Important topics

Book3
Q1- What is accounting?
 Accounting is crucial to the running of any business. It is concerned with the
flow of economic resources in and out of the business and, more significantly,
it is about providing information for decision making.
 Accounting is about the provision of financial information to help with
decisions about resource allocation and about the preparation of financial
reports which describe the results of past resource allocation decisions.
Accounting allows a business to know:-
1- If it is making a profit or a loss
2- What it is worth
3- What a transaction was worth
4- How much cash it has
5- How much money it is owed
6- How much is owed to other people and businesses
7- How to keep a financial check on things
The Main Users of the Accounting System:-
1- Customers
2- Investors
3- Lenders
4- Employees
5- Suppliers and other trade creditors
6- Governments and their agencies

-:A Simple Accounting Information System

1- Inputs( Transaction data, amendments of data)

2- Processes( Accounting System )
3- Outputs(Financial statements, invoices, receipts, management information)

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How accounting began:-
No formal recording of different financial data, rather ,only invoices and receipts
would have been kept to calculate the profit or loss of the business.
Invoices (each of which shows the details of a transaction)
Receipts (each of which confirms that a payment has been made)
The owner of the business used to do all these tasks, until the accounting
profession was established.
Accounting Information Systems:-
A system, in general, is defined as a group of elements that are formed and
interact in order to k333achieve goals or objectives, existing within an external
environment.
Accounting as an Organizational Resource Conversion Process:-
One characteristic that all businesses share is the fact that they take in resources
in from the external environment, process them and then deliver outputs which
have greater value than the original inputs.
Resources Processes Outputs

Human • Owners/shareholders • Goal setting • Job

• Managers • Decision making satisfaction or
• Employees • Planning products & dissatisfaction
• Part-timers services • Salaries &
• Contractors • Managing functions wages
• Assembling parts • Bonuses &
• Manufacturing goods profit shares
• Dealing with • Satisfied &
customers dissatisfied
customers

Resource inputs Processes Outputs

Tangibles • Money (loans, • Assembly, • Products

overdrafts, Manufacture • Services
profits, private • Service Delivery • Waster materials
capital) • Supply • Waste energy
• Buildings, • Quality control • Accounting reports
machines and Accounting • Profit or loss
equipment • Distribution
• Raw materials • Formal
• Energy (gas, Communication
water, Systems
electricity) • Formal
• Market information
research data systems

Intangibles • Systems • Informal • Professionalism

• Design communication • Happiness
• Information • Culture • Image and
• innovation • Corporate reputation
memory • Innovation
• Informal
information flow
 Q2- Financial stakeholders
 In a business are those people or organizations who have a financial interest in the
business. This means that they would be affected by the business doing financially
better or worse. The larger the business, the larger the number of financial
stakeholders.
 Financial Stakeholders & Financial Information Needed
Financial Interest Financial Information Needed
Stakeholder

Owner Is interested in the How well the business is doing

businesses’ future and compared to previous years and to
success competitors.
Reassurance that the family source of
income is safe & secure

Investor/ Invests money or has Information on the business to allow

Shareholder shares in a business comparisons with other businesses,
with a view to choosing between
them.
Indications that financial returns will
be maximized.

Lender Gives loans and needs to
know that the interest is
affordable and that the
debt can be repaid.
Evidence that a business will be able to
pay the interest on any debts.
The worth of a business should the
debt be unpaid and the business
forced to close.

Growth in sales, market share, net

Competitor Has an interest in the profits, and overall business efficiency.
relative financial Information about the cost structure
performance of rivals and operations of competitors

Manager/ Works for and is paid by
Employee the business on a full-
time basis
Customer/ Needs to know whether
Supplier they are dealing with a
financially sound and
reputable business.
Reassurance that the business will
continue to operate competitively
Continuity of supply and business
without disruption to the flow of goods
or services.
Ability of the business to pay for
goods and deliver on time

Taxation Reviews financial Properly prepared and computed

Officer statements for accuracy, accounts and profit and loss
then checks the amount statements.
of tax payable
Q3- the three main accounting statements, the income
statement, the balance sheet and cash flow statement:
purpose, general description, components and examples
1- The Income Statement :-
Also known as the profit/loss account, the profit statement, the income & expenditure
statement, or the receipts and payments account.
2- The Balance Sheet:-
Also known as the statement of financial position.
3- The Cash Flow Statement:-
Shows what cash came in and what cash went out over a period of time.

 Two accounting elements which appear in the income statement:

1-Expenses
2-Income
 Three accounting elements which appear in the balance sheet:
1- Assets
2- Liabilities
3- Equity
 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
Revenue Expenses

Revenue could also be called income or Of producing this period’s income.

sales.
The income is what is earned for working
for that period of time.
The cost of the components used not the
cost of the components purchased in the
period
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.
Transport costs are a standard heading in
many accounts.
Marketing costs are costs spent on
advertising, etc.
Administration costs are costs used for all
the other costs.
Net Profit: : 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.

 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:
1- Assets
2- Liabilities
3- Equity
 The Cash Flow Statement:-
A cash flow statement is also known as the statement of cash flows or funds flow
statement.
 It is a financial statement showing how changes in balance sheet accounts and
income affect the cash flow.
 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.

Q4- The meaning and differences between financial and

management accounting
Management Accounting Financial Accounting

A management accounting system A financial accounting system produces

produces information that is mainly used information that is mainly used by parties
for management purposes within an external to the organization
organization
Management accounting helps Financial accounting provides a record of
management to record, plan and control performance of an organization over a
activities and aids the decision making financial year and the financial value at
process. the end of that financial year.

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

Management accounting can focus on Financial accounting concentrates on the

specific areas of a business’s activities. whole organization, aggregating revenues
and costs from different operations.

Management accounting provides both a Financial accounting presents an

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

Accounting statements are produced as a Accounting statements are usually

once-off and also for varying periods required to be produced for a period of
12 months

No strict rules govern the way in which
management accounting operates.
Management accounting has no specified
format and no specific required
statements
Financial accounting must operate within
a framework determined by law and
international and/or national accounting
standards
Financial accounts are supposed to be
produced in accordance with a format
specified by accounting standards and by
 law

Q5- Different types of cost and their impact on budgets

 Costs can be split into different types to reflect the way they arise
The different types of costs need different budget treatment.
Budget Type Definition Example Flexibility

Fixed Costs that do not Staff costs, rent Not very easy to
vary in relation to payments. cut-down on fixed
the chosen costs, because
measure of they are time and
activity. activity related.

Variable Costs that vary in Electricity costs, Organizations can

relation to a telephone costs attempt to cut
chosen measure Costs of down on variable
of activity maintaining costs through the
inventory. efficient use of
resources, and
through
sustainability.

Discretionary These are costs Non-urgent These are the

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

Contingency These are costs Terrorist attack Contingency costs

related to special for example are problematic
occasional events because you hope
& contingencies. that the event
does not occur,
and it is unlikely
to in any one
year.
Book4
Q6- What is marketing concept
 Marketing is more than a particular set of activities carried out by a particular
department in a business.
 In order to be a successful marketing organization, the whole business needs to have
a ‘marketing orientation’.
 Having marketing orientation means that everybody should have the customers’
needs in mind in all their work activities, even if they never have any direct contact
with customers.
 This follows from an understanding that no business would exist without customers
and that marketing is a central aspect of the entire business.
 There are a number of definitions of the term marketing.
 “Marketing is the management process which identifies, anticipates, and supplies
customer requirements efficiently and profitably” (Quoted in Blythe, 2001, p.11).
 “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)
 In overall, 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.

Q7- the 4 marketing orientations/ philosophy/ approaches

 Many business organizations use an inside-out approach,
 Starting with what the business is good at doing and ending with what they think
customers want.
 Inside-out approaches include the:-
 product orientation
 production orientation
 Selling orientation.
 Another approach is known as the outside-in approach,
 Starting with a thorough assessment of the needs and expectations of buyers and
then trying to fulfill those needs and expectations in order to attract customers.
 Outside-In Approaches include Marketing Orientation.

1- Product orientation (inside-out approach):-

Businesses assume that customers value product quality above all else and that a
business that succeeds in producing better products than any of its competitors will have
to do little else in order to attract customers and make a profit. Low prices, convenient
distribution or convincing selling or advertising become secondary consideration or
totally unimportant.
2- Production orientation (inside-out approach):
Businesses assume that buyers are very price conscious and are prepared to accept
merely adequate quality. They focus on making their production and marketing
processes as efficient as possible , so that they can produce large quantities of products
at low costs. This usually means mass production of fairly standardized goods.
3- 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 effort. Businesses here believe
that it is possible to sell almost anything as long as the right sales approach is taken.

4- Marketing orientation (outside-in approach):-

The main difference here is that businesses do not assume what the potential customer
may want, but they actually make every attempt to find out. Starting with a thorough
assessment of the needs and expectations of buyers and then trying to fulfill those needs
and expectations in order to attract customers. The end result is to gain customer
satisfaction and at the same time make profit.

Q8- The marketing mix (the 4 Ps).

 Marketing mix is more than just a set of techniques employed by marketing
managers. However, these techniques are important in that marketers must try to
design an offering which will appeal to customers. This offering is the marketing mix.
 The marketing mix includes the following elements:-
1- Product
2- Pricing
3- Distribution (Place)
4- Marketing Communications (Promotion)

Product:-
 Products can be described as a ‘bundle of benefits’. This means that it is not usually
the actual product itself which is important to customers but what it will do for them
(e.g. a mobile phone is a means of staying in touch with others).

 Products can be described as a ‘bundle of benefits’. This means that it is not usually
the actual product itself which is important to customers but what it will do for them
(e.g. a mobile phone is a means of staying in touch with others).
 There are three levels of product benefits:-
 Level One: The core benefit is the main benefit of the product.
 Level Two: The actual product has product features and characteristics in
addition to the core benefit. For example, packaging, features, styling, quality,
brand name.
Level Three: Augmented product benefits may include after sales services, installation,
delivery and credit, and warranty Products can be described as a ‘bundle of benefits’. This
means that it is not usually the actual product itself which is important to customers but
what it will do for them (e.g. a mobile phone is a means of staying in touch with others).
The Three Levels of product by Kotler 2001:-

Product life cycle:-

 Products go through a life cycle. This means that they are launched at some point and
after a time of growth and maturity they eventually decline and become obsolete.
 The product life cycle has the following five phases:
1- Product development,
2- Introduction,
3- Growth,
4- Maturity and
5- Eventual 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 better known, sales may grow rapidly until they tend to level
off during 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.
 Crawford (1991) proposed a model of the new product development process. This
model includes a number of steps in the following sequence:
 Step One: New Product Planning
 Step Two: Idea Generation
 Step Three: Idea Screening & Evaluation
 Step Four: Technical Development
 Step Five: Market Appraisal
 Step Six: Launch
1- New product planning: a business looks at the current products, how well they are
performing, and where the marketing environment poses threats to existing products
and opportunities for new products.
2- Idea generation: specific ideas for new products are generated and collected,
perhaps through group discussion techniques such as brainstorming.
3- Idea screening and evaluation: the ideas generated in the previous step are
examined for their feasibility and marketability.
4- Technical development: the technical aspects of the product are investigated and a
prototype is developed.
5- Market appraisal: Market research is carried out to assess whether the product
would be successful in the market.
6- Launch: the product is produced and offered in the market

Pricing:-
The difference between getting the price right and getting it wrong can be the difference
between being successful and going out of business.
Approaches to Pricing
 There are three main approaches to setting prices:
1- Cost-based pricing
2- Customer-based pricing
3- Competition-based pricing

1) Cost-based pricing:
It is the least customer-oriented pricing method and thus is not compatible with the
marketing orientation. It is still used by many companies as costs are relatively easy to
work out and more straightforward than customer-based pricing. It works by adding up
all the costs of manufacturing and selling a product and then adding a fixed profit
percentage.
2) Customer-based pricing:
It is more in-line with a marketing orientation as it starts with the customer’s 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.
3) Competition-based pricing:
It involves comparing the prices of all competing products and then setting the price of
one's own product. This maybe lower than the competition if the business is competing
on price. It may also be more expensive than the competition 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.
Pricing for strategic effect:
 Product line pricing: refers to the setting of prices within linked product groups.
Sometimes sales of one product are directly linked to sales of another product. Thus,
it may be possible to sell one product cheaply in order to encourage more purchases
of another product and hence achieve a higher sales volume.
 Psychological pricing: involves setting prices in such a way that they capture or
encourage particular psychological effects in consumers.

Ethical issues in pricing:

 Unethical pricing practice: arises from the power difference between producers and
consumers.
 Predatory pricing

Distribution (Place):-
 It is the third element in the marketing mix is the distribution channel (relating to the
place where the product is sold).
 Distribution channels are the channels by which products are made available to their
final customers. At one level this relates to the physical transportation and storage of
goods. They also transfer ownership of the goods , offer advice to customers and
provide after-sale services.

Members of the distribution channel:

 Some distribution channels are very short, they have few members whereas others
are long and have many members
 Distribution Channels
 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.
 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 onto
consumers.
 Successful retailing depends on:
 The convenient location of a store
 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:-
 Marketing Communications is not a straightforward, one way process from marketers
to potential customers.
 Both the sender and the receiver of that message are actively involved.
 Marketers often follow the so-called AIDA approach, which suggests that good
marketing communication should go through the sequence of stimulating
‘awareness’, ‘interest’, ‘desire’ and ‘action’ on the part of consumers.
 The promotional mix consists of :
 Advertising
 Sales Promotion
 Personal Selling
 Public Relations

Advertising:
 It is impersonal and communicates with a large number of people through a paid
media channel.
1- Pioneering advertising is used in the early stages of the product life cycle, when
businesses want to achieve consumer awareness and interest.
2- 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.
3- Reminder or reinforcement advertising : designed to operate after consumers have
already purchased the product to reassure them of the product’s benefits and that
they made the right purchase decision.
4- Advertising attempting to improve the general image of the organization

Sales promotions
 Refers to the specific element of the promotional mix which tries to create a
temporary increase in sales by offering customers an incentive to buy the product.

Sales promotion come in different forms:

1- Money Based Promotion: Easy to implement, very common, cash-back, immediate
price reductions at point of sale, coupons.
2- Product Based Promotion: less likely to cheapen product image: X% extra free, buy
one get one free, free samples.
3- Gift, Prize and Merchandise based Promotion : Gifts in return for proof of
purchase, competitions or sweepstakes.

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.
However, it tends to be the most expensive.

Public relations (PR)

 (PR) is about creating a good image for the business in the minds of its stakeholders.
It involves creating and placing favorable news stories. PR operates with word-of-
mouth, press and TV news stories, and personal recommendations.
 Good public relations can be more effective than advertising as it is free and thus
saves on the promotional budget.
 It is more credible in the eyes of consumers.

Ethical issues in marketing communications:

 Marketers should not deceive consumers or make misleading claims about any
aspects of the marketing mix.
 Criticism of contemporary marketing communications are that they are often very
intrusive and that consumers find it difficult to avoid them. (e.g. pop-up
advertisements)
 On a broader societal scale, marketing communications have been criticized for
creating artificial wants and reinforcing materialistic values.

Marketing services
Differences between physical products and services:
1- Services are intangible,
2- Services are produced and consumed ate the same time,
3- The quality of services varies depending on the persons providing them,
4- They can’t be produced in advance and stored for later sale or use.

Thus, the marketing mix for services is extended by further elements: people, processes,
and physical evidence.

Q9- The three levels of product benefits

 There are three levels of product benefits:
 Level One: The core benefit is the main benefit of the product.
 Level Two: The actual product has product features and characteristics in
addition to the core benefit. For example, packaging, features, styling, quality,
brand name.
 Level Three: Augmented product benefits may include after sales services,
installation, delivery and credit, and warranty Products can be described as a
‘bundle of benefits’. This means that it is not usually the actual product itself
which is important to customers but what it will do for them (e.g. a mobile phone
is a means of staying in touch with others).

The Three Levels of product by Kotler 2001

Q10- Product life cycle
 Products go through a life cycle. This means that they are launched at some point and
after a time of growth and maturity they eventually decline and become obsolete.
 The product life cycle has the following five phases:
1- Product development,
2- Introduction,
3- Growth,
4- Maturity and
5- Eventual 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 better known, sales may grow rapidly until they tend to
level off during 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.
 Crawford (1991) proposed a model of the new product development process. This
model includes a number of steps in the following sequence:
 Step One: New Product Planning
 Step Two: Idea Generation
 Step Three: Idea Screening & Evaluation
 Step Four: Technical Development
 Step Five: Market Appraisal
 Step Six: Launch
1) New product planning: a business looks at the current products, how well they are
performing, and where the marketing environment poses threats to existing products
and opportunities for new products.
2) Idea generation: specific ideas for new products are generated and collected,
perhaps through group discussion techniques such as brainstorming.
3) Idea screening and evaluation: the ideas generated in the previous step are
examined for their feasibility and marketability.
4) Technical development: the technical aspects of the product are investigated and a
prototype is developed.
5) Market appraisal: Market research is carried out to assess whether the product
would be successful in the market.
6) Launch: the product is produced and offered in the market
Q11- Understanding marketing environment


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view.

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The marketing environment is the business environment from a marketing point of

The marketing environment is divided into internal and external environments,

where the external environment is further divided into the ‘micro-environment’ and
‘macro-environment’

Internal Environment
In order to ensure that customer needs and expectations are considered at all stages
of the business process, 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
Marketers have to persuade employees throughout the business that customer
orientation is a key consideration.
 External Environment: The Micro-Environment
 The micro-environment consists of individuals and organizations that are in direct
contact with the business.
 They include existing and potential customers, suppliers, competitors, intermediaries
and some other stakeholders.
 Customers are the most important from a marketing point of view.

Composition of the Explanation Ethical issues to consider

Micro-Environment

(1) Competitors • Businesses need to understand Ethical problems arise either

their competitors.
• Meeting customer needs and
expectations is not enough if
competitors can do it better.
• In order to do so businesses
need to define who its
competitors actually are.
• How should a business define its
competitors?
because of overly aggressive
competition or conversely because
of insufficient competition.
Overly aggressive competition:
1) Underhand ways of collecting
information about competitors,
2) Dirty tricks such as negative
advertising and the stealing of
customers
3) Predatory pricing

(2) Suppliers • Suppliers are ‘businesses and Ethical issues in business

individuals that provide the supplier relationships stem
resources needed by the from:
business and its competitors 1) Unequal behavior between
to produce goods and the two partners.
services’. 2) Negotiations between a
• They are an important link in business and its potential
the overall system that suppliers. thus, both sides
delivers value to customers. will try to get as good a
• It is important for any deal as possible
business to monitor the
supply quality and
availability. Why?
• Different ways of managing
supplies:
1) Trying to buy the
cheapest supplies
possible and frequently
switching suppliers;
2) A relationship approach
and
3) Co-operation approach
 Composition Explanation
of the Micro-
Environment

(3) Marketing Marketing intermediaries are businesses that help another business
Intermediarie to promote, sell and distribute its goods to final buyers. They include:
s a) Resellers: individuals and businesses that buy goods and 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 that help a business to
target and promotes its products to the right markets.
d) Financial intermediaries: banks, credit businesses, insurance
businesses.

(4) Other  Stakeholders are individuals, groups of individuals and organizations

Stakeholders 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.
 Stakeholders are also referred to as other publics.
 Businesses should identify any support they may need from a
stakeholder or any potential threat that the stakeholder may pose
and then try to maximize the support and minimize the threat.

 The macro-environment consists of the larger society forces that affect the whole micro-
environment, including demographic, economic, natural, social, political, legal, cultural
and technological forces.
 The STEEP model offers one way of classifying these factors (STEEP in terms of how it
relates to a business’s marketing activities)
 It is composed of:
 Sociological factors
 Technological factors
 Economic factors
 Environmental factors
 Political factors

(1) Sociological Factors:

 Demographic
Factors
Populati
on
size

Growth Cultural Factors

tren
ds Social Factors Language

Age Impact of Ethnicity

struc social class
ture Religion
Impact of
Educatio family and National
n other social culture
level groupings
s Globalizatio
Roles of n
Family men and
struc women Increased
tures migration
Attitudes
toward Continued
divorce and cultural
single differences
parenthoo between
d and within
nations
(2) Technological Factors:
 Technology influences businesses’ capacity to offer products as well as consumers’
ability to use them.
 Technology refers to all the ways in which humans work upon and modify their
environment and it changes all the time.

(3) 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.

(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 the one hand, marketing and consumption activities have a significant impact on
the natural environment. On the other hand, changes in the natural environment
can equally affect businesses capacity to meet customer requirements.
 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 use of the product by the final consumer and its eventual
disposal.

(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.

Q12- The rational approach to understanding customers

 Model of consumer behavior
 Stages in the buying decision process
Answer:-
The Rational Approach to Understanding Customers
 There are two types of marketing
1- Consumer marketing
2- Business-to-business marketing

Consumer Buying Behavior

 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 and use.
  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.

Figure 3.1 Model of Consumer Behavior by Kotler (2001)

Product
Price
Marketing Place
Stimuli Promotion

 The figure represents a simple model of consumer behavior, depicting influences on

consumer buying behavior, buyer decision processes and buyer responses.
 The model does not go into detail on what goes inside the buyer’s mind- it treats this
as a ‘black box’; something which is known to exist but the internal workings of which
are unknown.
 The model assumes that there are two main types of external influence on
consumers:
1) stimuli (market offerings of different businesses)
2) Elements of the business environment as stated in the STEEP model

Types of consumer buying behavior

 There are four types of consumer buying behavior:
(1) Complex buying behavior
(2) Dissonance- reducing buying behavior
(3) Habitual buying behavior
(4) Variety-seeking buying behavior
High Involvement Low Involvement
Significant
Difference Complex Buying Behavior Variety- Seeking Buying Behavior
between brands

Few
Differences
between Dissonance -Reducing Buying Habitual Buying Behaviour
brands Behaviour

Type of Consumer Buying Description

Behavior

Complex Buying Behavior It is characterized by high consumer involvement and

significant differences between brands. It happens
when a purchase is expensive, risky or purchased
infrequently or when consumers use the product to
express themselves (e.g. cars, houses, etc.)
 Dissonance-Reducing Buying
Behavior
Consumers here are highly involved in the purchase
but have difficulties determining the differences
between brands. Dissonance can result from a
purchase if consumers worry afterwards that they may
have made the wrong choice(e.g. financial services
such as insurance)

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

Variety Seeking Behavior It happens when consumers perceive significant

differences between brands but are not involved in the
purchase.(e.g. ice-cream, biscuit, etc.)

 Stages in the Buying Decision Process by Kotler 2001

 Stage One: Need Recognition
 Stage Two: Information Search:
a) Personal Sources: Family, friends, neighbors;
b) Commercial Sources: Advertising, salespeople, the Internet, packaging, displays
c) Public Sources: Mass media, consumer -rating organizations.
d) Experiential Sources: handling, examining, using the product
 Stage Three: Evaluation of Alternatives
 Stage Four: Purchase Decisions
 Stage Five: Post Purchase Behavior: complain, not to buy again, tell friends about
problems.
 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:
(1) 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.
(2) The nature of the buying unit:-
- Business-to-business marketers tend to rely on personal selling directly to customers.
(3) Types of buying behavior:-
- 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.
Book5:-
Q13- What is globalization? Advantages and disadvantages of globalization and
drivers of globalization.

 Globalization can be defined as the expansion of economic activities across political

boundaries of nation states.
 It is the process of increasing economic openness, growing economic
interdependence and deepening economic integration between countries in the
world.
 It is an extension of internationalization in the sense that most aspects of the
production or service are performed and integrated across many global locations.
 National boundaries become more flexible and are not barriers to trade as before.
 This is encourages by setting up of trading blocks such as EU in which the member
states have agreed to remove many of the obstacles of trade between them and to
the creation of a single internal market and setting up of a single currency.
 Drivers of globalization are:-
“The pressures or changes that have impelled both businesses and nations to adopt this
approach.”
 Drivers include:
1- Cost drivers
2- Market drivers
3- Government drivers
4- Competition drivers
(1) Cost Drivers:-
 These seek out an advantage to a business from the lowering of cost of the service
or production through:
1- Gaining economies of scales from increasing the size of the business operation.
2- The development and growth of technological innovations which simplifies the
production process and makes rapid and extensive communications through the use
of IT and internet.
3- Lower labor and other resource costs in the developing countries such as Africa,
Indian, and Latin America.
4- Fast and efficient transportation systems with the development of improved
infrastructure.

(2) Market Drivers:-

 The development in world market brings changes in the demands and tastes of
consumers by:
1- Establishment of global brands which have instant recognition and are created
and supported by global brands.
2- Increasing low cost travel which begins to create the idea of global consumers
with a growing convergence of lifestyles and tastes.
3- Growing per capita income, not only in the developed economies of the west,
but in the emerging industrial and service economies, which increases the
purchasing power of consumers both individually and organizationally.

(3) Government Drivers:-

 Nations work together to increase the possibility of trading activities in their
international trade to create economic activity and wealth by:
1- A reduction in trade barriers, removal of tariffs to imports and exports.
2- The creation of trading blocs, for example, EU.
3- The creation of more open and freer economies, for example, the ending of the
closed economies of Eastern Europe and the relaxation of the Chinese Economy.
4- Privatization of previously centrally controlled industries, for example, Gas,
Telecommunications, and electricity in UK, the release from state influence will
enable the new organization to operate along more businesslike lines and seek out
new market and suppliers, driven by the profit motive.

(4) Competition Drivers:-

 The opening up of economies creates an environment in which more players can
enter the marketplace, competition will increase as the businesses strive to attract
potential consumers for their products or services by:
1- Movement of companies to become globally centered rather than nationally
centered through acquisition or, takeover, and strategic alliances.
2- The growth of these global networks of organizational structures and businesses
which make countries interdependent within specific industries, for example, the
European Airbus Project.
Advantages
1- Globalization generates wealth, goods and services which are available to a greater
percentage of the world.
2- It gives rise to economies of scale, the more you produce the cheaper it becomes.
3- 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.
4- It facilitates growth in communications, the Internet, email, satellite and television.

Disadvantages
1- The vast majority of the world’s population may not be able to purchase these
consumer goods, even at the lower prices.
2- 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
3- The products of the global economy may destroy the manufacturing diversity and
cultural heritage of a country as products become standardized worldwide
4- Globalization may undermine the idea of a nation state as a global business becomes
more powerful financially and politically than its host country.

Q14- The Main ways of controlling business power

Tool to Control Explanation
Business Power

Voluntary Action Ethics refers to businesses conducting their activities in

on the Part of the accordance with generally accepted ethical norms.
Business Therefore, there is a need for corporate social
responsibility (CSR) which is the need for businesses to
take responsibility for the social consequences of their
actions and to try to minimize the negative consequences
as much as they can.

Government This is considered to be the main form of external control

Regulation of businesses. Businesses are subject to laws relating to
legal issues, financial issues, employee regulations, etc.
Abuses of power by large companies can happen easily in
countries with weak governments.

Consumer Action Increasing numbers of consumers want not only to buy

products of high quality but also to buy from businesses
that act in socially responsibly ways.
Consumers can take two forms of action to influence
 companies:
1- Consumers can boycott products they consider to be
unethical like for example animal fur.
They can actively seek out products and companies with a
positive ethical image.

Direct Action of Pressure groups can monitor and influence business power;
Pressure Groups they appeal to citizens and consumers making questionable
business activities known and hope citizens would demand
government action, they also influence government to take
policy action that will control business power.
Increasingly, pressure groups also work directly with
business, by working in partnership with business that have
shown an interest in taking responsibility for the social and
environmental consequences of their business.