Book Three

An Introduction To Accounting & Finance in Business

Session One
What is Accounting?

- Why Do We Need Accounting?

Accounting is about transferring all business activities into numbers according to an
accepted standards . In this sense, accounting provides financial information to
different parties, such as:
Investors need to know about profitability
Lenders need to know how much cash available
Suppliers need to know the short term debt of the business
………etc
Hence, accounting allows us to know about:
The profitability of a business
How much a business worth
How much cash a business has
How much debt a business owe
………etc
- The Characteristics of Good Financial Information
• Relevance (Affect the decisions of users)
• Reliability (Should be accurate and free from bias)
• Comparability (Users can make comparisons over time and among
businesses)
• Understandability (Easily comprehended by well-informed users)
• Timeliness (Should be available when needed)
• Materiality (Should be significant)
It is very helpful that you understand activity 1.3, pages 11 & 12, book 3.
- How Accounting Began
Accounting has been going on for thousands of years.
As business owners/managers withdraw money, pay purchases, buy inventories, these
transactions need to be registered.
Accountants register transactions while auditors make sure of the accuracy of these
registered transactions according to a widely accepted standards.
- Accounting Information Systems
- An Information system is a set of interrelated subsystems that work
together to collect, process, store, transform, and distribute information for
planning, decision making, and control.
- Accounting information system: is a collection of resources, such as
people and equipment, design to transform financial and other data into
information. This information is communicated to a wide range of
decision makers.

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 Table 1.1, page 17, book 3 shows that the accounting system is one element of an
“organizational resource conversion process chart”. The chart simply shows that all
systems take inputs and process them to produce output that has higher value than
the inputs

Resource inputs Processes Outputs

Human • Owners/ shareholders • Goal setting • Job satisfaction or dissatisfaction
• Managers • Decision making • Salaries and wages
• Employees • Planning products and services • Bonuses and / or profit shares
• Part-time • Managing functions (including • satisfied or dissatisfied
• Contractors HRM) customers
• Assembling parts
• Manufacturing goods
• Dealing with customers
Tangible • Money (loans, overdrafts, • Assembly • Products
profits, private capital) • Manufacture • Services
• Buildings • Service delivery • Waste materials
• Machines and equipment • Supply • Waste energy
• Raw materials • Quality control • Effluent
• Components • Accounting • Accounting reports
• Energy (gas, water, electricity) • Distribution • Profit or loss
• Market research data • Formal communication systems
• Formal information systems
Intangible • Systems • Information communication • Professnalism
• Design • Culture • Happiness
• Information • Corporate memory • Image and reputation
• Innovation • Informal information flow • Innovation

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 Session Two
Businesses & Cash Accounting
- Financial Stakeholders

Financial Interest Financial Information Needed

Stakeholder

Owner interested in the businesses’ Evidence that a business will be able to pay the
future and success interest on any debts.

• The worth of a business should the debt be

unpaid and the business forced to close.

Investor/ Invests money or has shares in a • Reassurance that the business will continue
business to operate competitively
Shareholder

Lender Gives loans and needs to know • How well the business is doing compared
that the interest is affordable to previous years.

Competitor Has an interest in the relative • Information on business to allow

financial performance of rivals comparisons with other businesses

• Indications that financial returns will be

maximized.

Manager/ Works for and is paid by the Growth in sales, market share, net profits, and
business overall business efficiency.
Employer

Customer/ Needs to know whether they are Properly prepared and computed accounts and
dealing with a financially sound profit and loss statements.
Supplier and reputable business or not.

Taxation Reviews financial statements for Continuity of supply and business without
Officer accuracy disruption to the flow of goods & services.

- Difference Between Cash Accounting & Accrual Accounting

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Cash Based Accounting:
- Revenue is recorded when earned.
- Expenses are recorded when incurred.
- It involves a comparison between what has gone in and what has gone
out over the period of time since the balance was last calculated.

Advantage: It is easy to implement. Under this method, the only time a

transaction is recorded is when cash is paid or received.

Disadvantage: It does not fully describe the financial position of the business or
person (a business might has due amounts to be paid for services incurred but bills
has not been received yet).

Accrual Based Accounting

- Revenue includes everything earned by the business for a particular

whether it has yet been received in cash or not.
- Expenses include everything incurred by the business during that period
whether it has yet been paid or not.

Advantage: The accrual basis of accounting becomes the more appropriate basis
when the organisation has substantial unpaid bills or uncollected income ate the
end of each period and these amounts vary from period to period.

Disadvantage: The accrual system, a more complex system, requires more

accounts, including accounts receivable, accounts payable, inventory, prepaid
expenses, and deferred revenue.

Example

During Dec. 2009

(*) Sold 30 boats of 4,000 each
(*) Customers are given 30 days on credit
(*) Boats purchased during Dec. of 3,000 each
(*) Paid Insurance premium of 24,000 for the next 12 months ending in Nov. 2010

Income statement for Dec. 2009

Accruals Cash
Revenue 1,200,000 o
CGS -90,000 -90,000
Gross Profit 30,000 -90,000
Insurance -2,000 -24,000
NI 28,000 -114,000

Session Three
The Accounting Statements

Introduction
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There are five basic accounting elements:

Two of these are : Expenses & income which appear in the income statement.

And three of these are : Assets, liabilities & equity which appear on the balance
sheet.
3.1The Three Main Accounting Statements
• The Income Statement
- Also known as the profit/loss account, the profit statement, the income &
expenditure statement, or the receipts and payments account.
- It shows all income and expenses of a business during a fiscal year
• The Balance Sheet: Also known as the statement of financial position. It shows
what a business owns and owes at certain time (end and start of a fiscal year)
• The Cash Flow Statement (shows how changes in different accounts affect the
cash position of a business)
- The Income Statement
- It reports on certain financial aspects of transactions that have taken place
during the accounting period that has just finished.
- It does so by showing what income has been earned and what expenses
were incurred in earning it.
If the income is larger than the expenses, then it becomes a profit.
If the expenses are greater than the income, then it becomes a loss.

- Income Statement ctd….

Example of an Income Statement
Company X Income Statement for Period 1 May to October, 2010
Income
Fees for work completed in period
Components used
Gross profit
Expenses
Transport costs
Marketing costs
Administration costs
Net profit

- Income Statement ctd……

- Income:
- Any income statement should have a title with the period of time to be
covered.
- Income could also be called Sales or Revenue.

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 - The income earned for working for that period of time.
- Components used is actually the stock or inventory of components left.
- Gross profit is a heading used in the income statement to show the
profit from activities before the remainder of the costs of running the
business are deducted.

- Expenses
- Expenses covers the indirect costs of producing this period’s income.
- Transport costs is a standard heading in many accounts.
- Marketing costs are costs spent on advertising, etc.
- Administration costs are costs used for all the other costs.

- : what is left of the income after all the costs related to it have been
allowed for. If the costs are greater than income, then there would
be a loss rather than a profit.

- Recognizing Revenues & Expenses

Accrual Accounting only shows the financial effects of what has happened to the
business during a specific period of time.

In terms of revenues, large businesses estimate the value of work that has been done
but not yet billed for and instead of counting income from work completed in that period
of time, they count income from work done in the period.

In terms of expenses, large businesses use depreciation; depreciation divides the cost of
long-lasting purchases into smaller amounts that are then charged as expenses over the
number of years that the purchase is expected to last.

- The Balance Sheet

The balance sheet shows the financial position at a point in time, as one accounting
period ends and another one starts.

Three main elements of the balance sheet:

- Assets
- Liabilities
- Equity
- Balance Sheet ctd……..

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A. Assets
These are owned and controlled by the business and used to generate future
benefits in the form of income or service.
These assets can be of any size and maybe tangible or intangible.
Tangible assets: owned or controlled by a business and has physical existence;
for example motor vehicles, machines, …etc.
Intangible assets: These are such as goodwill, patents, …etc.
Accountants categorize assets into short and long term.

Short-term assets/current assets are assets whose values change within a year.

Long-term/Fixed assets such as machines, lands, factories, furniture, …etc

- Balance Sheet ctd……..

B) Liabilities
They are usually debts of the business that are legally payable to the creditors.
Liabilities are divided into short and long term liabilities.

Short-term Liabilities are those that are due to be paid off within a year (short term bank
loans, accounts payables, …etc).

Long-term Liabilities are those that are due to be paid off in more than one year (bonds,
long term bank loans).

3.4 Balance Sheet ctd……..

C) Equity

Also defined as capital, net worth, owner’s interest in the business, funds, shareholders’
funds, shareholders’ equity.

The difference between assets and liabilities is referred to as equity.

Equity is thought of as the amount the owners have invested in the business.
E=A-L
Where E=equity
Where A= assets
Where L= Liabilities
3.4 Balance Sheet ctd……..
3.4 Balance Sheet ctd……..(Example)

Item Type: Asset, Liability, Short-term or Long-term

Equity

Packing Machine Asset Long term

Office computer Asset Long term

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 Mortgage on offices Liability Long term

School building Asset Long term

Copyright for a song Asset Long-term/intangible

Pay owed to employee at Liability Short term

balance sheet date

Profit retained in the Equity N/A

business

- The Cash Flow Statement

- It is a financial statement showing how changes in balance sheet accounts and income
affect the cash level.
- The cash flow statement is concerned with the flow of cash in and out of an
organization.
As an analytical tool, the statement of cash flows is useful in determining the short-term
viability of a company, particularly its ability to pay bills.

Session Four:
The Accounting World

- The Conceptual Framework of Accounting

In a non-computerized accounting system, the process of keeping accounting records
starts with details of transactions being recorded in daybooks/journals.
These entries are then summarized, totaled and recorded in ledgers.
At the end of a given period, each account is summarized and the accounting statements
such as the income statement, the balance sheet, and cash flow statement are prepared.

- The Conceptual Framework of Accounting: Underlying Accounting Concepts

• The historical cost concept (Assets are normally shown in the financial
statements at a value based on their original cost, based on invoices and other
documents)

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 • The money measurement concept (Accounting information has traditionally
been concerned with facts that can be measured in financial terms and
transactions whose financial value is agreed by everyone)
• The business entity concept (Accountants keep the affairs of a business totally
separate from activities of its owners. That is, items recorded in accounting
records are restricted to the transaction of the business)
• The dual aspect concept (Every transaction is seen as having two aspects, one
represented by changes to assets of the business and the other by changes in the
liabilities and equity (double-entry bookkeeping). The double-entry bookkeeping
is a method of book-keeping in which there are two entries for each transaction,
one called a debit and the other called a credit that balance each other)
• The time interval concept (Financial statements are prepared at regular intervals,
once a year)
4.1 The Conceptual Framework of Accounting: Fundamental Accounting Principles
 Accounting standards are a series of pronouncements by the accountancy
profession which must be followed by qualified accountants in preparing
financial statements.
• Going Concern
- when preparing financial statements , values are based on assumptions that
the business will continue to operate for the future.
- If a business was to close down, it would be necessary to review the value
of that asset in the financial market.
• Accruals Concept
- Expenditure has been incurred during a period for which revenue or
benefit has not been received, the expenditure should be omitted from the
calculation of profit for that period and carried forward to the period when
the revenue or benefit results.
• Consistency
-Each item should be treated in the same way in every period, as far as possible.
• Prudence
- The accountant should always be prudent when preparing financial
statements; if something is in doubt, the accountant should assume the
worst and if a transaction has not been completed, the accountant should
ignore any benefits that may arise from it.
• Substance over Form
- Each transaction should be included in the financial statements in a way
that shows its economic impact on the business.
• Materiality
- Transactions in the financial statement should be material, they should be
of interest to stakeholders, the people who make use of financial
accounting statements.
- Difference Between Financial & Management Accounting
Management Accounting Financial Accounting

A management accounting system produces A financial accounting system produces

information that is mainly used for management information that is mainly used by parties external

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purposes within an organisation. to the organisation

Management accounting helps management to Financial accounting provides a record of

record, plan and control activities and aids the performance of an organisation over a financial
decision making process. year and the financial value at the end of that
financial year.

There are no legal requirements for an organisation Limited liability companies must by law prepare
to use management accounting. financial accounts.

Management accounting can focus on specific Financial accounting concentrates on the whole
areas of a business’s activities. organisation, aggregating revenues and costs from
different operations.

Management accounting provides both a historical Financial accounting presents an essentially

record of the immediate past & future planning historical picture of past operations.
tool.

Accounting statements are produced as a once-off Accounting statements are usually required to be
and also for varying periods. produced for a period of 12 months

No strict rules govern the way in which Financial accounting must operate within a
management accounting operates. framework determined by law and international
and/or national accounting standards.

Management accounting has no specified format Financial accounts are supposed to be produced in
and no specific required statements. accordance with a format specified by accounting
standards and by law.

4.2 Difference Between Financial & Management Accounting

ctd……………………..

Accounting Information or Statement Type: Management accounting or Financial

Accounting

The profit earned by a business in a financial year Financial accounting

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The sales forecast Management accounting

The equity of a business at the end of the financial Financial accounting

year

The cost of running a particular part of a business Management accounting

The amount of cash coming into and leaving a Financial accounting

business in a financial year.

Session Five:
Budgets & the Budgeting Process
- Defining Budget:
 A budget is a financial plan.
 A budget is a financial or non-financial expression of an organisation’s plan of
action for a specified period; it identifies the resources and commitments required
to achieve the organisation’s goals for the period identified.
 Budgets are quantitative representations

5.2 Different Types of Costs & Their Impact on Budgets

Budget Type Definition Example Flexibility

Fixed Costs that do not vary Staff costs, rent payments. Not very easy to cut-down

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 in relation to the on fixed costs, because
chosen measure of they are time and activity
activity. related.

Variable Costs that vary in Electricity costs, Organisations can attempt

relation to the telephone costs to cut down on variable
business costs through the efficient
level/acitivity Costs of maintaining use of resources, and
inventory. through sustainability.

Discretionary These are Non-urgent maintenance, These are the easiest

independent of the research & development budgets to change; if there
volume of activity costs is pressure to cut down on
like (fixed costs) but budget, it is simpler to
are not yet cut-down on non-urgent
committed. maintenance, research and
development.

Contingency These are costs Terrorist attach for Contingency costs are
related to special example. problematic because you
occasional events & hope that the event does
contingencies. not occur, and it is
unlikely to in any one
year, so should you
budget for it or not?

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 Book Four:Session One
An Introduction to Marketing in Business
- The Marketing Concept
- “Marketing is the management process which identifies, anticipates, and
supplies customer requirements efficiently and profitably” (Quoted in Blythe,
2001).
- “Marketing is an organizational function and a set of processes for creating,
communicating and delivering value to customers and for managing customer
relationships in ways that benefit the organization and its stakeholders”
(American Marketing Association 2004)
- All in all, Marketing is a range of activities, carried out by various people in the
business, that are designed to understand and satisfy customer needs in a way
that allows the business to make a profit or to fulfill other organizational
objectives.
- Businesses adopt different orientations/concepts

Business Philosophies Description

Product Orientation
(inside-out approach)
• Businesses assume that customers value product quality above
all else
• A business that succeeds in producing better products than any of
its competitors will have to do little else to attract customers and
make profit.

Production Orientation
(inside-out approach)
• Businesses assume that buyers are very price conscious and are
prepared to accept adequate quality.
• These businesses focus on making their production processes
as efficient as possible to produce large quantities of products at
low costs.

Selling Orientation
(inside-out approach)
• Businesses assume that no matter how good or cheap a product is,
not enough people will buy it unless the business makes a
significant selling efforts.
• Businesses here believe that it is possible to sell almost anything
as long as the right sales approach is taken, leading to a
maximization in profit per units of sales.

Marketing Orientation The main difference here is that businesses do not assume what the
potential customer may want, but it actually makes every attempt to find
(outside-in approach) out. The end result is to gain customer satisfaction and at the same time
make profit.

- Some Important Marketing Terms

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 Term Definition

Need A individual not only does not have something but is aware of not having
it. A need in marketing terms is not the same as a necessity. People have
more complex and far reaching needs than just survival. (need a food
because of being a hungry)

Want A specific satisfier for a need. (you need a food to satisfy hunger, but
you want hamburger not pizza)

Product A product is not a specific physical goods but a bundle of benefits

(buying a car satisfies the ability to get from A to B, owning a desirable
car, …etc)

Customer A person who buys a product (also called a buyer).

Consumer A person who actually uses the product or could potentially do so. (All
consumers are customers but not vice versa).

Market A market consists of all the actual and potential buyers of the business’s
products.

- Steps in the Marketing Process

Market Segmentation
- It is the grouping of customers according to the differences in their needs
and behavior.
- Assumptions:
• Buyers in a market rarely have the same needs and expectations.
• It is possible to identify smaller subgroups of buyers which are
more homogenous in terms of their needs and expectations.
• It is easier to satisfy the needs and expectations of smaller, more
homogenous subgroups of buyers than the entire market.

Market Targeting: The process of identifying groups of consumers who are

highly likely to purchase a specific good or service.

Market Positioning:After market targeting, there is a need to position products

qualities in line with the needs and expectations of the targeted segments

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Step One: Market Segmentation
- In order to be viable, market segments need to be..
• Measurable: It must be possible to define who the members of the
segment are and how many of them are there.
• Accessible: Marketers must have some way of communicating with
the chosen segment.
• Substantial: The segments must be large enough to be worth aiming
for.
• Congruent: Members of the segments must have fairly similar
requirements with respect to the product type.f
• Stable: The nature and membership of the segment must be
reasonably constant.

- Different Criteria for Segmentation:

Segmentation Description

Geographic This segmentation groups potential customers according to

Segmentation where they live because different geographical locations
vary in characteristics.

Demographic This segmentation groups people according to factors such

Segmentation as age, gender, lifestyle, education, and the economy on
the basis that people’s needs often vary with their
demographic characteristics.

Psychographic This type of segmentation groups potential customers

Segmentation according to their beliefs, attitudes and opinions as well as
their psychological characteristics.

Behavioral This type of segmentation groups people according to the

Segmentation way in which they use, and benefit from the product.
(Cars: luxury, mid-size, SUVs, …etc)

-
-
Step Two: Market Targeting
- Once the market has been segmented, businesses must decide how
many and which segments they want to sell to.

- There are three principal targeting strategies that marketers can

pursue:

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 - Niche marketing: The business concentrates on a single
segment especially if the business is small or has unique
know-how.
- Differentiated marketing: The business concentrates on two
or more segments with differentiated product offerings for
each segment.
- Undifferentiated marketing/mass marketing: Selling one
basic product to the entire market. (Ex. Petrol)

Step Three: Market Positioning the Business’s Offerings

- Once the owners of the business have decided which market
segments they want to target, there is a need to position products or
services in line with these needs and expectations.
- Marketers can influence this position by manipulating the marketing
mix (discussed later )
- Ethical issues in market segmentation: Children, older people, and
less educated people may receive misleading claims that they can not
evaluate.
- Marketing Information
 Marketing information system is the different ways of gathering and
analyzing information; they can be highly formalized or informalised
depending on the type and size of the business.

Three main sources of marketing information:

- Internal Records: marketing information gathered from sources
within the business such as sales records, complaints records,
information from loyalty schemes etc.
- Marketing Intelligence:Gathered from the marketing environment
through publicly available sources of information, informal talks,
and observations.
- Marketing Research : This is formal research aimed at gathering
specific data to help solve a particular marketing problem. It
includes both secondary and primary market research.

Transactional and Relationship Marketing

- Marketing efforts are usually devoted mostly to bring a customer to the first
transaction.
- Hence, relationship marketing focuses on ongoing and long term relationship
between a customer and a business.
- Factors Influencing the relationship Marketing

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 – Global competition (businesses need methods of differentiating themselves
from their competitors )
– Many markets have become fragmented into smaller and smaller segments
– Product quality (businesses have found it increasingly difficult to compete on
quality alone as most competitors are able to offer the similar quality)
– Customers are no long brand loyal. They are willing to change suppliers
frequently based on the best deals (it is more expensive to win new
customers.

Session Two
Understanding Marketing Environments

Marketing Environment
• The marketing environment is the business environment from a marketing point of
view.
• The marketing environment is divided into the internal and external environment
(which is further divided into micro and macro environments).

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 (A) Internal Environment
- The marketing department has to work closely with other functional
departments in the business such as
• Research and Development (R & D) Department
• Purchasing Department
• Production Department
• Finance Department
to ensure that customer needs and expectations are considered at all stages of the
business process.
- Marketers have to persuade employees throughout the business that
customer orientation is a key consideration.

(B) External Environment: The Micro-Environment

- The micro-environment consists of individuals and organizations
that are in direct contact with the business.
- This includes existing and potential customers, suppliers,
competitors, intermediaries and some other stakeholders (with
customers are the most important from a marketing point of view)
- It consists of:
- Customers (discussed later on)
- Competitors
- Suppliers
- Marketing Intermediaries
- Some publics

(B) External Environment: The Micro-Environment

Composition of Explanation Ethical issue to consider

the Micro-
Environment

(1) Competitors Businesses need to Ethical problems arise either because of

understand their competitors. overly aggressive competition (dirty tricks
such as negative advertising, the stealing

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 Meeting customer needs and of customers) or conversely because of
expectations is not enough if insufficient competition.
competitors can do it better.

In order to do so businesses
need to define who its
competitors actually are.

(B) External Environment: The Micro-Environment

Composition of Explanation Ethical issue to consider
the Micro-
Environment

(2) Suppliers Suppliers are businesses and Ethical issues in business-supplier

individuals who provide the
resources needed by the
business and its competitors
to produce goods and
services.
They are an important link in
the overall system that
delivers value to customers.
relationships generally stem from unequal
behavior between the two partners.
Ethical issues in supplier relations also
relate to the negotiations between a
business and its potential suppliers, thus,
both sides will try to get as good a deal as
possible.

(B) External Environment: The Micro-Environment

Composition of the Explanation

Micro-Environment

(3) Marketing Marketing intermediaries are businesses that help other business to
Intermediaries promote, sell and distribute its goods to final buyers.

They include:

(a) Resellers: individuals and businesses that buy goods and

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 services to resell.

(b) Physical distribution businesses: warehouse, transportation

and other businesses that help a business to stock and move
goods from their points of origin to their destination.

(c) Marketing services agencies: marketing research

businesses, advertising agencies, media businesses,
marketing consulting businesses and other service providers

(d) Financial intermediaries (banks, insurance companies, ….etc)

(B) External Environment: The Micro-Environment

Composition of the Explanation

Micro-
Environment

(4) Other • Stakeholders are individuals, groups of individuals and

Stakeholders organizations that have an actual or potential interest in the business
because they are affected by and/or have the ability to affect the
business’s pursuit of its own objectives.

- 2.1 (B) The External Environment: The Macro-Environment

- The macro-environment consists of the larger society forces that
affect the whole micro-environment.
- Macro-environment can be examined by conducting a STEEP
model.

- These factors affect marketing as they affect customer’s behavior or

affect the ability of a business to respond to its customers
(B) The External Environment: The Macro-Environment
- Sociological Factors
- Demographic Factors
- Population size
- Growth trends
- Age structure
- Education levels
- Family structures

Social Factors

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 - Impact of social class
- Impact of family and other social groupings
- Roles of men and women
- Attitudes toward divorce and single parenthood

Cultural Factors
- Language
- Ethnicity
- Religion
- National culture
- Globalization
- Increased migration
- Continued cultural differences between and within nations

(B) The External Environment: The Macro-Environment

- (2) Technological Factors:
- Technology influences businesses’ capacity to offer products as well
as consumers’ ability to use them.
- Technology refers to all ways in which human work upon and modify
their environment and it changes all the time.
- Economic Factors
- From a marketer's perspective, the most important aspect of the
economic environment is its capacity to influence consumer buying
power and spending patterns.
- When for example a country experiences an economic depression
and consumer purchasing power is reduced, people spend their
money more carefully.
- Economic policies pursued by governments and other economic
policy makers often have an impact on people’s available income
and the purchasing power.

(B) The External Environment: The Macro-Environment

(4) Natural Environmental Forces

For many years business operated as if natural resources were unlimited and any
impact of business activity could be absorbed easily by the natural environment.
However, this was not the case in reality. On one hand, Marketing and
consumption activities have a significant impact on the natural environment. On the

21
other hand, changes in the natural environment can equally affect businesses capacity to
meet customer requirements.
In other words, marketing is influenced by and has an impact on the natural
environment at every stage starting from the production and consumption process from
the sourcing of raw materials, the production of goods and services and storing and
transportation of finished goods to the sue of the product by the final consumer and its
eventual disposal.

(B) The External Environment: The Macro-Environment

(5) Political Factors

Political factors refer to laws, government agencies and pressure groups as they influence
and constrain the actions of business and consumers.

All markets are to some extent regulated by government action, otherwise monopolies
tend to develop, which greatly reduce the ability of producers and consumers to
participate freely in those markets.

Businesses need to be aware of legislation relating to their products and services.

Session Three
Understanding Customers and Consumption

- The Rational Approach to Understanding Customers

It is important to distinguish between two types of marketing behaviour

3.1.1 Consumer buying Behaviour

3.1.2 Business Buying Behaviour
- Consumer Buying Behaviour
According to Belk (1995), a rational approach has been most influential in marketing. It
assumes that consumers tend to make rational choices about the products and services
they buy.
This approach is concerned with understanding how individual consumers evaluate and
choose products so that marketers can tailor their offerings more effectively to consumer
needs and expectations.See figure 3.1, page 34

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As consumers don’t make buying decisions the same way, different types of
Consumer Buying Behavior result

Type of
Consumer
Description
Buying
Behavior

Complex It is characterized by high consumer involvement and significant

Buying differences between brands. It happens when a purchase is expensive,
Behavior risky or purchased infrequently or when consumers use the product to
express themselves.

Dissonance- Consumers here are highly involved in the purchase but have difficulties
Reducing determining the differences between brands. Dissonance can result from a
Buying purchase if consumers worry afterwards that they may have made the
Behavior wrong choice.

Habitual It is the most common type of buying behavior and it happens when
Buying consumers are not very involved in the purchase perhaps the item is
Behavior bought very frequently (shampoos) and/or does not cost much money and
when they perceive few significant differences between brands.

Variety It happens when consumers perceive significant differences between

Seeking brands but consumers alternate between brands for variety
Behaviour

- Stages in the Buying Decision Process by Kotler 2001

- One: Need Recognition (consumers experience a problem or need that can be

solved by a purchase; large overdraft requires financial consultation)
- Two: Information Search(Consumers tend to search for information from different
sources for their intended purchases; not suitable for habitual and variety seeking
consumer behavior)
- Three: Evaluation of alternatives (evaluate the alternatives)
- Four: Purchase (Buy the product)
- Five : post purchase (complain, intend to buy another time, recommend to others)

- Business Buying Behaviour

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When thinking about marketing, people often think first of consumer marketing, but
actually business-to-business markets is much larger than that of consumer
markets.
- The most important differences between the consumer market and the business
market is:
 The market structure and demand
- There are fewer buying businesses than there are consumers,
but each business is likely to buy much larger quantities of a
product than a single consumer would.
 The nature of the buying unit
- Business-to-business marketers tend to rely on personal selling
directly to customers (from business to business)
 Types of buying behaviour
- New task: something a business buys for the first time.

- Straight re-buys: A simple repeat order for something that the

business buys regularly.

- Modified re-buy: The business buys something it has bought before

but wants some modifications to the new purchase.

- Social and Cultural Aspects of Consumption

Points to Consider Explanation

Consumer Society Consumer society is characterized by the fact that a large portion of the
population has access to a wide variety of consumer goods.
Consumer society Resulted from the mass production of large numbers of
consumer goods.
Some commentators worry about the materialism of the consumer culture
(consumer society value money above all)

Hedonistic Many people enjoy the act of shopping itself.

Consumption Buying products and services allows customers to show off their style and taste
to others.

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 Consumption & Our consumption conveys about our identities, preferences, tastes, self-image.
Identity

Consumption as We have to buy good stuff to entertain important guests. With friends, we tend
Communication to consume differently to match friends preferences.

Session Four
The Marketing Mix

Elements of the Marketing Mix (the four Ps)

- Product
- Pricing
- Distribution (Place)
- Marketing Communications (Promotion)
- Product
Products are bundle of benefits.
There are three levels of product benefits (Example a mobile phone)
Level One: The core benefit is the main benefit of the product (making calls)
Level Two: other features of the product(alarm clock, radio, ….etc)
Level Three: Augmented product benefits (after sales services, installation,
delivery and credit, and warranty)

- The product life cycle has five stages:

Product development
Introduction

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 Growth
Maturity
Decline

After a new product has been developed and is first introduced to the market, sales may
grow slowly initially as not many people know about the product.

As the product becomes more popular, sales may grow rapidly until the maturity phase,
when many potential target customers have already bought it and more competitors
introduce similar products.
Eventually, the sales of many products decline as most customers already have them and
new substitute products are introduced.

New Product Development

The concept of the product life cycle suggests that most products will eventually
decline.
This is a strong reason why businesses constantly want to develop new products
(or develop the current products)
- A popular (Crawford,1991) quoted a model of the new product
development process including a number of steps:
- Step One: New Product Planning (diagnose current status of the product).
- Step Two:Idea Generation (through discussion and brainstorming).
- Step Three: Idea Screening & Evaluation (feasibility).
- Step Four: Technical Development (developing a prototype).

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 - Step Five:Market Appraisal (market test).
- Step Six: Launch (offering to market).

- Pricing
Approaches to Pricing

(1) Cost-Based It is the least customer-oriented pricing method and is not compatible with the
Pricing marketing orientation. It is still used by many companies as costs are relatively
easy to work out and more straightforward than customer-based pricing.

(2) Customer- It is more in-line with a marketing orientation as it starts with the customer’s
Based Pricing willingness to pay. It does not necessarily mean offering the product at the
lowest possible price, but at a price that the customer considers good value
taking into account quality and other product features. (somewhat difficult and
more complex to apply)

(3) It involves comparing the prices of all competing products and then setting
Competition- the price of one's own product. This maybe lower than that of the competitors if
Based Pricing the business is competing on price. It may also be more expensive than that of the
competitors if the business is competing on quality, style and some other product
features and wants to express the superiority of its products through the price.

- Distribution (Place)
Distribution channels are the channels by which products are made available to their final
customers.
Some distribution channels are very short and have few members whereas others are long
and have many members
Distribution Channels Forms (depends on the offered product as well as on other
factors)
Channel 1: From Manufacturer to Consumer
Channel 2: From Manufacturer to Retailer to Consumer
Channel 3: From Manufacturer to Wholesaler to Retailer to Consumer
Channel 4: From Manufacturer to Other Intermediary to wholesaler to retailer to
consumer.

Distribution Channels
Wholesalers are businesses that buy products from producers and sell them onto retailers.
They perform a number of actions in the distribution channel, such as storage,
transportation, information gathering and some promotional activities.

Retailers are businesses that buy from producers or wholesalers and sell to consumers.

Successful retailing depends on:

- The convenient location of a store

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 - The right kind of goods offered in the right quantities
- The right level of service for the type of good and outlet
- The image of the store
- The atmosphere of the shop.

- Marketing Communications (Promotion)

Marketing Communications is a one way process from marketers to potential customers.
Both the sender and the receiver of that message are actively involved but distraction
might occur (not looking to an ad or a TV show, …etc).
The promotional mix consists of :
- Advertising
- Sales Promotion
- Personal Selling
- Public Relations

Marketing Communications (Promotion)

Advertising It is impersonal and communicates with a large number of people through a

paid media channel.
Pioneering advertising is used in the early stages of the product life cycle,
when businesses want to achieve consumer awareness.
Competitive advertising happens at a later stage in the product life cycle
when it is necessary for businesses to distinguish their product from that
offered by their competitors.

Sales Promotion Money Based Promotion: Easy to implement, very common, cash-back,
immediate price reductions, coupons.
Product Based Promotion: less likely to cheapen product image, buy one
get one free, free samples.
Gift, Prize and Merchandise Based Promotion: Gifts in return for proof
of purchase, loyalty schemes.

Personal Selling A sales person talks personally to a potential customer, finds out about their
needs and explains the benefits of the product
It is a powerful marketing communication tool (portfolio management)

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 Public Relations (PR) is about creating a good image for the business in the minds of its
stakeholders. It involves creating and placing favourable news stories. PR
operates with word-of-mouth, press and TV news stories, and personal
recommendations.

Session Five- Book Four:

Addressing Societal and Environmental Concerns in Marketing

The Societal Marketing Concept

The societal marketing concepts holds that a business should identify needs and
expectations of its target customers and work towards satisfying those needs and
expectations more efficiently than competing businesses, in a way that improves
the society’s well-being (hamburgers are good in short run but bad in long run for
consumers à more diseases in society).

Hence, businesses should rate their products by two dimensions:

• The immediate satisfaction they provide to consumers
• The long term consumer welfare they provide
This seems difficult to apply. Actually, that may redefine the social responsibility
of a business (there is no agreement among people about “what is good for a
consumer might be bad for a society “ )
Example of practices of social marketing
Cause-related marketing (i.e. marketing campaigns that relate between a
certain purchase of a product and a charity payment)
Advocacy marketing (promote a social cause such as healthy food
ingredients)

- Green (Environmental) Marketing

Examples of Environmental Problems Caused by Businesses:
- Inadequate capacity for industrial and household waste
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 - Air pollution
- Declining fish populations due to high-tech methods of fishing
- Modern agricultural disturbs/erodes top soil
- Ozone depletion
- Marine and fresh water pollution
- Toxic waste accumulation
- Climate modifications
- Many products are not designed for flexible recycling
Green marketing has been proposed as a solution to the environmental issues due to
The increased awareness from consumers about environment
Environmental legislation
The increased focus of media and pressure groups on environment.

Book Five: Session One:

Different Ways of Looking at Business
Looking at a Business More Critically

- Challenging the Traditional View of Businesses

The Traditional View of Business: Businesses are things or objects (their existence and
nature are taken for granted, i.e. they are naturally out there). That is, they are capable of
employing and feeding us (businesses have virtual reality) (Actually, that makes it easier
to understand businesses).
The traditional view is based on a philosophical concept known as reification (the process
of viewing a certain concept as unquestionable)
In the context of learning and education, reification can make us form inaccurate and
incorrect knowledge about certain concepts (such as the concept of a business)
The Critical View of Business: Businesses are sets of behaviors of the people who work
in a business and the economic, social, political systems and institutions that surround it.
- Critical View of Business
• Watson (2002) adopts the critical approach of looking to a business and states
that we have to think of businesses in a critical perspective by asking ourselves the
following questions
- How realistic is it to think that we can control people and their work?
- Can individuals really be managed in a certain way and is it morally acceptable?
• Ontology (‫( )علم الوجود‬how sure can we be that something exists)
• For students of B-120, it is important that you ask yourself questions such as:
- What is a business really like?
- What does a business do?
- How a business is organized?

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• The critical perspective is based on two limitations:
• Businesses can be partially controlled
• Control is practiced by persuasion and negotiation
Critical thinking of a business involves “epistemological learning” (different ways of
understanding human behavior). Epistemologies have two views:

(1) Positivist View Human behavior can be examined using scientific methods
and experiments.

(2) Interpretivist Humans are self-interpreting (we have visible meaning to

View/Phenomenological what we do) and as such, they cannot be studied using
View experiments

- Critical View of Business

Problems with the nature of businesses
Levels of Analysis (there exist different levels for analyzing business situations).
Problems should be analyzed in their own levels (we can not analyze market behavior of
a business by using individual psychology)
See the related figure at the book

- Critical View of Business

Measuring organizational effectiveness (each business has its own performance indicators
and no coherent theory or standard measure exists of what effectiveness is)
- Problem of time (People’s perception can change over time in light of
experiences)
- Problem of paradigms (Adopting one method of analyzing a business eliminates
another method and hence eliminating knowledge brought up by that eliminated
method – Think of adopting positivist against interpretivist)
- All that mean to business students is to think about :
- At what level of analysis a problem lies and whether solutions proposed
are applicable at the proper level
- Are there any proposed benefits of the proposed solution
- The nature of time surrounding the problem is dynamic

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 Session Two:

The History of Business Thinking

2- The History of Business Thinking
It is important to understand that business thinking has changed over time and business
writers nowadays are linking between business and other fields such as science,
sociology, psychology, and philosphy.

2- A Brief Timeline of the History of Business Thinking and Writing

See your book and make good notes in this issue

The Future Business: Three Questions to Consider:

- Globalisation: Are business practices becoming more homogenous or is
globalisation creating new ideas and paths for businesses?
- Technology: Will the internet shape the future of all our business interactions?
- Networks: How has relationship marketing made businesses become more
flexible?

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 Session Three
Globalisation

- Defining Globalisation
Globalization means different things to different people.
Expansion of economic activity (initiating trade blocks; such as European Union, EU)
Increasing economic openness (reducing restrictions among countries for trade and
capital flow)
Growing economic interdependence and integration among countries (mutual
dependency among countries which leads to more coordinated efforts)

Globalization is driven by competition and following the customer. The optimal motive is
profitability.

Internationalization Versus Globalization:

Most often, they can be used interchangeably, but to distinguish between the two, we
can say the following:

InternationalizationIncludes cooperation in some Globalizationis an extension of

aspects of business (such as joint ventures) but internationalization in the sense that national
with different laws and regulations boundaries become more flexible and one
law/regulation governs all over.

Drivers of Globalisation
Drivers of globalization are the pressures or changes that have impelled both businesses
and nations to adopt globalization.”

- Cost drivers (lowering production costs)

Economies of scale
Technological innovations simplify production process
Efficient transportation system and improved infrastructure
- Market drivers (Changes in consumer tastes)
Establishment of global brands (Nike, Gucci, ….etc)
Low cost travel
Increase per-capita income
- Government Drivers

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 Removal of Tariffs
Creation of trading blocks (EU)
More open economies
Privatization
- Competition Drivers (More players are in the market)
Companies become more global (MNCs)
MNCs are firms with branches in more than a country
They are huge firms with activities (sales) of more than GDPs of some countries

Advantages Versus Disadvantages of Globalisation

Advantages
- Globalization generates wealth, goods and services which are available to a
greater percentage of the world.
- It gives rise to economies of scale, the more you produce the cheaper it becomes.
- Business are better able to seek out low-cost producers and move the manufacture
of goods and the provision of services in more competitive prices.
- It facilitates growth in communications, the Internet, email, satellite and
television.

Disadvantages
- The vast majority of the world’s population may not be able to purchase these
consumer goods, even at the lower prices.
- The new technologies and access to communications may not benefit all in that
they create social and economic desires which cannot be met within all societies
- The products of the global economy may destroy the manufacturing diversity and
cultural heritage of a country as products become standardized worldwide

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 Session Four:
Business and Power
1. Power & Influence
Powers (the ability to make someone do what he otherwise would not) work inside
organizations and in societies at different levels.
We can explore this power in relation to businesses in three issues:

Globalization Technology Networks

Due to the globalization,
managers require more skills
to stay in power
The new technological threats
push managers to redesign
systems to protect their power
(such as security and access
control systems)
Networks provide us with
huge amount of information,
hence increasing our power

Managers exercise power over their employees as they reward them with salaries
BUT skilled employees also exercise power over managers by bargaining for higher
salaries

- Dimensions of Power
- First Face of Power (Interpersonal Dimension) as A has power over B to the extent
that A can get B to do something he would not otherwise do (managers ask their
employees to their jobs efficiently)
- Second face of power (organizational-structural-cultural dimension) It refers to the
pattern of relationships within an organization such as a business whereby rules,
hierarchy and cultural norms make it normal and reasonable for some people to get
others to do what they otherwise would not do.
- Third Face of Power (Societal-Structural-Cultural Dimension) It concerns the
pattern of relationships and understanding generally prevailing in a society at large
and how power is distributed throughout that society. Certain groups have the
material capacity to exert pressures on others.

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 Session Five:
Resisting and Challenging Business Power

- Negative Business Power

This is the dark side to business, where it sometimes acts in ways that are not necessarily
in the interest of some stakeholders

In other words, business power needs to be controlled to ensure that citizens and society
will not get affected negatively.
We need to understand these issues due to
As citizens, we will be affected by these powers
As managers, we need to exercise this power
- Controlling Business Power

Tool to Control
Explanation
Business Power
Voluntary Action Businesses can control power by their policies. For example,
on the Part of the corporate social responsibility (CSR) nictitates minimizes the
Business negative consequences that might affect businesses.
Government • This is the main form of external control of businesses (by
Regulation laws and regulations)
• Abuses of power by large companies can happen easily in
countries with weak governments
Consumer Action They can boycott products
Direct Action of Pressure groups can also be monitors as they influence business
Pressure Groups power. They also can lobby governments to take actions that would
control business power.

End of summary
I wish, all do the best and gets high marks. This work is offered and present friendly to
my friends. Asking Allah to help them to study. This summary is mixed from helalafifi
summary + Turkey al shemmery in my perspective, about the important points and easy
word with no complicated as I wish and as I see and think.
Good luck

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Ahmad al Kaldy

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