the benefits and other information
regarding the product.
4. PREFERENCE can be determined by asking the price and its available stocks for consumption.
5. CONVICTION can be evaluated from giving choices or options.
6. PURCHASE is the ability of the customer to pay all charges to buy the product.

Total Promotion Budget

There are five alternatives techniques for setting a total promotion target budget:

1. All you can afford technique – the firm allocates funds for every element such as in product
development, setting pricing strategies, and distributing the product except promotion and
everything that is left is for the promotion budget. There is no budget for promotion whatever
left in the total funds of the organization it will be for the promotion. The effect for the

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 organization is not ideal because there is unequal amount allotted to each particular
marketing mix.

2. Incremental Technique – In order to decide for a promotional budget for the year, the
percentage is added or subtracted from last year’s budget to determine the year’s budget.
There must be a clear presentation of financial report to attain fair and equal budget for the
present year.

3. Competitive Parity Technique – The budget is not constant or stable because it can
fluctuate or raised based on the actions of the competitors.

4. Percentage of Sales Technique – The percent for promotional budget of sales remains
constant in the succeeding years. It depends on the sales gained in a particular year level.

5. Objective and Task Technique – The firm identifies the promotional goals and activities
needed to satisfy the goals. The task of setting budget will be based on the objectives.

Promotion Mix

The promotion Mix includes advertising, publicity, personal selling, and sales promotion that help
the organization to fully inform, persuade, and remind the customer about the organization goods and
services.

The selection of a promotion mix depends on several variables:

1. Product Life Cycle – An organization must be aware of the different stages of PLC and the
company status to fully design a strategy.
2. Company Characteristics – The more products line the company gains the better tools to serve
the organization.
3. Relations with Middleman - The dealer such as retailer or wholesaler can give impact about
company’s effectiveness and efficiency.

Steps in Planning the Promotion Effort

1. Determine which promotion elements are most appropriate and significant tools to reach the
target market.
2. Determine exactly what each element must do, how to do, and who will be accountable for
whatever output it will produce.
3. Design a coordinated work sequence for the promotional elements for a particular schedule for
each step.
4. Ensure feedback for consumer result through follow-up and after sales activity.

11.2 Advertising

Advertising is a paid, non-personal communication that captures the mass majority of customers
about goods, services, organizations, people, places, and ideas that is transmitted through various media
with an identified in the advertising message as the sponsor.
The leading medium has been the newspapers, followed by television, radio, magazines, industry
publications and outdoor ads.

Objectives of Advertising

1. To inform target audience through attractive messages.

2. To persuade target audiences by offering incentives.
3. To remind target audiences on its advantages and privileges.

TASK OF ADVERTISING

1. Define Target Audience – Who will benefit the product or the target market?
2. Define Advertising Objectives – It must be SMART (Specific, Measurable, Attainable, Realistic,
and Time-bound)S
3. Set Advertising Objectives – Decide appropriate amount to meet the objectives.

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 4. Develop Creative Strategy

a. Develop a Sales Message – think of what you want the audience must remember in your
product.
b. Facilitate an Execution of the Message – think of how to capture the interest of the audience.
c. Finalize the Ad elements – develop a strategy to come up a finished ad.
d. Provide Expertise for the Execution of the Ad – from art director to producer and director in
broadcast advertising.
5. Select Advertising Media – analyze best medium that will fit the ad.
6. Evaluate Advertising Effectiveness – how effective will advertising be?
a. Assess whether the ad is accomplishing its objectives.
b. Evaluate the coordination of advertising and other promotion mix.
c. Upgrade the effectiveness of different ads in terms of appeals, ad concepts, lay out, and so
on.
d. Analyze the effectiveness of various media and its strategy.
e. Modify the future advertising effort.

TWO BASIC TYPES OF ADVERTISING

I. PRODUCT ADVERTISING – the main concern of this advertisement will solely focus on the goods and
services.

a. Cooperating Advertisement – it focuses on the retailers ability to advertise the manufacturer’s

product.
b. Pioneering Product Advertising – the main consideration is to introduce new product and
teach the potential buyer how to use it.
c. Competitive Product Advertising – it produces competitive advantage above to the other
company who are selling the similar products. Its identify uniqueness on brand
characteristics, the price or benefits and other features that proves its advantage over the
competitors.
d. Comparative Advertising – its compares the primary brand from its rival brands.
e. Reminder Product Advertising – normally, during the decline stage the organization keep the
customers patronage.

II. INSTITUTIONAL ADVERTISING – it focuses on how the product category, a company, a non-profit
organization or an industry sees by the stakeholders rather than one brand as part of the organization.

a. Advocacy advertising - what the company stands for a certain issue.

b. Pioneering Institutional Advertising – it builds good image in the philosophy and objectives of the
institution.
c. Competitive Institutional Advertising – the company is focused on how they will compete from the
other institution.
d. Reminder Institutional Advertising – it reminds consumers of the image of the company and how
it will give benefits to their target market.

PUBLICITY

It refers to any information about an individual, a product or an organization that is distributed to

the public through the media, and that is not paid for or controlled by the sponsor.

Publicity offers the following advantages:

1. It may reach people who ordinarily do not pay the attention to advertising, sales promotion, and
sales people.
2. It has greater credibility than advertising because it appears in the context of editorial or program
material.
3. It is relatively inexpensive and provides coverage that would cost much.

Publicity has the following disadvantage:

1. Marketer has very little control over that media editors do with the publicity materials that
marketers prepare.
2. Marketer has no control over how media people edit the content so that it will capture market
interest.

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Types of Publicity

1. News Publicity – those that deal with events of national, regional or local interest in publicity.
Kinds of new publicity:
a. Spontaneous news publicity – one made as a result fire, union strike, bank hold ups.
b. Planned news publicity – one based on news releases prepared and distributed by the small
business on a regular basis.
2. Business Feature Articles – refer to detailed stories about the company or its offerings, most
often appearing in business magazines.
3. Service Feature Articles – refer to lighter stories focusing on personal care, household items
and recipes which find their way in the pages of newspapers or magazines.
4. Finance Releases – refer to stories that are targeted to appear in the business sections of
newspapers and magazines.
5. Product Releases – refer to new products and product improvement and aimed at all forms of
media for publicity.
6. Pictorial Releases – refer to illustrations or pictures distributed to media.
7. Background Editorial Releases – refer to extra information given to media writers and editors.
8. Emergency Publicity – refers to special media releases regarding disasters or serious problems
in the community.

Personal Selling

It is a face presentation and promotion of products and services plus searching out prospects and
providing follow-up service.

Steps in the Selling Process:

1. Prospecting and qualifying – researching potential buyers.
2. Pre approach – further research from the qualified prospects, this will guide the salesperson on
the right moves to make in the subsequent steps.
3. Approach – actual face to face communication with the prospect follows. The actual product or
service needs of the prospects will be verified at this stage.
4. Presentation and demonstration – If the product is portable, presentation may be done at the
prospect’s residence or place of business.
5. Handling objections – customers have some lingering doubts about their needs or about the
products or services presented to them.
6. Closing – the salesperson must be ready to discern signals that the customer has already made
up his mind.
7. Follow-up – getting the feedback if the customer satisfied or not.

Sales Promotion

Sales promotion is any activity that stimulates customer purchases by offering incentives for a
limited period to attract more response from the target market, company salespeople, or intermediaries. It
gives value to the product because the incentives are designed to attract final customers.

Sales Promotion Objectives

1. To encourage middlemen to increase their order size to maximize purchase.
2. To motivate company sales personnel to upgrade sales effort for a new product.
3. To orient consumers or organizational buyers with product innovation.
4. To build customer patronage.
5. To capture new consumers by offering unique incentives.

Major Tools of Sales Promotion are the following:

1. Point of Purchase Display – it consist of signs, tarpaulin, displays on shelf, etc. The purpose is to
attract attention, inform, and persuade potential customers.
2. Premium – it consists of a free item attached to the product the company is selling. It is a special
incentive in the form of a gift that is made for the customer to buy a product.
3. Trading Stamp – these are the points, rewards, or a stamp to be given in relation to the amount of
their purchase.
4. Sampling – refers to the free samples given by the manufacturer to attract new customers to buy
a new product.
5. Product Demonstration – the product were presented including the do’s and don’ts in using the
product before purchasing.

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 6. Retailer Coupons – this product will be offered at a reduced price based on specific terms and
conditions on the coupon.
7. Consumer Contests- the company will conduct contest intended for the consumer to attract
participation among them.
8. Rebates – this refer to a refund from a fixed amount from the purchase of product offered to the
market.
9. Trade Shows – this refer to the exhibit, usually an industry-wide exhibition, organized to fully
promote the product with a simple product launching for customer information.

ACTIVITY 1

Read the statements below and fill in the blanks with appropriate words.

1. Interpersonal is a type of channel that provides a ____________________ between the sender and the
receiver much effective through its available resources.

2. Sales promotion gives _____________ to the product because the incentives are designed to attract
final customers.

3. ________________________ produces competitive advantage above the other company who are
selling the similar products.

4. ___________________can establish good image, provides good presentation of features, creates

awareness, answer consumer questions, reinforce or remind loyal customers and provide competitive
and advantage.

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5. In planning the promotion effort you should design a coordinated work ___________ for the
promotional
elements for a particular schedule step.

6. __________________are the points, rewards, or a stamp to be given in relation to the amount of their
purchase.

7. Sales promotion involves paid marketing and non-personal communication which activities are to
stimulate consumer purchases by offering ________________ after buying or using the product.

8. __________________________ refers to extra information given to media writers and editors.

9. Knowledge can be attained by providing enough and sufficient _______________ about the goods and
services.

10. The ________________ includes advertising, publicity, personal selling, and sales promotions that
help
the organization to fully inform, persuade, and remind the customer about the organization and
services.

ACTIVITY 2

Elaborate or explain the questions below. Write your answer below the questions.

1. How does publicity help the continuous patronage or customer loyalty in the organization?

2. Discuss the hierarchy of effects model in the buying process.

ACTIVITY 3

1. Identify a small business in your area. Indicate the type of sales promotion that you consider be
the most appropriate to the firm. State the reasons for your choice.

2. Watch a video of an advertisement and identify the type and criticize the features of that
advertisement. Explain your answer comprehensively.

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