10 Marks Questions Answers
Limitations and Importance of Planning
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(ii)
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(v)
Planning provides directions: By stating in advance how work is to be done planning
provides direction for action. Planning ensures that the goals or objectives are clearly stated
so that they act as a guide for deciding what action should be taken and in which direction.
Planning reduces the risks of uncertainty: Planning is an activity which enables a manager to
look ahead and anticipate changes. By deciding in advance the tasks to be performed,
planning shows the way to deal with changes and uncertain e vents.
Planning reduces overlapping and wasteful activities: Planning serves as the basis of
coordinating the activities and efforts of different divisions, departments and individuals. It
helps in avoiding confusion and misunderstanding. Planning promotes innovative ideas:
Since planning is the first function of management, new ideas can take the shape of
concrete plans. It is the most challenging activity for the management as it guides all future
actions leading to growth and prosperity of the business.
Planning facilitates decision making: Planning helps the manager to look into the future and
make a choice from amongst various alternative courses of action. The manager has to
evaluate each alternative and select the most viable proposition. Planning involves setting
targets and predicting future conditions, thus helping in taking rational decisions.
Planning establishes standards for controlling: Planning involves setting of goals. The entire
managerial process is concerned with accomplishing predetermined goals through planning,
organising, staffing, directing and controlling.
The limitations fo planning are:
(i)
(ii)
(iii)
Planning leads to rigidity: In an organisation, a well-defined plan is drawn up with specific
goals to be achieved within a specific time frame. These plans then decide the future course
of action and managers may not be in a position to change it.
Planning may not work in a dynamic environment: The business environment is dynamic,
nothing is constant. The environment consists of a number of dimensions, economic,
political, physical, legal and social dimensions. The organisation has to constantly adapt
itself to changes. It becomes difficult to accurately assess future trends in the environment if
economic policies are modified or political conditions in the country are not stable or there
is a natural calamity
Planning reduces creativity: Planning is an activity which is done by the top management.
Usually the rest of the members just implements these plans. As a consequence, middle
manage ment and other decision makers are neither allowed to deviate from plans nor are
they permitted to act on their own. Thus, much of the initiative or creativity inherent in
them also gets lost or reduced. Most of the time, employees do not even attempt to
(iv)
(v)
(vi)
formulate plans. They only carry out orders. Thus, planning in a way reduces creativity since
people tend to think along the same lines as others. There is nothing new or innovative.
Planning involves huge costs: When plans are drawn up huge costs are involved in their
formulation. These may be in terms of time and money for example, checking accuracy of
facts may involve lot of time. Detailed plans require scientific calculations to ascertain facts
and figures.
Planning is a time-consuming process: Sometimes plans to be drawn up take so much of
time that there is not much time left for their implementation.
Planning does not guarantee success: The success of an enterprise is possible only when
plans are properly drawn up and implemented. Any plan needs to be transl ated into action
or it becomes meaningless. Managers have a tendency to rely on previously tried and tested
successful plans.
Planning and Steps of Planing
Planning is deciding in advance what to do and how to do. It is one of the basic managerial functi ons.
Before doing something, the manager must formulate an idea of how to work on a particular task. Thus,
planning is closely connected with creativity and innovation. But the manager would first have to set
objectives, only then will a manager know where he has to go. Planning seeks to bridge the gap between
where we are and where we want to go.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Setting Objectives: The first and foremost step is setting objectives. Every organisation must
have certain objectives. Objectives may be set for the entire organisation and each
department or unit within the organization.
Developing Premises: Planning is concerned with the future which is uncertain and every
planner is using conjecture about what might happen in future. Therefore, the manager is
required to make certain assumptions about the future. These assumptions are called
premises. Assumptions are the base material upon which plans are to be drawn. The base
material may be in the form of forecasts, existing plans or any past information about
policies.
Identifying alternative courses of action: Once objectives are set, assumptions are made.
Then the next step would be to act upon them. There may be many ways to act and achieve
objectives. All the alternative courses of action should be identified. The course of action
which may be taken could be either routine or innovative.
Evaluating alternative courses: The next step is to weigh the pros and cons of each
alternative. Each course will have many variables which have to be weighed against each
other. The positive and negative aspects of each proposal need to be evaluated in th e light
of the objective to be achieved. In financial plans, for example, the risk-return trade-off is
very common. The more risky the investment, the higher the returns it is likely to give.
Selecting an alternative: This is the real point of decision making. The best plan has to be
adopted and implemented. The ideal plan, of course, would be the most feasible, profitable
and with least negative consequences. Most plans may not always be subjected to a
mathematical analysis. In such cases, subjectivity and the manager’s experience, judgment
and at times, intuition play an important part in selecting the most viable alternative.
Implement the plan: This is the step where other managerial functions also come into the
picture. The step is concerned with putting the plan into action i.e., doing what is required.
For example, if there is a plan to increase production then more labor, more machinery will
be required. This step would also involve organizing for labor and purchase of machinery.
Follow-up action: To see whether plans are being implemented and activities are performed
according to schedule is also part of the planning process. Monitoring the plans is equally
important to ensure that objectives are achieved.
Types of Plans
Objectives: The first step in planning is setting objectives. Objectives, therefore, can be said to be the
desired future position that the management would like to reach. Objectives are very basic to the
organization and they are defined as ends which the management seeks to achie ve by its operations.
Strategy: A strategy provides the broad contours of an organisation’s business. It will also refer to future
decisions defining the organisations direction and scope in the long run. Thus, we can say a strategy is a
comprehensive plan for accomplishing an organisation objectives. Whenever a strategy is formulated,
the business environment needs to be taken into consideration.
Policy: Policies are general statements that guide thinking or channelise energies towards a particular
direction. Policies provide a basis for interpreting strategy which is usually stated in general terms. They
are guides to managerial action and decisions in the implementation of strategy.
Procedure: Procedures are routine steps on how to carry out activities. They detail the exact manner in
which any work is to be performed. They are specified in a chronological order. For example, there may
be a procedure for requisitioning supplies before production. Procedures are specified steps to be
followed in particular circumstances.
Method: Methods provide the prescribed ways or manner in which a task has to be performed
considering the objective. It deals with a task comprising one step of a procedure and specifies how this
step is to be performed. The Methods may vary from task to task. Selection of proper method saves
time, money and effort and increases efficiency.
Rule: Rules are specific statements that inform what is to be done. They do not allow for any flexibility
or discretion. It reflects a managerial decision that a certain action must or must not be taken. They are
usually the simplest type of plans because there is no compromise or change unl ess a policy decision is
taken.
Programme: Programmes are detailed statements about a project which outlines the objectives,
policies, procedures, rules, tasks, human and physical resources required and the budget to implement
any course of action. Programmes will include the entire gamut of activities as well as the organisation’s
policy and how it will contribute to the overall business plan. The minutest details are worked out i.e.,
procedures, rules, budgets, within the broad policy framework.
Budget: A budget is a statement of expected results expressed in numerical terms. It is a plan which
quantifies future facts and figures. For example, a sales budget may forecast the sales of different
products in each area for a particular month. A budget may also be prepared to show the number of
workers required in the factory at peak production times. Since budget represe nts all items in numbers,
it becomes easier to compare actual figures with expected figures and take corrective action
subsequently.
Internal and External Sources of Recruitment
There are two important sources of internal recruitment, namely, transfers and promotions, which are
discussed below:
(i) Transfers: It involves shifting of an employee from one job to another, one department to another or
from one shift to another, without a substantive change in the responsibilities and status of the
employee. It may lead to changes in duties and responsibilities, working condition etc., but not
necessarily salary. Transfer is a good source of filling the vacancies with employees from over-staffed
departments. It is practically a horizontal movement of employees.
(ii) Promotions: Business enterprises generally follow the practice of filling higher jobs by promoting
employees from lower jobs. Promotion leads to shifting an employee to a higher position, carrying
higher responsibilities, facilities, status and pay.
The commonly used external sources of recruitment are discussed below:
(i) Direct Recruitment: Under the direct recruitment, a notice is placed on the notice -board of the
enterprise specifying the details of the jobs available. Job- seekers assemble outside the premises of the
organisation on the specified date and selection is done on the spot. The practice of direct recruitment
is followed usually for casual vacancies of unskilled or semi -skilled jobs.
(ii) Casual Callers: Many reputed business organisations keep a database of unsolicited applicants in
their offices. Such job-seekers can be a valuable source of manpower. A list of such job-seekers can be
prepared and can be screened to fill the vacancies as they arise. The major merit of this source of
recruitment is that it reduces the cost of recruiting workforce in comparison to other sources.
(iii) Advertisement: Advertisement in newspapers or trade and professional journals is generally used
when a wider choice is required. Most of the senior positi ons of industry as well as commerce are filled
by this method. The advantage of advertising vacancies is that more information about the organisation
and job can be given in the advertisement.
(iv) Employment Exchange: Employment exchanges run by the Gove rnment are regarded as a good
source of recruitment for unskilled and skilled operative jobs. In some cases, compulsory notification of
vacancies to employment exchange is required by law.
(v) Placement Agencies and Man- agement Consultants: In tech- nical and professional areas, private
agencies and professional bodies appear to be doing substantive work. Placement agencies provide a
nationwide service in matching personnel demand and suppl y. These agencies compile bio-data of a
large number of candidates and recommend suitable names to their clients.
(vi) Campus Recruitment: Colleges and institutes of management and technology have become a
popular source of recruitment for technical, professional and managerial jobs. Many big organisations
maintain a close liaison with the universities, vocational schools and management insti- tutes to recruit
qualified personnel for various jobs. Recruitment from educational institutions is a well -established
practice of businesses. This is referred to as campus recruitment.
Selection Process
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Inviting applications: The prospective candidates from within the organization or outside the
organization are called for applying for the post. Detailed job description and job
specification are provided in the advertisement for the job. It attracts a large number of
candidates from vari-ous areas.
Receiving applications: Detailed applications are collected from the candidates which
provide the necessary information about personal and professional details of a person.
These applications facilitate analysis and comparison of the candidates.
Scrutiny of applications: As the limit of the period within which the company is supposed to
receive applications ends, the applications are sorted out. Incomplete applications get
rejected; applicants with un-matching job specifications are also rejected.
Written tests: As the final list of candidates becomes ready after the scrutiny of applications,
the written test is conducted. This test is conducted for understanding the technical
knowledge, atti-tude and interest of the candidates. This process is useful when the number
of applicants is large.
Psychological tests: These tests are conducted individually and they help for finding out the
indi-vidual quality and skill of a person. The types of psychological tests are aptitude test,
intelligence test, synthetic test and personality test
Personal interview: Candidates proving themselves successful through tests are interviewed
per-sonally. The interviewers may be individual or a panel. It generally involves officers from
the top management.
Reference check: Generally, at least two references are asked for by the company from the
can-didate. Reference check is a type of crosscheck for the information provided by the
candidate through their application form and during the interviews.
Medical examination: Physical strength and fitness of a candidate is must before they takes
up the job. In-spite of good performance in tests and interviews, candidates can be rejected
on the basis of their ill health.
Final selection: At this step, the candidate is given the appointment letter to join the
organization on a particular date. The appointment letter specifies the post, title, salary and
terms of employment. Generally, initial appointment is on probation and after specific time
period it becomes permanent.
Placement: This is a final step. A suitable job is allocated to the appointed candidate so that
they can get the whole idea about the nature of the job. They can get adjusted to the job
and perform well in future with all capacities and strengths
Methods of on the job and off the job training]
On-the-job training Methods:
1. Apprenticeship: Apprenticeship is a system of training a new generation of practitioners of a
skill. This method of training is in vogue in those trades, crafts and technical fields in which a
long period is required for gaining proficiency. The trainees serve as apprentices to experts for
long periods. They have to work in direct association with and also under the direct supervision
of their masters.
2. Coaching: Coaching is a one-to-one training. It helps in quickly identifying the weak areas and
tries to focus on them. It also offers the benefit of transferring theory learning to practice. The
biggest problem is that it perpetrates the existing practices and styles. In India most of the
scooter mechanics are trained only through this method.
3. Job Rotation: It is the process of training employees by rotating them through a series o f related
jobs. Rotation not only makes a person well acquainted with different jobs, but it also alleviates
boredom and allows to develop rapport with a number of people. Rotation must be logical
Off-the-job training methods:
1. Case Study: Case studies are complex examples which give an insight into the context of a
problem as well as illustrating the main point. Case Studies are trainee centered activities based
on topics that demonstrate theoretical concepts in an applied setting.
2. Vestibule Training: Vestibule Training is a term for near-the-job training, as it offers access to
something new (learning). In vestibule training, the workers are trained in a prototype
environment on specific jobs in a special part of the plant.
3. Lectures and Conferences: Lectures and conferences are the traditional and direct method of
instruction. Every training program starts with lecture and conference. It’s a verbal presentation
for a large audience. However, the lectures have to be motivating and creating interest among
trainees. The speaker must have considerable depth in the subject. In the colleges and
universities, lectures and seminars are the most common methods used for training.
Objectives of Financial Management
Financial management is one of the functional areas of business. Therefore, its objectives must be
consistent with the overall objectives of business. The overall objective of financial management is to
provide maximum return to the owners on their investment in the long- term.
1. Profit maximization: The main objective of financial management is profit maximization. The
finance manager tries to earn maximum profits for the company in the short-term and the longterm. He cannot guarantee profits in the long term because of business uncertainties .
2. Wealth maximization: Wealth maximization (shareholders' value maximization) is also a main
objective of financial management. Wealth maximization means to earn maximum wealth for
the shareholders. So, the finance manager tries to give a maximum dividend to the
shareholders.
3. Proper estimation of total financial requirements: Proper estimation of total financial
requirements is a very important objective of financial management. The finance manager must
estimate the total financial requirements of the company. He must find out how much finance is
required to start and run the company.
4. Proper mobilization: Mobilization (collection) of finance is an important objective of financial
management. After estimating the financial requirements, the finance manager must decid e
about the sources of finance. He can collect finance from many sources such as shares,
debentures, bank loans, etc.
5. Proper utilization of finance: Proper utilization of finance is an important objective of financial
management. The finance manager must make optimum utilization of finance. He must use the
finance profitable.
6. Maintaining proper cash flow: Maintaining proper cash flow is a short-term objective of financial
management. The company must have a proper cash flow to pay the day-to-day expenses such
as purchase of raw materials, payment of wages and salaries, rent, electricity bills, etc.
7. Survival of company: Survival is the most important objective of financial management. The
company must survive in this competitive business world. The finance manager must be very
careful while making financial decisions. One wrong decision can make the company sick, and it
will close down.
8. Creating reserves: One of the objectives of financial management is to create reserves. The
company must not distribute the full profit as a dividend to the shareholders. It must keep a part
of it profit as reserves. Reserves can be used for future growth and expansion. It can also be
used to face contingencies in the future.
9. Proper coordination: Financial management must try to have proper coordination between the
finance department and other departments of the company.
10. Create goodwill: Financial management must try to create goodwill for the company. It must
improve the image and reputation of the company. Goodwill helps the company to survive in
the short-term and succeed in the long-term. It also helps the company during bad times.
Factors affecting Fixed Capital
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Nature of Business: The type of business has a bearing upon the fixed capital requirements.
For example, a trading concern needs lower investment in fixed assets compared with a
manufacturing organization; since it does not require to purchase plant and machinery etc.
Scale of Operations: A larger organization operating at a higher scale needs bigger plant,
more space etc. and therefore, requires higher investment in fixed assets when compared
with the small organization.
Choice of Technique: Some organizations are capital intensive whereas others are labor
intensive. A capital-intensive organization requires higher investment in plant and
machinery as it relies less on manual labor. The requirement of fixed capital for such
organizations would be higher.
Technology Up gradation: In certain industries, assets become obsolete sooner.
Consequently, their replacements become due faster. Higher investment in fixed assets
may, therefore, be required in such cases.
Growth Prospects: Higher growth of an organization generally requires higher investment in
fixed assets. Even when such growth is expected, a business may choose to create higher
capacity in order to meet the anticipated higher demand quicker.
Diversification: A firm may choose to diversify its operations for various reasons, with
diversification, fixed capital requirements increase e.g., a textile company is diversifying and
starting a cement manufacturing plant. Obviously, its investment in fixed capital will
increase.
Financing Alternatives: A developed financial market may provide leasing facilities as an
alternative to outright purchase. When an asset is taken on lease, the firm pays lease rentals
and uses it. By doing so, it avoids huge sums required to purchase it.
Level of Collaboration: At times, certain business organizations share each other’s facilities.
For example, a bank may use another’s ATM or some of them may jointly establish a
particular facility. This is feasible if the scale of operations of each one of them is not
sufficient to make full use of the facility.
Factors Affecting Working Capital
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Nature of Business: The basic nature of a business influences the amount of working capital
required. A trading organisation usually needs a lower amount of working capital compared
to a manufacturing organisation. This is because there is, usually no processing, therefore,
there is no distinction between raw materials and finished goods.
Scale of Operations: For organisations which operate on a higher scale of operation, the
quantum of inventory, debtors required is generally high. Such organisations, the refore,
require large amount of working capital as compared to the organisations which operate on
a lower scale.
Business Cycle: Different phases of business cycles affect the requirement of working capital
by a firm. In case of a boom, the sales as well as production are likely to be higher and
therefore, higher amount of working capital is required. As against this the requirement for
working capital will be lower during period of depression as the sales as well as production
will be low.
Seasonal Factors: Most business have some seasonality in their operations. In peak season,
because of higher level of activity, higher amount of working capital is required. As against
this, the level of activity as well as the requirement for working capital will be lower during
the lean season.
Production Cycle: Production cycle is the time span between the receipt of raw material and
their conversion into finished goods. Some businesses have a longer production cycle while
some have a shorter one.
Credit Allowed: Different firms allow different credit terms to their customers. These
depend upon the level of competition that a firm faces as well as the credit worthiness of
their clientele. A liberal credit policy results in higher amount of debtors, increasing the
requirement of working capital.
Credit Availed: Just as a firm allows credit to its customers it also may get credit from its
suppliers. To the extent, it avails the credit on its purchases, the working capital
requirement is reduced.
Operating Efficiency: Firms manage their operations with varied degrees of efficiency. For
example, a firm managing its raw materials efficiently may be able to manage with a smaller
balance. This is reflected in a higher inventory turnover ratio.
Availability of Raw Material: If the raw materials and other required materials are available
freely and continuously, lower stock levels may suffice. If, however, raw materials do not
have a record of un-interrupted availability, higher stock levels may be required.
Growth Prospects: If the growth potential of a concern is perceived to be higher, it will
require higher amount of working capital so that is able to meet higher production and sales
target whenever required.
Functions of Stock exchange
Keeping in mind the emerging nature of the securities market in India, SEBI was entrusted with the twin
task of both regulation and development of the securities market.
Regulatory Functions
1. Registration of brokers and sub-brokers and other players in the market.
2. Registration of collective investment schemes and Mutual Funds.
3. Regulation of Stock Bankers and portfolio exchanges, and merchant bankers.
4. Prohibition of fraudulent and unfair trade practices.
5. Controlling insider trading and takeover bids and imposing penalties for such practices.
6. Calling for information by undertaking inspection, conducting enquiries and audits of stock exchanges
and intermediaries.
7. Levying fee or other charges for carrying out the purposes of the Act.
8. Performing and exercising such power under Securities Contracts (Regulation) Act 1956, as may be
delegated by the Government of India.
Development Functions
1. Investor education
2. Training of intermediaries
3. Promotion of fair practices and code of conduct of all SRO’s.
4. Conducting research and publishing information useful to all market participants.
Functions of Stock exchange
1. Economic Barometer: A stock exchange is a reliable barometer to measure the economic
condition of a country. Every major change in country and economy is reflected in the prices of
shares. The rise or fall in the share prices indicates the boom or recession cycle of the economy.
Stock exchange is also known as a pulse of economy or economic mirror which reflects the
economic conditions of a country.
2. Pricing of Securities: The stock market helps to value the securities on the basis of demand and
supply factors. The securities of profitable and growth oriented companies are valued higher as
there is more demand for such securities.
3. Safety of Transactions: In stock market only the listed securities are traded and stock exchange
authorities include the companies names in the trade list only after verifying the soundness of
company. The companies which are listed they also have to operate within the strict rules and
regulations. This ensures safety of dealing through stock exchange.
4. Contributes to Economic Growth: In stock exchange securities of various companies are bought
and sold. This process of disinvestment and reinvestment helps to invest in most productive
investment proposal and this leads to capital formation and economic growth.
5. Spreading of Equity Cult: Stock exchange encourages people to invest in ownership securities by
regulating new issues, better trading practices and by educating public about investment.
6. Providing Scope for Speculation: To ensure liquidity and demand of supply of securities the stock
exchange permits healthy speculation of securities.
7. Liquidity: The main function of stock market is to provide ready market for sale and purchase of
securities. The presence of stock exchange market gives assurance to investors that their
investment can be converted into cash whenever they want.
8. Better Allocation of Capital: The shares of profit making companies are quoted at higher prices
and are actively traded so such companies can easily raise fresh capital from stock market. The
general public hesitates to invest in securities of loss making companies. So stock exchange
facilitates allocation of investor’s fund to profitable channels.
9. Promotes the Habits of Savings and Investment: The stock market offers attractive opportunities
of investment in various securities. These attractive opportunities encourage people to save
more and invest in securities of corporate sector rather than investing in unproductive as sets
such as gold, silver, etc.
Stock exchange and Features
Stock exchange is an organized market for buying and selling corporate and other securities. Here,
securities are purchased and sold out as per certain well -defined rules and regulations. It provides a
convenient and secured mechanism or platform for transactions in different securities.
Characteristics or features of stock exchange are:1. Market for securities: Stock exchange is a market, where securities of corporate bodies,
government and semi-government bodies are bought and sold.
2. Deals in second hand securities: It deals with shares, debentures bonds and such securities
already issued by the companies. In short it deals with existing or second hand securities and
hence it is called secondary market.
3. Regulates trade in securities: Stock exchange does not buy or sell any securities on its own
account. It merely provides the necessary infrastructure and facilities for trade in securities to its
members and brokers who trade in securities. It regulates the trade activities so as to ensure
free and fair trade
4. Allows dealings only in listed securities: In fact, stock exchanges maintain an official list of
securities that could be purchased and sold on its floor. Securities which do not figure in the
official list of stock exchange are called unlisted securities. Such unlisted securities cannot be
traded in the stock exchange.
5. Transactions effected only through members: All the transactions in securities at the stock
exchange are effected only through its authorized brokers and members. Outsiders or direct
investors are not allowed to enter in the trading circles of the stock exchange. Investors have to
buy or sell the securities at the stock exchange through the authorized brokers only.
6. Association of persons: A stock exchange is an association of persons or body of individuals
which may be registered or unregistered.
7. Recognition from Central Government: Stock exchange is an organized market. It requires
recognition from the Central Government.
8. Working as per rules: Buying and selling transactions in securities at the stock exchange are
governed by the rules and regulations of stock exchange as well as SEBI Guidelines. No deviation
from the rules and guidelines is allowed in any case.
9. Specific location: Stock exchange is a particular market place where authorized brokers come
together daily (i.e. on working days) on the floor of market called trading circles and conduct
trading activities.
10. Financial Barometers: Stock exchanges are the financial barometers and development indicators
of national economy of the country. Industrial growth and stability is reflected in the index of
stock exchange.
Functions of Marketing
1. Market Information: One of the important functions of a marketer is to gather and analyse
market information. This is necessary to identify the needs of the customers and take various
decisions for the successful marketing of the products and services. This is important for making
an analysis of the available opportunities and threats as well as strengths and weaknesses of the
organisation
2. Marketing Planning: Another important activity or area of work of a marketer is to develop
appropriate marketing plans so that the marketing objectives of the organisation can be
achieved.
3. Product Designing and Development: Another important marketing activity or decision area
relates to product designing and development. The design of the product contributes to making
the pr oduct attractive to the tar get customers.
4. Standardisation and Grading: Standardisation refers to producing goods of predetermined
specifications, which helps in achieving uniformity and consistency in the output.
Standardisation ensures the buyers that goods conform to the predetermined standards of
quality, price and packaging and reduces the need for inspection, testing and evaluation of the
products.
5. Grading is the process of classification of products into different groups, on the basis of some of
its important characteristics such as quality, size, etc. Grading is particul arly necessary for
products which are not produced according to predetermined specifications, such as in the case
of agricultural products, say wheat, oranges, etc.
6. Packaging and Labelling: Packaging refers to designing the package for the products. Label ling
refers to designing the label to be put on the package. Label may vary from a simple tag to
complex graphics. Packaging and labelling have become so important in modern day marketing
that these are considered as the pillars of marketing. Packaging is important not only for
protection of the products but also serves as a promotional tool.
7. Branding: A very important decision area for marketing of most consumer products is whether
to sell the product in its generic name. Brand name helps in creating product differentiations,
i.e., providing basis for distinguishing the product of a firm with that of the competitor, which in
turn, helps in building customer’s loyality and in promoting its sale.
8. Customer Support Services: A very important function of the marketing management relates to
developing customer support services such as after sales services, handling customer complaints
and adjustments, procuring credit services, maintenance services, technical services and
consumer infor mation.
9. Pricing of Products: Price of product r efers to the amount of money customers have to pay to
obtain a product. Price is an important factor affecting the success or failure of a product in the
market. The demand for a product or service is related to its price.
10. Promotion: Promotion of products and services involves informing the customers about the
firm’s product, its features, etc. and persuading them to purchase these products. The four
important methods of pr omotion include advertising, Personal Selling, Publicity an d Sales
Promotion.
Marketing Mix and its Elements
The marketing mix consists of various variables, which have broadly been classified into four categories,
popularly known as four Ps of marketing. These are: (i) Product, (ii) Price, (iii) Place, and (iv) Promotion,
and are discussed as follows:
1. Product: Product means goods or services or ‘anything of value’, which is offered to the market for
exchange. The concept of product relates to not only the physical product as mentioned in the above
examples but also the benefits offered by it from customer’s view point (for example toothpaste is
bought for whitening teeth, strengthening gums, etc.). The concept of product also include the extended
product or what is offered to the customers by way of after sales services, handling complaints,
availability of spar e parts etc. These aspects are very important, particularly in the marketing of
consumer durable products (like Automobiles, Refrigerators, etc.). The important product decisions
include deciding about the features, quality, packaging, labelling and branding of the products.
2. Price: Price is the amount of money customers have to pay to obtain the product. In case of most of
the products, level of price affects the level of their demand. The marketers have not only to decide
about the objectives of price setting but to analyse the factors determining the price and fix a price for
the fir m’s pr oducts. Decisions have also to be taken in respect of discounts to customers, traders and
credit terms, etc. so that customers perceive the price to be in line with the value of the product.
3. Place: Place or Physical Distribution include activities that make firm’s products available to the target
customers. Important decision areas in this respect include selection of dealers or intermediaries to
reach the customers, providing support to the inter mediaries (by way of discounts, promotional
campaigns, etc.). The intermediaries in turn keep inventory of the fir m’s products, demonstrate them to
potential buyers, negotiate price with buyers, close sales and also service the products after the sale.
The other decision areas relate to managing inventory, storage and warehousing and transportation of
goods from the place it is produced to the place it is required by the buyers.
4. Promotion: Promotion of products and services include activities that communicate availability,
features, merits, etc. of the products to the t a rget customers and persuade them to buy it. Most
marketing organisations, undertake various promotional activities and spend substantial amount of
money on the promotion of their goods through using number of tools such as advertising, personal
selling and sales promotion techniques (like price discounts, free samples, etc.). A large number of
decisions are to be taken in each of the area specified above. For example, in the respect of advertising
it is important to decide about the message, the media to be used (example print-media–newspaper,
magazines, etc. the objections of customers, etc.).
Factors Affecting Pricing Decisions
1. Product Cost: One of the most important factor affecting price of a product or service is its cos t. This
includes the cost of producing, distributing and selling the product. The cost sets the minimum level
or the floor price at which the product may be sold. Generally all marketing firms strive to cover all
their costs, at least in the long run.
2. The Utility and Demand: While the product costs set the lower limits of the price, the utility
provided by the product and the intensity of demand of the buyer sets the upper limit of price,
which a buyer would be prepared to pay. In fact the price must reflect the interest of both the
parties to the transaction—the buyer and the seller.
3. Extent of Competition in the Market: Between the lower limit and the upper limit where would the
price settle down? This is affected by the nature and the degree of competition. The price will tend
to reach the upper limit in case there is lesser degree of competition while under conditions of free
competition, the price will tend to be set at the lowest level .
4. Government and Legal Regulations: In order to protect the interest of public against unfair practices
in the field of price fixing, Government can intervene and regulate the price of commodities.
Government can declare a product as essential product and regulate its price.
5. Pricing Objectives: Pricing objectives are another important factor affecting the fixation of the price
of a product or a service. Generally the objective is stated to be maximize the profits. But there is a
difference in maximizing profit in the short run and in the long run. If the firm decides to maximize
profits in the short run, it would tend to charge maximum price for its products. But if it is to
maximize its total profit in the long run, it would opt for a lower per unit price so that it can capture
larger share of the market and ear n greater profits through increased sales.
6. Marketing Methods Used: Price fixation process is also affected by other elements of marketing
such as distribution system, quality of salesmen employed, quality and amount of advertising, sales
promotion ef forts, the type of packaging, product differentiation, credit facility and customer
services provided. For example, if a company provides free home delivery, it has some of flexibility
in fixing prices. Similarly, uniqueness of any of the elements mentioned above gives the company a
competitive freedom in fixing prices of its products.
Qualities of a Successful Salesman
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Sound health: A salesman should posses a sound and physique in order to become efficient. A
salesman who is not healthy cannot maintain a pleasing appearance. He will also not be able
carry on his duties efficiently.
Good posture: Good posture enhances the appearance and personality of the salesman. A
salesman should maintain an alluring posture, i.e. he should stand erect or sit erect while
meeting a customer. It makes a good impression on the customer. Therefore the salesman
should try to acquire certain good posture in order to attract customers.
Pleasant voice: Voice is the index of one’s own feelings than the facial expression. The quality
and the tone of the voice also have its influence on the hearer. The salesman should have
pleasant, clear and forceful voice. The voice should not be coarse, high pitched, shrill,
commanding or nasal. These types of voices generally irritate customers.
Good appearance: A good physical appearance is a big asset for salesman. The first impression
on the customer is created by the appearance of the salesman. A good appearance general ly
gives more confidence to a salesman and he is able to convince the customers more easily.
Cheerfulness: Cheerfulness is the greatest virtue of a good salesman. Everyone wants to be with
persons, who are cheerful. If the salesman is cheerful, possesses a good health, vigour and a rich
sense of humor, then he can attract large number of customers.
Imagination: It is an important consideration which detects the exact need of the customers.
This quality helps the salesman to understand the problems of customers in his position. But it is
depressing to see in India that many salesmen have absolutely no imagination.
Alertness: Alertness refers to active sensitivity to the situation before oneself. It is nothing but
presence of mind as to what to say, how to say and on what occasion. It consists of keen power
of observation and common sense to take correct decisions quickly.
Resourcefulness: It is a mental ability to think and find out alternatives. It includes devising new
approaches to make people do what you want them to do. Resourcefulness has great role to
play in salesmanship.
Initiative: Initiative is the ability to work on his own without any guidance from anybody. It is
very useful quality for success in dealing with customers. Of course, in early stages a salesman
has to work under the supervision and guidance of senior salesman. But in course of time, he
has to depend upon himself and take independent decisions.
Observation: Power of observation is another important quality of a salesman. A good salesman
must be a keen observer. He should observe the changes in style, fashion of peo ple, activities of
rivals, Government policies, general attitude of customers and other things.
Merits and Demerits of Advertising
Merits of Advertising
Advertising, as a medium of communication, has the following merits:
1. Mass Reach: Advertising is a medium through which a large number of people can be reached over a
vast geographical area. For example, an advertisement message placed in a national daily reaches
lakhs of its subscribers.
2. Enhancing Customer Satisfaction and Confidence: Advertising creates confidence amongst
prospective buyers as they feel more comfortable and assured about the product quality and hence
feel more satisfied.
3. Expressiveness: With the developments in art, computer designs, and graphics, advertising has
developed into one of the most forceful medium of communication. With the special effects that
can be created, even simple products and messages can look very attractive.
4. Economy: Advertising is a very economical mode of communication if large number of people are to
be reached. Because of its wide reach, the overall cost of advertising gets spread over numerous
communication links established. As a result the per unit cost of reach comes low.
Limitations of Advertising
The following are the major limitations of advertising as a tool of promotion:
1.
2.
3.
4.
Less Forceful: Advertising is an impersonal form of communication. It is less forceful than the
personal selling as there is no compulsion on the prospects to pay attention to the message.
Lack of Feedback: The evaluation of the effectiveness of advertising message is very difficult as
there is no immediate and accurate feedback mechanism of the message that is delivered.
Inflexibility: Advertising is less flexible as the message is standardized and is not tailor made to
the requirements of the different customer groups.
Low Effectiveness: As the volume of advertising is getting more and more expanded it is
becoming difficult to make advertising messages heard by the target prospects. This is affecting
the effectiveness of advertising.
Methods of Sales Promotion
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Rebate: Offering products at special prices, to clear off excess inventory. Example, a car
manufacturer’s offer to sell a particular brand of car at a discount of Rs 10,000, for a limited
period.
Discount: Offering products at less than list price. Example, a shoe company’s offer of ‘Discount
Up to 50%’ or a shirt marketer’s offer of ‘50+40% Discount’.
Refunds: Refunding a part of price paid by customer on some proof of purchase, say on return of
empty foils or wrapper. This is commonly used by food product companies, to boost their sales.
Product Combinations: Offering another product as gift along with the purchase of a product,
say offer of a pack of ½ kg of rice with the purchase of a bag of Aatta (wheat flour), or ‘Get 128
KB Memory Card Free with a Digicam’ or Buy a TV of 25+ and Get a Vacuum Cleaner Free’ or
‘100 Gm Bottle of Sauce Free With 1 kg Detergent.’
Quantity Gift: Of fering extra quantity of the product commonly used by marketer of toiletry
products. For example, a shaving cream’s offer of ‘40% Extra’ or A Hotel’s offer of Take a 2 Night
3 Days Package At the Hotel and Get an Extra Night Stay At Just Rs 500” or ‘Buy 2 Get 1 Free’
offer of a marketer of shirts.
Instant Draws and Assigned Gift: For example, ‘Scratch a Card’ or ‘Burst a Cracker’ and instantly
win a Refrigerator, Car, T -shirt, Computer, with the purchase of a TV.
Lucky Draw: For example, the offer of a bathing soap to win a gold coin on lucky draw coupon
for free petrol on purchase of certain quantity of petrol from given petrol pump or lucky draw
coupon on purchase of easy undergarment and win a car offer.
Usable Benefit: ‘Purchase goods worth Rs 3000 and get a holiday package worth Rs 3000 free’ or
‘Get a Discount Voucher for Accessories on Apparel Purchase of Rs 1000 and above.’
Full finance @ 0%: Many marketers of consumer durables such as Electronic goods, automobiles
etc offer easy financing schemes such as ‘24 easy instalments, Eight Up Front and 16 To Be Paid
as Post Dated Cheques’. However, one should be careful about the file charges, which
sometimes is nothing but interest recovered in advance.
Sampling: Offer of free sample of a product, say a detergent powder or tooth paste to potential
customers at the time of launch of a new brand.
Contests: Competitive events involving application of skills or luck, say salving a quiz or
answering some questions.
Difference Between Advertising and Sales Promotion
Advertising
1. Advertising is an impersonal form of
communication.
Personal Selling
Personal selling is a personal form of
communication.
2. Advertising involves transmission of
In personal selling, the sales talk is adjusted
standardized messages, i.e., same message is
keeping view customer’s background and
sent to all the customers in a market
needs.
segment.
3. Advertising is inflexible as the message
can’t be adjusted to the needs of the buyer.
Personal selling is highly flexible. as the
message can be adjusted.
4. It reaches masses, i.e., a large number of
people can be approached.
Only a limited number of people can be
contacted because of time and cost
considerations.
5. In advertising the cost per person
reached is very low.
The cost per person is quite high in the case
of personal selling.
6. Advertising can cover the market in a
short time.
Personal selling efforts take a lot of time to
cover the entire market.
7. Advertising makes use of mass media
such television, radio, newspaper, and
magazines.
Personal selling makes use of sales staff,
which has limited reach.
8. Advertising lacks direct
feedback. Marketing research efforts are
needed to judge customers’ reactions to
advertising.
Personal selling provides direct and
immediate feedback. Sales persons come to
know about the customers’ reactions
immediately.
9. Advertising is more useful in creating
and building interest of the consumers
in the firm’s products.
Personal selling plays important role at the
awareness stage of decision making.
Personal selling is more helpful in selling
10. Advertising is more useful in marketing to
products to the industrial buyers or to
the ultimate consumers who are large in
intermediaries such as dealers and retailers
numbers
who are relatively few in numbers.