Financial Analysis What Is Financial Analysis? Financial analysis is the process of evaluating businesses, projects, budgets, and other finance-related transactions to determine their performance and suitability. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to warrant a monetary investment. If conducted internally, financial analysis can help managers make future business decisions or review historical trends for past successes. If conducted externally, financial analysis can help investors choose the best possible investment opportunities. There are two main types of financial analysis: fundamental analysis and technical analysis. Fundamental analysis uses ratios and financial statement data to determine the intrinsic value of a security. Technical analysis assumes a security's value is already determined by its price, and it focuses instead on trends in value over time. Financial analysis is used to evaluate economic trends, set financial policy, build long-term plans for business activity, and identify projects or companies for investment. This is done through the synthesis of financial numbers and data. A financial analyst will thoroughly examine a company's financial statements—the income statement, balance sheet, and cash flow statement. Financial analysis can be conducted in both corporate finance and investment finance settings. One of the most common ways to analyze financial data is to calculate ratios from the data in the financial statements to compare against those of other companies or against the company's own historical performance. How Financial Analysis is Used In corporate finance, the analysis is conducted internally by the accounting department and shared with management in order to improve business decision making. This type of internal analysis may include ratios such as net present value (NPV) and internal rate of return (IRR) to find projects worth executing. Many companies extend credit to their customers. As a result, the cash receipt from sales may be delayed for a period of time. For companies with large receivable balances, it is useful to track days sales outstanding (DSO), which helps the company identify the length of time it takes to turn a credit sale into cash. The average collection period is an important aspect in a company's overall cash conversion cycle. A key area of corporate financial analysis involves extrapolating a company's past performance, such as net earnings or profit margin, into an estimate of the company's future performance. This type of historical trend analysis is beneficial to identify seasonal trends. For example, retailers may see a drastic upswing in sales in the few months leading up to Christmas. This allows the business to forecast budgets and make decisions, such as necessary minimum inventory levels, based on past trends. Investment Financial Analysis In investment finance, an analyst external to the company conducts an analysis for investment purposes. Analysts can either conduct a top-down or bottom-up investment approach. A top-down approach first looks for macroeconomic opportunities, such as high-performing sectors, and then drills down to find the best companies within that sector. From this point, they further analyze the stocks of specific companies to choose potentially successful ones as investments by looking last at a particular company's fundamentals. A bottom-up approach, on the other hand, looks at a specific company and conducts similar ratio analysis to the ones used in corporate financial analysis, looking at past performance and expected future performance as investment indicators. Bottom-up investing forces investors to consider microeconomic factors first and foremost. These factors include a company's overall financial health, analysis of financial statements, the products and services offered, supply and demand, and other individual indicators of corporate performance over time. Types of Financial Analysis There are two types of financial analysis: fundamental analysis and technical analysis. Fundamental Analysis Fundamental analysis uses ratios gathered from data within the financial statements, such as a company's earnings per share (EPS), in order to determine the business's value. Using ratio analysis in addition to a thorough review of economic and financial situations surrounding the company, the analyst is able to arrive at an intrinsic value for the security. The end goal is to arrive at a number that an investor can compare with a security's current price in order to see whether the security is undervalued or overvalued. Technical Analysis Technical analysis uses statistical trends gathered from trading activity, such as moving averages (MA). Essentially, technical analysis assumes that a security’s price already reflects all publicly-available information and instead focuses on the statistical analysis of price movements. Technical analysis attempts to understand the market sentiment behind price trends by looking for patterns and trends rather than analyzing a security’s fundamental attributes. Examples of Financial Analysis As an example of fundamental analysis, Discover Financial Services reported its quarter two 2019 earnings per share (EPS) at $2.32. That was up from a quarter one 2019 reported EPS of $2.15. A financial analyst using fundamental analysis would take this as a positive sign of increasing intrinsic value of the security. Therefore, future EPS projections are also estimated higher. For example, according to Nasdaq.com, estimated third quarter 2019 EPS is up to $2.29 from an estimated second quarter 2019 EPS of $2.11 and estimated first quarter 2019 EPS of $2.00. Notice also, the reported EPS for the first two quarters of 2019 exceeded the estimated EPS for the same quarters. On the other hand, technical analysis was conducted on the British Pound (GBP)/ US Dollar (USD) exchange rate after the results of the Brexit vote in June 2016. Looking at the exchange rate chart, it was apparent that the GBP's value dropped significantly, to a 31 year low, in comparison to the dollar after the vote to leave the European Union on June 23, 2016. Law on Obligation An obligation is a juridical necessity to give, to do or not to do. This definition specifically pertains to civil obligation in difference to natural obligation. The term juridical in the definition refers to the legal aspect of an obligation. If an obligation is juridical, it follows that you can go to court and ask for a civil action in case of breach or non-compliance. Elements of Obligation An obligation has the following essential elements: Parties - the actors involved in an obligation: o active subject (creditor/obligee) - one who demands the fulfillment of an obligation. o passive subject (debtor/obligor) - one who has the duty to fulfill an obligation. Prestation - the conduct to be performed by the passive subject for the active subject. Juridical Tie (efficient cause) - the relation that binds the parties to an obligation. Example: Under a contract of sale, D agreed to deliver a book to C for Php1000. C is the active subject D is the passive subject the delivery of the book is the prestation the contract of sale is the juridical tie that binds X and Y. Suppose X had already delivered the book but Y has not yet paid for it. In this case, X becomes the active subject and Y is the passive subject. The active subject has the right to go to court in case of non-performance by the passive subject. The passive subject should hence comply with the obligation to avoid civil action against him. Sources of Obligation An obligation can arise from: Law - when there is an enforcement of law itself; the obligation cannot be presumed, and should be expressly or clearly provided for in the law in order to demandable; such as the obligation of income earning persons to pay taxes according to the National Internal Revenue Code. Contract - when there is a meeting of the minds between the parties; the obligation have the force of law and should be complied with in good faith; such as the contract of sale of a book for Php1000. Quasi-contract - when there is no meeting of the minds between parties, but one party benefited at the expense of the other party; there is an obligation to pay for compensation so that no one shall be unjustly enriched or benefited at the expense of another. o Negotiorum gestio - if one (the officious manager) voluntarily takes charge of the agency or management of another person's property on his behalf without his consent or authority; such as the obligation to reimburse the expenses incurred by someone who voluntarily saved your abandoned house from fire. o Solutio indebiti - if one received something that does not rightfully and legally belong to him; such as the obligation to return a money received by mistake. Delict - when there is a civil liability resulting from criminal offense; should be governed by the penal laws; such as the obligation of a thief to return the money he had stolen. Quasi-delict - when there is fault or negligence that causes damage on another, there being no prior meeting of the minds between the parties; there is an obligation to pay for the damage done; such as the obligation of a driver to pay for the damages he caused to another due to negligence. Effects of Obligation The duties of the debtor In the delivery of a determinate thing, which is identified by its individuality: Deliver the thing itself. Preserve or take care of the thing due with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. Deliver the fruits of the thing from the time the obligation to deliver it arises. Deliver the accessions and accessories of the thing, even though they may not have been mentioned. In the delivery of a generic thing, Which is identified by its class/type: Deliver the thing which is neither superior nor inferior quality. The debtor is also liable for damages in case of non-performance or breach of obligation by reason of delay, fraud, negligence or contravention of the tenor. The remedies of the creditor In case of breach of obligation in the delivery of a determinate thing: Demand specific performance or fulfillment of the obligation by the debt (if it is still possible). Demand rescission or cancellation of the obligation (in certain cases). In case of breach of obligation in the delivery of a generic thing: Demand the delivery of the thing which is neither superior nor inferior quality at the expense of the debtor. This can be performed by a third party. In either case, the creditor has a right to recover damages. The other remedies can be demanded in addition to this right. Kinds of Obligation The primary classification of obligations According to the peculiarities of the prestation: Pure obligation - performance is not subject to any condition, and can be immediately demandable. Conditional obligation - performance is subject to a condition, and can only be demandable upon the happening of an event. Obligation with a period - performance is subject to a period, and can on; be demandable when that period expires.[20] According to the number prestations: Simple obligation - there is only one prestation. Compound obligation - there are two or more prestations. o Conjunctive obligation - there are several prestations and all of them can be performed separately. o Disjunctive obligation - only one of the several prestations can be performed. It may be alternative or facultative. According to the number of parties: Individual obligation - there is one debtor and one creditor. Collective obligation - there are two or more debtors and two or more creditors. o Joint obligation - the prestation is divided among each debtor and/or the demand for it is divided among each creditor. o Solidary obligation - the prestation may be performed by any one of the debtors, and/or its entire compliance may be demanded by any one of the creditors. According to divisibility/indivisibility of the prestation: Divisible obligation - the prestation can be partially performed. Indivisible obligation - the prestation cannot be partially performed. According to the value of the prestation: Principal obligation - the main/principal prestation that is essential and from which the accessory obligation/s arise. Accessory obligation - the secondary/accessory prestation that should be performed in connection with the primary obligation. o Obligation with a penal clause - the accessory prestation imposes a penalty that shall substitute the indemnity for damages and the payment of interests in case of noncompliance to the principal prestation. The secondary classification of obligations According to the involvement of the parties: Unilateral obligation - only one party is bound to perform a prestation. Bilateral obligation - both parties are bound to each other in performing their respective prestations. o Reciprocal obligation - one party is bound to perform a prestation in exchange for the other party's performance. According to the nature of the obligation Civil obligation - has legal basis; give a right of action to compel its performance. o Legal obligation - arises from laws. o Conventional obligation - arises from contracts with the force of the law. o Penal obligation - arises from delicts and criminal offences. (not to be confused with the 'obligation with a penal clause' which is an accessory obligation) Natural obligation - has no legal basis; does not give a right of action to enforce its performance but is based on equity and natural law, and should be voluntary. According to the nature of the prestation: Personal obligation - the prestation is to do or not to do an act: o Positive obligation - to do an act o Negative obligation - not to do an act Real obligation - the prestations is to give or deliver a thing: o Determinate obligation - to deliver a determinate thing. o Generic obligation - to deliver a generic thing. o Limited generic obligation - to deliver a thing confined to a particular class/kind. Obligations may have multiple classifications, but not with contradictory characteristics. Extinguishment of Obligation An obligation can be extinguished by: Payment or performance - the delivery of a thing, or the doing of an act or not doing of an act for the fulfillment of an obligation. The loss of the thing due - the determinate thing is lost or destroyed without the fault of the debtor, and before he has incurred in delay. The condonation or remission of the debt - the gratuitous renunciation by the creditor of his right against the debtor with the latter's acceptance. The confusion or merger of the rights of creditor and debtor - the characters of creditor and debtor are merged in the same person. Compensation - the simultaneous balancing of two obligations wherein two persons are reciprocally debtors and creditors of each other. Novation - the creation of a new and different obligation through the total or partial modification of an old obligation that it substituted. Annulment - the invalidation of a voidable contract by a court action on the grounds of incapacity to give consent, mistake, violence, intimidation, undue influence, and fraud. Rescission - the revocation, cancellation, or repeal of a contract and the return of the parties to the positions they would have had if the contract had not been made. Fulfillment of resolutory condition. Prescription - the loss of certain rights upon the lapse of time. In addition, other causes are: Happening of a fortuitous event. Arrival of resolutory period. Impossibility of fulfillment of the obligation. Death of a party in case the obligation is purely personal. Compromise, by making reciprocal concessions. Mutual desistance or withdrawal (mutuo disenso). Tax Reform for Acceleration and Inclusion Act. The Tax Reform for Acceleration and Inclusion (TRAIN) Act, officially cited as Republic Act No. 10963, is the initial package of the Comprehensive Tax Reform Program (CTRP) signed into law by President Rodrigo Duterte on December 19, 2017. The TRAIN Act is the first of four packages of tax reforms to the National Internal Revenue Code of 1997, or the Tax Code, as amended. This package introduced changes in personal income tax (PIT), estate tax, donor's tax, value added tax (VAT), documentary stamp tax (DST) and the excise tax of tobacco products, petroleum products, mineral products, automobiles, sweetened beverages, and cosmetic procedures. The prominent features of the tax reform are lower personal income tax and higher consumption tax. Individual taxpayers with taxable income not exceeding ₱250,000 annually are exempted from income tax. The exemption for minimum wage earners is retained in the revised tax system. Tax rates for individual taxpayers still follow the progressive tax system with the maximum rate of 35%, and minimum rates of 20% (taxable years 2018 to 2022) and 15% (2023 onwards). On the other hand, consumption taxes, in the form of higher excise tax on tobacco products, petroleum products, automobiles, tobacco, and additional excise tax on sweetened beverages and non-essential, invasive cosmetic procedures were introduced. It also expanded the VAT base by repealing exemption provisions in numerous special laws. The TRAIN Act is aimed to generate revenue to achieve the 2022 and 2040 vision of the Duterte administration, namely, to eradicate extreme poverty, to create inclusive institutions that will offer equal opportunities to all, and to achieve higher income country status. It is also aimed at making the tax system simpler, fairer and more efficient. Regardless, contentions about the passing of this law has been present since the beginning and the subsequent reception by the people since its ratification has been controversial. In the first quarter of 2018, both positive and negative outcomes have been observed. The economy saw an increase in tax revenues, government expenditure and an incremental growth in GDP. On the other hand, unprecedented inflation rates that exceeded projected calculations, has been the cause for much uproar and objections. There have been petitions to suspend and amend the law, so as to safeguard particular sectors from soaring prices. Vision and goals of TRAIN The TRAIN Act aims to address the reputed weaknesses of the Tax Code, specifically through the following objectives: First, it intends to simplify the previous system to make it more straightforward and intuitive. Second, it intends to create a more "just" taxation scheme, wherein taxation is staggered and distributed on the basis of financial capability and the underprivileged are able to reap more advantages. Third, it intends to improve the efficiency by which tax is collected, particularly tackling issues of compliance. Fourth, it increases the tax burden felt by the general population thus increasing the overall inflation rate. The changes instituted by the tax reform is expected to be able to increase revenue to finance the infrastructure, healthcare and education programs of the Duterte administration. The notion that the poor will be taxed less than the wealthy population is actually a propaganda widely spread by the government, the additional taxes imposed by the government will just be passed down through the lower and middle income class thus increasing the inflation. In the long term, TRAIN Act is just the first from a series of tax reforms, as part of the CTSP, which will be one of the principal means by which the 2020 and 2040 vision of the incumbent administration is to be achieved. The vision in 2020 is that poverty will be reduced from 21.6% to 14%, while 2040 sees the Philippines as having "eradicated extreme poverty", established "inclusive economic and political institutions where everyone has equal opportunities" and achieved "highincome country status". This can be achieved if economic growth can be sustained by at least 7% each year and if the source of growth can be shifted to investment from consumption. This means prioritizing investments on people through "health, education, life-long training, social protection, infrastructure, and research and development" and investments on infrastructure to boost productivity House of Representatives House Bill No. 4774 is credited as the original measure that led to the TRAIN Act. It was endorsed by the Department of Finance (DOF) to the Philippine House of Representatives on September 26, 2016 as the first package of a wider CTRP. It was filed before the legislature on January 17, 2017 by Congressman Dakila Cua of Quirino. Cua is also the chairperson of the Ways and Means Committee of the Congress which deals on taxation. After thirteen hearings which was done within the span of four months, the House Bill No. 7890 was consolidated with 54 other tax-related bills to come up with a House Bill 5636, a substitute bill which had "moderate" changes from House Bill 4774. The substitute measure was approved on May 8. The DOF requested President Rodrigo Duterte to declare the bill as "urgent" on May 29, 2017. Bills passed on the second reading by the Congress but are not certified "urgent" by the president could only be voted upon after copies of the given measure is provided to House of Representatives members three days before the day of the third and final reading. On May 31, 2017 just before the 17th Congress adjourn its first regular session, the bill passed the final reading with 246 voting for and 9 against the bill. Only one made an abstention. Most of those who opposed were from the Makabayan bloc. Senate A version of the bill was filed in the Senate in March 2017 by Senate President Aquilino Pimentel III. By May 2017 six public hearings were conducted by the senate. The Senate had to wait for the House of Representatives version to get pass before it could start plenary discussions like other bills on budget or tax and appropriations. The Senate voted 17–1 to approve the Tax Reform Acceleration and Inclusion (TRAIN) bill, with Sen. Risa Hontiveros being the lone dissenter on November 28, 2017. On the succeeding voting for the TRAIN, the positive votes were cast by Senators Sonny Angara, Nancy Binay, Frank Drilon, JV Ejercito, Chiz Escudero, Win Gatchalian, Dick Gordon, Gringo Honasan, Loren Legarda, Joel Villanueva, Koko Pimentel, Grace Poe, Ralph Recto, Tito Sotto, Cynthia Villar and Migs Zubiri. The negative votes were cast by Senators Ping Lacson, Risa Hontiveros, Bam Aquino and Antonio Trillanes IV Duterte's certification of the TRAIN as "urgent" allowed the bill to get passed the second reading on November 28, 2017. Within the same day, the Senate bill passed the third and final reading with 17 senators voting for the bill. Only Risa Hontiveros voted against the bill. Bicameral Conference Committee The Bicameral Conference Committee consolidated the bills passed by the House of Representatives and the Senate. The committee then approved a bill which favored the Senate version on December 11, 2017 and prepared a report after for ratification of both chambers of the Congress and signing of the President. The House of Representatives and the Senate ratified the version of the bill prepared by the Bicameral Conference Committee on December 13, 2017. Signing into law and partial veto President Duterte exercised his veto power to void 5 provisions of the law. The provisions vetoed were the following: 1. Reduced income tax rate of employees of Regional Headquarters (RHQs), Regional Operating Headquarters (ROHQs), Offshore Banking Units (OBUs), and Petroleum Service Contractors and Subcontractors; 2. Zero-rating of sales of goods and services to separate customs territory and tourism enterprise zones; 3. Exemption from percentage tax of gross sales/receipts not exceeding five hundred thousand pesos (P500,000.00); 4. Exemption of various petroleum products from excise tax when used as input, feedstock, or as raw material in the manufacturing of petrochemical products, or in the refining of petroleum products, or as replacement fuel for natural gas fired combined cycle power plants; and 5. Earmarking of incremental tobacco taxes. Tax Administration Steps to modernize and refine the tax administration processes are undertaken to support the changes in tax policy so as to improve security against tax crimes and to ensure taxpayer compliance. On top of improving electronic systems (eBIR forms, Electronic Filing and Payment System, mobile payments) the following reforms are implemented: Mandatory fuel marking Provision for use of electronic receipts Connection of cash registers and point of sale machines to BIR servers for real time reporting of sales and purchase data Relaxation of bank secrecy laws and automatic exchange of information to allow for more effective prosecution of criminal cases Ear Marking For 5 years from the law's enactment, all revenues will be set aside for infrastructure and social programs only, with a 70% and 30% portion respectively. Infrastructure Projects Infrastructure projects that will receive priority funding include the Build, Build, Build Program that tackles the problem of congestion through the construction of public transport systems and road networks and the refurbishing and enhancing of military facilities. Additionally, part of the 70% will be allocated to the building of sports facilities in public schools as well as amenities that will allow access to potable water in public spaces. Social Programs The social programs that will receive priority funding from 30% of revenues include: Programs for sugar farmers to increase productivity, provide livelihood opportunities, develop alternative farming systems, and enhance farmer's income Social mitigating measures and investments in education, health, social protection, employment, and housing for poor and near-poor households Unconditional cash transfer to the poorest 10 million households Social benefits card to determine qualified beneficiaries (fuel vouchers for PUJs, fare discount for all public utility vehicles, discounted purchase of NFA rice, free skills training under TESDA) Unconditional cash transfers (UCT) In order to provide provisional protection for vulnerable households from the initial shock of the TRAIN Law, unconditional cash transfers are dispensed. On the first year, beneficiaries receive Php200 per month. In the succeeding 2 years, they receive P300 per month. The UCT is obtained from oil excise tax revenues. In addition to the UCT, social welfare cards are provided to aid in continuous conferring of benefits and subsidies to the poorest households. This includes subsidies for "medicine, transportation, rice, and vocational trainings". Income Tax "The TRAIN lowers the Personal Income Tax (PIT)for all taxpayers except the rich". Effectively, personal taxes will be reduced for 99% of the Philippine tax payers. The new PIT is summarized in the table below Annuable Income Tax ₱0–250,000 Over ₱250,000–400,000 Over ₱400,000–800,000 Over ₱800,000–2,000,000 Over ₱2,000,000– 8,000,000 Over ₱8,000,000 Percent of Taxpayers Tax Rate 0% 20% of the excess over ₱250,000 ₱30,000 + 25% of the excess over ₱400,000 ₱130,000 + 30% of the excess over ₱800,000 83% 8% 6% 2% ₱490,000 + 32% of the excess over ₱2,000,000 1% ₱2,410,000 + 35% of the excess over ₱8,000,000 0.1% Additionally, minimum-wage earners are still exempted from PIT. The Law also ensures a minimum wage earner who incurs a small raise will not have his overall salary (with the PIT deducted) less than minimum wage. Also, married couples where both parties are working may be exempted up to a total of ₱500,000. This does not include the exemption from the first ₱90,000 of their thirteenth month pay and additional bonuses. Finally, Self-employed and professionals with gross sales below VAT can only pay 8% flat tax instead of their income and personal tax. Simplified Estate and Donor's Tax The TRAIN aims to simplify property purchases, transfers and donations in order to make the land market more efficient thus ensuring the usage of properties is maximized. The estate tax is now reduced to 6% based on the net value of the property. It also has a standard deduction of ₱5 million as well as a ₱10 million exemption on the family home. The donor tax is also reduced to 6% of the net donations for gifts above ₱250,000 yearly. Simplified Value Added Tax The government's aim to elevate the less fortunate in the Philippines and drive development is exemplified as the TRAIN repeals 54 out of 61 of the non-essential VAT exemption. In order to protect these less fortunate persons, as well as small and micro businesses, they are exempted from VAT on goods and services of marginal establishments. VAT exempt tax payers now have the option to: PIT schedule with 40% OSD on gross receipts or gross sales plus 3% percentage tax PIT schedule with itemized deductions plus 3% percentage tax, or Flat tax of 8% on gross sales or gross revenues in lieu of percentage tax and personal income tax.[25] "TRAIN aims to clean up the VAT system to make it fairer and simpler and lower the cost of compliance for both the taxpayers and tax administrators". As such, VAT exemptions are now only limited to health, education and raw agriculture food. In 2019, medicines for hypertension, high cholesterol and diabetes will be exempted from VAT. Similarly, purchases from senior citizens and persons with disabilities. Housing that costs less than ₱2 million shall also be exempted starting in 2021. Excise Tax of petroleum products This tax aims to increase efforts towards decreasing the consumption of harmful fuel, and veering towards a healthier, more sustainable future. The price of fuel also varies due to the global inflation of oil. Listed below is the effect of the Petroleum Excise Tax (note: the additional excise tax is per liter) Excise Tax per Liter Current 2018 2019 2020 LPG ₱0 ₱1.00 ₱2.00 ₱3.00 Diesel ₱0 ₱2.50 ₱4.50 ₱6.00 Regular and unleaded premium gasoline ₱4.35 ₱7.00 ₱9.00 ₱10.00 Listed below are the new excise taxes for specific fuel products for the year 2018 Petroleum Product Excise Tax per Liter LPG Bunker Fuels Diesel Pet coke Kerosene Aviation gas Gasoline Naphtha Asphalt Asphalt Lubricating oil Paraffin wax Refined fuels ₱1.00 ₱2.50 ₱2.50 ₱2.50 ₱3.00 ₱4.00 ₱7.00 ₱7.00 ₱8.00 ₱8.00 ₱8.00 ₱8.00 ₱8.00 Excise Tax of Automobiles increase The table below summarizes the excise taxes on automobiles. The second column illustrates the tax rate on vehicles based on their specific price range. The third column portrays the actual average effective tax rate. Because the TRAIN law increases the PIT of 99% of the population, their increase in net income will still be more than enough to compensate for the effects of the excise tax on automobiles. This means they still benefit from the TRAIN as they incur additional disposable income in the end. In addition, because richer tax payers tend to purchase more cars, the additional revenue from this tax will mostly come from them. Automobile prices Tax Rate Average effective tax rate ₱600,000 and below 4% ₱600,000 to ₱1,000,000 10% ₱1,000,000 to ₱4,000,000 20% ₱4,000,000 and above 50% 3% 8% 15% 30% Excise Tax on Sweetened Beverages "The SSB (Sugar-Sweetened Beverages) tax will promote a healthier Philippines". It achieves this by reducing the increasing number of diabetes and obesity cases, through raising awareness, promoting the consumption of healthier products and encourage companies to innovate healthier alternatives. TRAIN imposes new taxes of ₱6 per liter on drinks containing sweeteners and ₱12 per liter on drinks containing high-fructose corn syrup. Milk, 100% natural juice and 3-in-1 instant coffee drinks are exempt from the excise tax. Additional Excise Taxes There are three additional excise taxes, namely coal, cosmetics and tobacco. Coal Excise Tax Coal is a cheap source for power generation and has its uses in multiple industries such as the chemical and pharmaceutical industries. It is also a prime ingredient for activated carbon, carbon fibre and silicon metal. However, it remains a major source for air pollution in the Philippines. The aim of the excise tax is to shift towards renewable energies and generate additional income for building infrastructures and social services. The excise tax on coal will increase from its original ₱10/Metric Ton(MT) to ₱50/MT on both domestic and imported coal. ₱50/MT will be added each succeeding year until January when the rate would have reached ₱150/MT. Cosmetics Tax Starting 2018, all cosmetic surgeries, aesthetic procedures, and body enhancements intended to improve, alter, or enhance a person's appearance are now subject to a tax of 5%. However, procedures necessary to ameliorate a deformity arising from, or directly related to a congenital or developmental defect or abnormality, a personal injury resulting to an accident or trauma, or disfiguring disease, tumor, virus or infection are tax -exempted. Tobacco Tax The excise tax on cigarettes aims to reduce the amount of smokers and respiratory and cardiovascular diseases one can catch from the act, as well as generate additional revenue for health oriented programs and services. From its original excise tax of ₱30 in 2017, the tax on tobacco increased to ₱32.50 on January 1, 2018, ₱35 on July 1, 2018, will increase to ₱37.50 on January 1, 2019, and ₱40 on January 1, 2020. Afterwards, it will increase annually by 4% from January 1, 2024.[26] Financial Taxes There are four taxes that were adjusted along with the TRAIN Law. Firstly, the documentary stamp tax was increased by 100% except on loans with only 50% increase, but not for savings, property, and non-life insurance. Secondly, the final tax on foreign currency deposit unit (FCDU) was increased from 7.5% to 15% of interest income. Thirdly, capital gains tax of non-traded stock was increased from 5% to 10% of final net gains. Finally, the stock transaction tax was increased from 0.5% to 0.6% of total transaction value. Others Finally, there are three additional taxes that do not fall under the aforementioned categories. These are the tax on lottery winnings and PCSO prizes, documentary stamp tax, and mining tax. With the implementation of the TRAIN Law, all PCSO lotto prizes are taxed at 20% if the prize exceeds ₱10,000. The documentary stamp tax has been doubled, resulting in stamp taxes ranging from ₱1.50 to ₱3.00. Finally, excise tax rates on all non-metallic minerals and quarry resources, and all metallic minerals including copper, gold and chromite, will be doubled, from 2% to 4%, as well as excise tax on indigenous petroleum, which will be doubled from 3% to 6%. Projected effects The three main categories the TRAIN Law affects with its first package are "Growth in the Economy", "Employment Generation", and "Effect on Inflation". The DOF projects the economy to grow by 1.3% by 2022 with a 0.42% inflation due to the excise tax increase (this is still within the 2–4% target inflation by the Bangko Sentral ng Pilipinas (BSP); it also predicts to create half a million jobs over the next ten years, and eight million over the entirety of its life, as well as lift 250,000 Filipinos out of poverty. Through the increase in excise tax, Package 1 will be able to generate Php134 Billion. The actual effects in 2018 are elaborated below. Economic growth For the first quarter of 2018, the government was able to raise ₱619.84 billion. This represents a 16.4% growth in revenue compared to the first quarter of 2017. In monetary terms, the government was able to raise ₱87.44 billion more in this quarter of 2018 compared to the previous year. "The Philippine economy expanded by 6.8 percent in the first quarter of 2018, making it still one of the fastest-growing economies in the region even as rising inflation reduced consumption and productivity in some sectors." DOF Secretary Carlos Dominguez III claimed tax revenues grew by 18.2%, "exceeding the 9.7 percent nominal gross domestic product (GDP) growth." Departments that saw immediate benefits from Package 1 include the Bureau of Internal Revenue and Bureau of Customs, both with a 14.2% and 24.7% increase in revenue. This translates to a total of ₱423.1 billion and Php129.8 for both departments respectively. Other government departments were able to expand their investment and growths during the first quarter as well due to the increase in income. Insofar as expenditures go for the first quarter of 2018, the total amounted to ₱782.0 billion, growing by 27.1%, which also outstripped the 9.7% nominal GDP growth due to the estimated 40.0% increase in capital outlays. Dominquez also said that the expenditure effort also rose by 2.73%, which is the highest increase since 2003. This results in a larger contribution towards GDP growth. As such, revenue effort grew by 0.91%. In addition, public construction expanded by 25.1%, thus boosting GDP growth by 0.4%. On the other hand, government consumption increased by 13.6%, contributing an incremental 1.4% to the growth of the GDP."'Strong macroeconomic fundamentals backed by tax reforms and the Build, build, build program will continue to boost economic growth to the optimum 7–8 percent level as the competitiveness of the economy rises and more jobs are created,' he said." "The inflation rate in June—which exceeded both government and market expectations—was the fastest pace in at least five years. Year-to-date, inflation averaged 4.3 percent, above the BSP's 2–4 percent target range.It peaked at 5.2 percent for the same month. For the previous months, inflation was pegged at 4.6 percent and in the same period in 2017, 2.5 percent. This was primarily due to the higher annual rate posted in the heavily weighted food and non-alcoholic beverages index at 6.1%. The country's food index went up by 5.8% in June 2018. It was 5.5% in the previous month and 3.1% in June 2017. The following annual mark-ups were also observed for the following food groups: Rice (4.7%) Corn (14.1%) Other Cereals, Flour, Cereal Preparation, Bread, Pasta and Other Bakery Products (2.4%); Meat (5.0%); Vegetables (8.6%); Sugar, Jam, Honey, Chocolate and Confectionery (3.9%); and Food Products not Elsewhere Classified (3.1%). As for the rest of the food groups, they either slowed down or remained at their previous month's rate. Socioeconomic Planning Secretary Ernesto Pernia claims that the inflation will most likely peak on the third quarter of the year and start tapering off by October. Reception The TRAIN Law finally took effect in January 2018. Since its implementation, there have been numerous individuals for and against the new tax reform, such as Budget Secretary Benjamin Diokno who has expressed support for the law as the additional revenues provide funds for government initiatives. Notable government figures in opposition of the current law, that is they are calling for amendments or suspensions to specific excise tax increases or to the law as a whole, include Sen. Risa Hontiveros, Sen. Bam Aquino and Sen. Grace Poe.Ultimately, President Duterte stated on June 2, 2018 "Well the law was enacted by Congress. I leave it to Congress to decide whether or not to amend, suspend or modify the law. Leave it to Congress", in a press briefing. Support The senators who voted for the bill were Senators Sonny Angara, Nancy Binay, Frank Drilon, JV Ejercito, Chiz Escudero, Win Gatchalian, Dick Gordon, Gringo Honasan, Loren Legarda, Joel Villanueva, Koko Pimentel, Grace Poe, Ralph Recto, Tito Sotto, Cynthia Villar and Migz Zubiri. Appeal to foreign investors One of the goals of the TRAIN law is to make the economic environment of the Philippines more appealing to foreign investors. The reforms being implemented by the Duterte administration have been recognized and lauded by international institutions, leading to strong investor confidence and better growth prospects for the economy. This is also being pushed forward by the Department of Finance by submitting its proposal for Package 2 of its tax reform program to congress which aims to reduce corporate income tax rates and rationalize fiscal incentives. View from an economic stand point According to the DOF's chief economist, Gil Beltran, the moderate rise in inflation is only temporary and remains manageable under a robust economy even with the implementation of the TRAIN law. It will be remedied by the increased spending on infrastructure and social services to keep inflation in check in the future which was what the president was hoping to achieve with the implementation of this law. TRAIN is seen as a long-term measure that would hope to push the economy to a much higher development path, create more jobs and improve the living conditions for our people. However this comes with the rising of inflation which would be mitigated by lower income tax rates and implementing cash transfers for the short-term, and; the health, education, social protection, and infrastructure programs in the medium- and long-term. Opposition Burden to the poor One of the recurring problems that is being discussed when it comes to the TRAIN law is the burden that it will impose to the poor. As crafted, the TRAIN promises to let marginal earners and minimum salaried workers of smaller tax or even tax exemption. But critics are quick to point out that the alleged windfall of tax-free income will be blown away when basic commodities that the marginalized sector of society traditionally buy and consume every day will now be sporting increased price tags that are out of reach and beyond the imagination of poor families. Makabayan bloc There were objections made by the Makabayan bloc, a left-wing group whom filed a petition for a temporary restraining order (TRO) against the law. The petition is anchored on the argument that the tax law bill was invalid because there was no quorum when the House of Representatives ratified the joint bicameral conference report on the measure, and there was no voting involved. The petitioners provided links to official videos and photos that would show there was no quorum "with barely 10 people on the floor." The petitioners also provided that another requirement was not met which was the majority vote. According to the petitioners, a vote whether viva voce or nominal, was not taken. The official video of the process shows Tinio and Zarate repeatedly objecting to the ratification, but Abu and Defensor continued with the process until the voices of the petitioners were no longer heard because the microphone had been turned off. Aside from the House rules, the petitioners said Section 16(2), Article VI of the Constitution that requires a quorum was also violated. Call for suspension Three senators called for the suspension of the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law as consumers and transport groups complained of soaring prices of commodities. These were on the grounds that the law was not beneficial to the majority of Filipinos, due to the increase in prices of oil products and commodities, a family has incurred an additional expense of ₱2,644 monthly for farmers and ₱3,640 for workers. Amendments Senator Bam Aquino wanted to pass a measure that seeks to amend TRAIN to protect Filipinos from soaring prices. Aquino explained that the Senate's version of the TRAIN law had a safeguard that would automatically suspend fuel excise tax if the forecast rate was exceeded and this amendment was to bring that sole safeguard back. According to the senator, this was a necessary step in order to protect the future well beings of the Filipino people. Protests Since Duterte signed the TRAIN Law, protests were sparked since January 2018. For the employees who worked under the minimum wage of ₱512, only ₱70 will be spent just for the food in a day because of increasing goods. Other budget issues such as house rent, education, LPG, personal hygiene, etc. The militant groups feared that most of the Filipinos will face hunger since the increase of excise tax in the market. Pricing Strategy A pricing strategy is a model or method used to establish the best price for a product or service. It helps you choose prices to maximize profits and shareholder value while considering consumer and market demand. If only pricing was a simple as its definition. However, there’s a lot that goes into the process. Pricing strategies take into account many of your business factors, like revenue goals, marketing objectives, target audience, brand positioning, and product attributes. They’re also influenced by external factors like consumer demand, competitor pricing, and overall market and economic trends. It’s not uncommon for entrepreneurs and business owners to skim over pricing. They often look at the cost of their products (COGS), consider their competitor’s rates, and tweak their own selling price by a few dollars. While your COGS and competitors are important, they shouldn’t be at the center of your pricing strategy. The best pricing strategy maximizes your profit and revenue. Before we talk about pricing strategies, let’s review an important pricing concept that will apply regardless of what strategies you use. Price Elasticity of Demand Price elasticity of demand is used to determine how a change in price affects consumer demand. If consumers still purchase a product despite a price increase (such as cigarettes and fuel) that product is considered inelastic. On the other hand, elastic products suffer from pricing fluctuations (such as cable TV and movie tickets). You can calculate price elasticity using the formula: % Change in Quantity ÷ % Change in Price = Price Elasticity of Demand. The concept of price elasticity helps you understand if your product or service is sensitive to price fluctuations. Ideally, you want your product to be inelastic — so that demand remains stable if prices do fluctuate. Now, let’s cover some common pricing strategies. As we do so, it’s important to note that these aren’t necessarily standalone strategies — many can be combined when setting prices for your products and services. Types of Pricing Strategies 1. Competition-Based Pricing 2. Cost-Plus Pricing 3. Dynamic Pricing 4. Freemium Pricing 5. High-Low Pricing 6. Hourly Pricing 7. Skimming Pricing 8. Penetration Pricing 9. Premium Pricing 10.Project-Based Pricing 11.Value-Based Pricing 12.Bundle Pricing 13.Psychological Pricing 14.Geographic Pricing 1. Competition-Based Pricing Strategy Competition-based pricing is also known as competitive pricing or competitorbased pricing. This pricing strategy focuses on the existing market rate (or going rate) for a company’s product or service; it doesn’t take into account the cost of their product or consumer demand. Instead, a competition-based pricing strategy uses the competitors’ prices as a benchmark. Businesses who compete in a highly saturated space may choose this strategy since a slight price difference may be the deciding factor for customers. With competition-based pricing, you can price your products slightly below your competition, the same as your competition, or slightly above your competition. For example, if you sold marketing automation software, and your competitors’ prices ranged from $19.99 per month to $39.99 per month, you’d choose a price between those two numbers. Whichever price you choose, competitive pricing is one way to stay on top of the competition and keep your pricing dynamic. 2. Cost-Plus Pricing Strategy A cost-plus pricing strategy focuses solely on the cost of producing your product or service, or your COGS. It’s also known as markup pricing since businesses who use this strategy “mark up” their products based on how much they’d like to profit. To apply the cost-plus method, add a fixed percentage to your product production cost. For example, let’s say you sold shoes. The shoes cost $25 to make, and you want to make a $25 profit on each sale. You’d set a price of $50, which is a markup of 100%. Cost-plus pricing is typically used by retailers who sell physical products. This strategy isn’t the best fit for service-based or SaaS companies as their products typically offer far greater value than the cost to create them. 3. Dynamic Pricing Strategy Dynamic pricing is also known as surge pricing, demand pricing, or time-based pricing. It’s a flexible pricing strategy where prices fluctuate based on market and customer demand. Hotels, airlines, event venues, and utility companies use dynamic pricing by applying algorithms that consider competitor pricing, demand, and other factors. These algorithms allow companies to shift prices to match when and what the customer is willing to pay at the exact moment they’re ready to make a purchase. 4. Freemium Pricing Strategy A combination of the words “free” and “premium,” freemium pricing is when companies offer a basic version of their product hoping that users will eventually pay to upgrade or access more features. Unlike cost-plus, freemium is a pricing strategy commonly used by SaaS and other software companies. They choose this strategy because free trials and limited memberships offer a “peek” into a software’s full functionality — and also build trust with a potential customer before purchase. With freemium, a company’s prices must be a function of the perceived value of their products. For example, companies that offer a free version of their software can’t ask users to pay $100 to transition to the paid version. Prices must present a low barrier to entry and grow incrementally as customers are offered more features and benefits. 5. High-Low Pricing Strategy A high-low pricing strategy is when a company initially sells a product at a high price but lowers that price when the product drops in novelty or relevance. Discounts, clearance sections, and year-end sales are examples of high-low pricing in action — hence the reason why this strategy may also be called a discount pricing strategy. High-low pricing is commonly used by retail firms who sell seasonal or constantlychanging items, such as clothing, decor, and furniture. What makes a high/low pricing strategy appealing to sellers? Consumers enjoy anticipating sales and discounts, hence why Black Friday and other universal discount days are so popular. 6. Hourly Pricing Strategy Hourly pricing, also known as rate-based pricing, is commonly used by consultants, freelancers, contractors, and other individuals or laborers who provide business services. Hourly pricing is essentially trading time for money. Some clients are hesitant to honor this pricing strategy as it can reward labor instead of efficiency. 7. Skimming Pricing Strategy A skimming pricing strategy is when companies charge the highest possible price for a new product and then lower the price over time as the product becomes less and less popular. Skimming is different than high-low pricing in that prices are lowered gradually over time. Technology products, such as DVD players, video game consoles, and smartphones, are typically priced using this strategy as they become less relevant over time. A skimming pricing strategy helps recover sunk costs and sell products well beyond their novelty, but the strategy can also annoy consumers who bought at full price and attract competitors who recognize the “fake” pricing margin as prices are lowered. 8. Penetration Pricing Strategy Contrasted with skimming pricing, a penetration pricing strategy is when companies enter the market with an extremely low price, effectively drawing attention (and revenue) away from higher-priced competitors. Penetration pricing isn’t sustainable in the long run, however, and is typically applied for a short time. This pricing method works best for brand new businesses looking for customers or for businesses that are breaking into an existing, competitive market. The strategy is all about disruption and temporary loss … and hoping that your initial customers stick around as you eventually raise prices. 9. Premium Pricing Strategy Also known as premium pricing and luxury pricing, a prestige pricing strategy is when companies price their products high to present the image that their products are high-value, luxury, or premium. Prestige pricing focuses on the perceived value of a product rather than the actual value or production cost. Prestige pricing is a direct function of brand awareness and brand perception. Brands who apply this pricing method are known for providing value and status through their products — which is why they’re priced higher than other competitors. Fashion and technology are often priced using this strategy because they can be marketed as luxurious, exclusive, and rare. 10. Project-Based Pricing Strategy A project-based pricing strategy is the opposite of hourly pricing — this approach charges a flat fee per project instead of a direct exchange of money for time. It is also used by consultants, freelancers, contractors, and other individuals or laborers who provide business services. Project-based pricing may be estimated based on the value of the project deliverables. Those who choose this pricing strategy may also create a flat fee from the estimated time of the project. 11. Value-Based Pricing Strategy A value-based pricing strategy is when companies price their products or services based on what the customer is willing to pay. Even if they can charge more for a product, they decide to set their prices based on customer interest and data. If used accurately, value-based pricing can boost your customer sentiment and loyalty. It can also help you prioritize your customers in other facets of your business, like marketing and service. On the flip side, value-based pricing requires you to constantly be in tune with your various customer profiles and buyer personas and possibly vary your prices where your customers vary. 12. Bundle Pricing Strategy A bundle pricing strategy is when you offer (or "bundle") two or more complementary products or services together and sell them for a single price. You may choose to sell your bundled products or services only as part of a bundle, or sell them as both components of bundles and individual products. This is a great way to add value through your offerings to customers who are willing to pay extra upfront for more than one product. It can also help you get your customers hooked on more than one of your products faster. 13. Psychological Pricing Strategy Psychological pricing is what it sounds like — it targets human psychology to boost your sales. For example, according to the "9-digit effect", even though a product that costs $99.99 is essentially $100, customers may see this as a good deal simply because of the "9" in the price. Another way to use psychological pricing would be to place a more expensive item directly next to (either, in-store or online) the one you're most focused on selling. Or offer a "buy one, get one 50% off (or free)" deal that makes customers feel as though the circumstances are too good to pass up on. And lastly, changing the font, size, and color of your pricing information on and around your products has also been proven, in various instances, to boost sales. 14. Geographic Pricing Strategy Geographic pricing is when products or services are priced differently depending on geographical location or market. This strategy may be used if a customer from another country is making a purchase or if there are disparities in factors like the economy or wages (from the location in which you're selling a good to the location of the person it is being sold to). Integrated Marketing Communications Integrated Marketing Communications is a simple concept. It ensures that all forms of communications and messages are carefully linked together. At its most basic level, Integrated Marketing Communications, or IMC, as we’ll call it, means integrating all the promotional tools, so that they work together in harmony. Promotion is one of the Ps in the marketing mix. Promotions has its own mix of communications tools. All of these communications tools work better if they work together in harmony rather than in isolation. Their sum is greater than their parts – providing they speak consistently with one voice all the time, every time. This is enhanced when integration goes beyond just the basic communications tools. There are other levels of integration such as Horizontal, Vertical, Internal, External and Data integration. Here is how they help to strengthen Integrated Communications. Horizontal Integration occurs across the marketing mix and across business functions – for example, production, finance, distribution and communications should work together and be conscious that their decisions and actions send messages to customers. While different departments such as sales, direct mail and advertising can help each other through Data Integration. This requires a marketing information system which collects and shares relevant data across different departments. Vertical Integration means marketing and communications objectives must support the higher level corporate objectives and corporate missions. Meanwhile Internal Integration requires internal marketing – keeping all staff informed and motivated about any new developments from new advertisements, to new corporate identities, new service standards, new strategic partners and so on. External Integration, on the other hand, requires external partners such as advertising and PR agencies to work closely together to deliver a single seamless solution – a cohesive message – an integrated message. Benefits of Integrated Marketing Communications Although Integrated Marketing Communications requires a lot of effort it delivers many benefits. It can create competitive advantage, boost sales and profits, while saving money, time and stress. IMC wraps communications around customers and helps them move through the various stages of the buying process. The organisation simultaneously consolidates its image, develops a dialogue and nurtures its relationship with customers. This ‘Relationship Marketing’ cements a bond of loyalty with customers which can protect them from the inevitable onslaught of competition. The ability to keep a customer for life is a powerful competitive advantage. IMC also increases profits through increased effectiveness. At its most basic level, a unified message has more impact than a disjointed myriad of messages. In a busy world, a consistent, consolidated and crystal clear message has a better chance of cutting through the ‘noise’ of over five hundred commercial messages which bombard customers each and every day. At another level, initial research suggests that images shared in advertising and direct mail boost both advertising awareness and mail shot responses. So IMC can boost sales by stretching messages across several communications tools to create more avenues for customers to become aware, aroused, and ultimately, to make a purchase Carefully linked messages also help buyers by giving timely reminders, updated information and special offers which, when presented in a planned sequence, help them move comfortably through the stages of their buying process… and this reduces their ‘misery of choice’ in a complex and busy world. IMC also makes messages more consistent and therefore more credible. This reduces risk in the mind of the buyer which, in turn, shortens the search process and helps to dictate the outcome of brand comparisons. Un-integrated communications send disjointed messages which dilute the impact of the message. This may also confuse, frustrate and arouse anxiety in customers. On the other hand, integrated communications present a reassuring sense of order. Consistent images and relevant, useful, messages help nurture long term relationships with customers. Here, customer databases can identify precisely which customers need what information when… and throughout their whole buying life. Finally, IMC saves money as it eliminates duplication in areas such as graphics and photography since they can be shared and used in say, advertising, exhibitions and sales literature. Agency fees are reduced by using a single agency for all communications and even if there are several agencies, time is saved when meetings bring all the agencies together – for briefings, creative sessions, tactical or strategic planning. This reduces workload and subsequent stress levels – one of the many benefits of IMC. Barriers to Integrated Marketing Communications Despite its many benefits, Integrated Marketing Communications, or IMC, has many barriers. In addition to the usual resistance to change and the special problems of communicating with a wide variety of target audiences, there are many other obstacles which restrict IMC. These include: Functional Silos; Stifled Creativity; Time Scale Conflicts and a lack of Management know-how. Take functional silos. Rigid organisational structures are infested with managers who protect both their budgets and their power base. Sadly, some organisational structures isolate communications, data, and even managers from each other. For example the PR department often doesn’t report to marketing. The sales force rarely meet the advertising or sales promotion people and so on. Imagine what can happen when sales reps are not told about a new promotional offer! And all of this can be aggravated by turf wars or internal power battles where specific managers resist having some of their decisions (and budgets) determined or even influenced by someone from another department. Here are two difficult questions – What should a truly integrated marketing department look like? And how will it affect creativity? It shouldn’t matter whose creative idea it is, but often, it does. An advertising agency may not be so enthusiastic about developing a creative idea generated by, say, a PR or a direct marketing consultant. IMC can restrict creativity. No more wild and wacky sales promotions unless they fit into the overall marketing communications strategy. The joy of rampant creativity may be stifled, but the creative challenge may be greater and ultimately more satisfying when operating within a tighter, integrated, creative brief. Add different time scales into a creative brief and you’ll see Time Horizons provide one more barrier to IMC. For example, image advertising, designed to nurture the brand over the longer term, may conflict with shorter term advertising or sales promotions designed to boost quarterly sales. However the two objectives can be accommodated within an overall IMC if carefully planned. But this kind of planning is not common. A survey in 1995, revealed that most managers lack expertise in IMC. But its not just managers, but also agencies. There is a proliferation of single discipline agencies. There appear to be very few people who have real experience of all the marketing communications disciplines. This lack of know how is then compounded by a lack of commitment. For now, understanding the barriers is the first step in successfully implementing IMC. Communications Theory How do we communicate? How do customers process information? There are many models and theories. Let’s take a brief look at some of them. Simple communications models show a sender sending a message to a receiver who receives and understands it. Real life is less simple – many messages are misunderstood, fail to arrive or, are simply ignored. Thorough understanding of the audience’s needs, emotions, interests and activities is essential to ensure the accuracy and relevance of any message. Instead of loud ‘buy now’ advertisements, many messages are often designed or ‘encoded’ so that the hard sell becomes a more subtle soft sell. The sender creates or encodes the message in a form that can be easily understood or decoded by the receiver. Clever encoding also helps a message to cut through the clutter of other advertisements and distractions, what is called ‘noise’. If successful, the audience will spot the message and then decode or interpret it correctly. The marketer then looks for ‘feedback’ such as coupons returned from mailshots, to see if the audience has decoded the message correctly. The single step model – with a receiver getting a message directly from a sender – is not a complete explanation. Many messages are received indirectly through a friend or through an opinion leader. Communications are in fact multifaceted, multi-step and multi-directional. Opinion leaders talk to each other. Customers talk to opinion leaders and they talk to each other. Add in ‘encode, decode, noise and feedback’ and the process appears more complex still. Understanding multiphase communications helps marketers communicate directly through mass media and indirectly through targeting opinion leaders, opinion formers, style leaders, innovators, and other influential people. How messages are selected and processed within the minds of the target market is a vast and complex question. Although it is over seventy years old, rather simplistic and too hierarchical, a message model, like AIDA, attempts to map the mental processes through which a buyer passes en route to making a purchase. There are many other models that attempt to identify each stage. In reality the process is not always a linear sequence. Buyers often loop backwards at various stages perhaps for more information. There are other much more complex models that attempt to map the inner workings of the mind. In reality, marketers have to select communications tools that are most suitable for the stage which the target audience has reached. For example, advertising may be very good at raising awareness or developing interest, while free samples and sales promotions may be the way to generate trial. This is just a glimpse into some of the theory. Serious marketers read a lot more. Golden Rules Despite the many benefits of Integrated Marketing Communications (or IMC); there are also many barriers. Here’s how you can ensure you become integrated and stay integrated – 10 Golden Rules of Integration. (1) Get Senior Management Support for the initiative by ensuring they understand the benefits of IMC. (2) Integrate At Different Levels of management. Put ‘integration’ on the agenda for various types of management meetings – whether annual reviews or creative sessions. Horizontally – ensure that all managers, not just marketing managers understand the importance of a consistent message – whether on delivery trucks or product quality. Also ensure that Advertising, PR, Sales Promotions staff are integrating their messages. To do this you must have carefully planned internal communications, that is, good internal marketing. (3) Ensure the Design Manual or even a Brand Book is used to maintain common visual standards for the use of logos, type faces, colours and so on. (4) Focus on a clear marketing communications strategy. Have crystal clear communications objectives; clear positioning statements. Link core values into every communication. Ensure all communications add value to (instead of dilute) the brand or organisation. Exploit areas of sustainable competitive advantage. (5) Start with a Zero Budget. Start from scratch. Build a new communications plan. Specify what you need to do in order to achieve your objectives. In reality, the budget you get is often less than you ideally need, so you may have to prioritise communications activities accordingly. (6) Think Customers First. Wrap communications around the customer’s buying process. Identify the stages they go through before, during and after a purchase. Select communication tools which are right for each stage. Develop a sequence of communications activities which help the customer to move easily through each stage. (7) Build Relationships and Brand Values. All communications should help to develop stronger and stronger relationships with customers. Ask how each communication tool helps to do this. Remember: customer retention is as important as customer acquisition. (8) Develop a Good Marketing Information System which defines who needs what information when. A customer database for example, can help the telesales, direct marketing and sales force. IMC can help to define, collect and share vital information. (9) Share Artwork and Other Media. Consider how, say, advertising imagery can be used in mail shots, exhibition stands, Christmas cards, news releases and web sites. (10) Be prepared to change it all. Learn from experience. Constantly search for the optimum communications mix. Test. Test. Test. Improve each year. ‘Kaizen’. Professional Salesmanship “The personal selling” and “salesmanship” are often used interchangeably, but there is an important difference. Personal selling is the broader concept. Salesmanship may or may not be an important part of personal selling and it is never ‘all of it. Along with other key marketing elements, such as pricing, advertising, product development and research, marketing channels and physical distribution, the personal selling is a means through which marketing programmes are implemented. The broad purpose of marketing is to bring a firm’s products into contact with markets and to effect profitable exchanges of products for money. The purpose of personal selling is to bring the right products into contact with the right customers, and make ownership transfer. Salesmanship is one of the skills used in personal selling, as defined by Stroh, “it is a direct, face-to-face, seller-to-buyer influence which can communicate the facts necessary for marketing a buying decision; or it can utilize the psychology of persuasion to encourage the formation of a buying decision”. Salesmanship is seller-initiated effort that provides prospective buyers with information and motivates or persuades them to make favourable buying decisions concerning the seller’s products or service. The salesman of today has to react and interact in any different ways to many different people. Apart from the knowledge of the product, a salesperson has to be a psychologist with one prospect, a human computer with another, an adviser with another, and at the same time a friend with some buyers. Salespersons must adjust their personalities on every call. Salesmanship may be implemented not only through personal selling but through advertising. Thus, advertising has been described as “salesmanship in print.” Some definitions emphasize that salesmanship is the art of influencing or persuading people to do what sales representative wants them to do. For instance, contractors, teachers, ministers, authors, politicians, industrial engineers etc., practice the art of influencing others to do what they want them to do. Every man is a salesman in his own walks of life. “He who works with his hands is a labourer. “He who works with his hands and his head is a craftsman. “He who works with his hands, HEAD and heart is an artist. “He who works with hands, his head, his heart and his feet is a salesman.” Salesmanship is the ability to persuade people to want the things which they already need. Salesmanship is the ability to convert human needs into wants. The work of salesman is a service i.e., helping the consumer. The salesman gives a solution to the customer’s problems. Salesmanship is the ability to handle the people and to handle the products. Definition: According to W.G Carter, “Salesmanship is in attempt to induce people to buy goods.” According to the National Association of Marketing Teachers of America, “It is the ability to persuade people to buy goods or services at a profit to the seller and benefit to the buyer.” According to Knox, “Salesmanship is the power or ability to influence people to buy at a mutual profit, that which we have to sell, but which they may not have thought of buying until call their attention to it. Salesmanship is the ability to persuade people to want they already need.” According to Prof Stephenson, “Salesmanship refers to conscious efforts on the part of the seller to induce a prospective buyer to purchase something that he had not really decided to buy, even if he had thought of it favourably. It consists of persuading people to buy what you have for sale in making them want it, in helping to make up their minds.” According to J.C. Jagasia, “It is an ability to remove ignorance, doubt, suspicion and emotional objection concerning the usefulness of a product.” According to Holtzclaw, “Salesmanship is the power to persuade plenty of people to pleasurably and permanently purchase your product at a profit.” According to Carfield Blake, “Salesmanship consists of winning the buyers’ confidence for the sellers’ house and goods, thereby winning regular and permanent customers.” According to Sefred Gross, “Salesmanship is the art of increasing satisfaction by persuading those people who should do so to buy specific goods or service.” Thus, salesmanship is the process of persuading a person to buy goods or services. It does not mean that salesmanship is applied only to personal selling; it can also be applied to advertising- printed salesmanship. Salesmanship in its broader meaning, includes all types of persuasion means, by a seller, viz., advertising, personal selling and other methods. Modern Concept of Salesmanship: In olden days, a salesman takes an order. He shows the goods. He waits for an order. Then he receives the payment. He never attempts to guide, or help or persuade the consumers. But the modern concept of salesmanship is entirely different from the old concept of salesmanship. Modem concept is creative in approach. He creates needs and converts them into wants. Customer satisfaction is the main problem of salesman. Mutual profit is essential both for the buyer and the seller. Salesman guides the customer to buy things which satisfy his want. Salesman motivates the feelings of the customers to act. Importance of Salesmanship: In the present day, salesmanship plays an important part. Salesman is the connecting link between sellers and buyers at every step., i.e” from the collection of raw materials to the finished products. , Of all, customers are the most benefited by salesmen. Present era is of large-scale production, which is in anticipation of demand. The market expands along with competition. This makes distribution a difficult and a complex factor in the face of still competition. The expansion of the market, growing competition etc., invite a better salesmanship. 1. Important to Producers: Salesmanship is important to producers and manufacturers. For pushing products into the competitive market, salesmanship is necessary. To capture new markets also salesmanship is very important. Salesmen increase the sales volume. It brings larger profits to the manufacturers. Salesmen work as the “eye and ear” for the manufacturers. They improve their products according to the taste of the consumers. They improve their sales policies by keeping in mind the suggestions, impressions and complaints of the consumers. He is the creator of demand. Hence it leads to increased production and increased business activity. As such it increases employment opportunity as well as personal incomes. 2. Important to Consumers: Salesman educates and guides the consumers. He gives them more satisfaction. ‘Consumers are right’ in the marketing. As such, he gives more importance to them. Salesman helps the consumers in making the right decision and proper selection of the products which they want to buy. Salesmanship increases the rate of turnover, and hence reduces unsold stock. As such it minimizes the economic stagnation. Consumers can select the best products according to their requirements, taste and money. Duties of a Salesman: 1. The principal duty is to make sales of products or services. 2. He has to do the assigned duty (travelling). 3. He has to make collection of bills relating to sale. 4. He has to make report-Sales made, Calls made, Services rendered, customers lost, competition and any other matters, relating to firm. 5. All complainants must be satisfied peacefully. 6. He has to attend sales meetings. 7. A salesman with his experience must supply information in order to solve problems relating to product or the firm. 8. He must maintain a good relation with the customers. 9. He must assist the customers to make good selection. 10. He must develop a goodwill for the firm and the products. 11. He must have cooperative habits. 12 He takes periodic inventories of the stocks. Characteristics or the Qualities of a Successful Salesman: Reid gives the following characteristics of a good salesman: 1. Establishing good relationship with a variety of people. 2. Learning quickly and adapting smoothly. 3. Planning ahead and efficiently managing his time and efforts. 4. Working hard to achieve his goals, dedicating himself to provide long-term service, rather than having a get-rich-quick attitude. 5. Communicating clearly both in speech and in writing. 6. Thinking analytically and learning to break problems down to their basic components. 7. Producing constantly both in quality and quantity rather than performing erratically. 8. Persisting steadily his goal and not giving up easily. 9. Possessing and living up to high moral characteristics that enable people to admire,, respect and trust him. “Personality is the personal distinction or dynamic force which is felt by everybody who comes within the radius.” Personality is the sum total of the impressions made on people with whom one comes into contact. The impression is the result of many qualities that one possesses. There are a number of qualities which make a salesman successful. To become a successful salesman, he must master all the traits. A number of evidences as given by RG Walters, J.W. Windate, Russel etc., divide the qualities of a successful salesman into the following major factors. They are: 1. Personality of a salesman, 2. Knowledge of the product and, 3. Knowledge of the customers and their buying motives. Type of Salesmen: 1. Manufacturer’s Salesmen: (a) Missionary Salesmen: They are also known as Creative Salesmen or Pioneer Salesmen. They are employed by manufacturers and do the work, of missionary nature. They create demand for the products. They usually develop goodwill. They call on distributorswholesalers, retailers, customers, in order to educate, train and induce them to promote the products. Manufacturers of medical supplies use this type of salesmen to promote their products. (b) Merchandising Salesmen: They assist dealers by giving suggestions on display, store- layout, service facility etc. They arrange wide publicity and conduct demonstration for dealer salesmen, by even working along with them. They are largely involved in drugs, medicines, grocery etc. There is a wide scope for this category. (c) Dealer-Servicing Salesman: These salesmen call on retailers in their territory and visit them often. They bring samples of new products, take orders and make up window display. (d) Sale Promotion Salesmen: They are also known as Retail Salesman. They are specialised in promotional work. They are representatives of medical firms or publishers. They may not take spot orders but they try to convince people like doctors about the new drug, research work, testing, result etc. They create demand by calling on customers, (e) Technical Salesmen: They are trained technically. They provide technical assistance to company’s customers on matter connected with the product, its quality, its design, its installation etc. Generally these types of salesmen deal with computers, equipment’s, machinery items, chemical products etc. 2. Wholesaler’s Salesmen: Products reach the hands of customers through a number of channels, the main channel being wholesalers. They are the nerve-centres of distribution between manufacturers and retailers. These salesmen are mainly concerned with retailers through whom the products are to be marketed. Their main concerns are: 1. To guide the wholesalers in giving credit transaction to retailers, 2. To collect bills from retailers and customers, 3. To collect information of the market trend, 4. To help retailers to improve sales and 5. To take orders from retailers. 3. Retail Salesmen: They are of two types: 1. Indoor salesmen 2. Outdoor Salesmen. Indoor salesmen work within the store—counter sales over the counter. They do not need training as they have to face only customers and not the prospects. They deal with regular buyers. They are order filling salesmen. They receive orders and execute them. They must have good manners and a helpful attitude. They must be able to guide the customers and help them to make quick decisions. They must also be knowledgeable and honest. Above all, they must maintain products in the shelves in an attractive manner. Outdoor salesmen may also be called travelling salesmen. Their main job is to make regular travels, visit customers, canvass orders etc. They must possess all the qualities of ideal salesmen. 4. Speciality Salesmen: They are to sell speciality products-expensive durable goods, furniture, books, house furnishings, washing machines, automobiles, refrigerators etc. People purchase these products only after a personal and careful selection, because they do not buy them frequently. Salesmen of this kind must be masters of the art of salesmanship. They are representatives of manufacturers, who produce special items. ENTREPRENEUR Successful entrepreneurs operate on sound business ethics which are approved and accepted in any society. Entrepreneurial Ethics are those codes of conduct, employed by entrepreneurs which impact society positively, thereby increasing the entrepreneur’s chances for greater success. Entrepreneurial ethics would lead to positive attitudes towards raising successful entrepreneurs, who would, in turn, build entrepreneurial institutions for societal growth and advancement. When entrepreneurial ethics are practiced and visible, the entrepreneurs and their team, work with great zeal, dedication, and purposefulness, to achieve the organization’s objectives, and together, they work for the common good of all. It can be clearly seen that when good entrepreneurial ethics are demonstrated, businesses can handle or tackle difficulty when they arise. A healthy entrepreneurial spirit is certainly a viable option for many countries facing unemployment crisis, especially in the third world countries. Entrepreneurial ethics, combined with integrity and all the right motives, would allow for economic growth and gradual development throughout the primary, secondary and tertiary sectors in the economy. Sound Entrepreneurial ethics helps to develop relationships built on mutual trust and respect. Without this trust, businesses will not survive; investments will not be made. Successful business empires have gained credibility and reliance as a result of their sound ethical entrepreneurial practices. Ethical Entrepreneurial practices bring forth positivity with the vision and mission of an organization. It, therefore, necessitates a great sense of self-discipline and humility which grows small businesses into successful empires. The Importance of Business Ethics Integrity : Hand in hand with entrepreneurial ethics is integrity in business. It is important that entrepreneurs today don’t get caught up in moneymaking schemes and lose sight of the importance of doing the right thing for the common good. Any entrepreneur who willfully and dishonestly engages in business activity with the motive of ripping people off or profiting at the expense of others, creates a harmful business environment of distrust and antagonism. When you build a business on integrity, and set off with an attitude of nobility, humility and service, and the intention of making a living by providing your community with needed goods and services, you contribute to, rather than detract from, the general good. An early and consistent stand against questionable conflicts of interest is an important aspect of any entrepreneur’s ethics effort. Labour : How a company treats its workers is a good indication of its ethical practices. An entrepreneur who sets out to cheat or underpay his employees will indefinitely cause his organization to suffer and be subject to high staff turnover, low morale, dishonesty among other negative things that could cause the downfall of the business. It is important to treat all employees well as they represent the business daily, but it will also benefit the entrepreneur because most people are more likely to reciprocate what behaviours and attitudes they receive. It goes without saying, that when good work habits are developed and practiced by all within an organization, a special bond is formed and a loyalty to the company becomes apparent. Entrepreneurs who manage to keep open lines of communication with their employees, grow to understand their feelings about things taking place within the workplace, and they work together to ensure that everyone is in alignment to benefit from their association with the organization. Clientele : Your clients are your key stakeholders and it should be quite obvious as to how dependent your business is on its customers. The entrepreneur today should seek out the opportunity to personally treat all clients well, and express great and humble appreciation when they support your business. The ideal way to do this is to always strive to provide goods and services that are of the best quality and service, as good as you can make or get them, for your clients. An entrepreneur with an honest motive and good ethical sense will realize that doing and giving the best to clients every day is not only a good business decision, but a wise and ethical choice as well. Environment : It is difficult, and possibly unavoidable, to engage in business while having no impact on the environment. Even if you’re in the craft business, your clients are looking on to see how you utilize resources or recycle products. If you are truly invested in reducing your business’s Eco-footprint, then you can have a much greater impact, not just in the business world, but in the community and environment as a whole. The ethical entrepreneur today should explore, welcome, and employ the many ways that a business can reduce its Eco-footprint on the environment, including recycling, reducing energy waste, carpooling, minimizing paper packaging and usage, and reducing wasteful business practices among other things. While all of these activities have a practical basis, in that they protect the environment and the public reputation of your business, they also have a great impact and influence on others. When entrepreneurs model environmental ethics and encourage Eco-friendly practices, others are likely to follow suit. Organizational Ethics should not only be practiced by larger businesses. In fact, the entrepreneur today can consciously choose to make ethics a part of their business plan. Start-ups can create and effectively commit to sound ethical practices. 1. Entrepreneurs must first recognize that there are ethical dilemmas surrounding them within the culture of entrepreneurship. 2. They must decide to make ethics a principle value of their business’s objectives and mission. The entrepreneur today should embrace doing business ethically in order to improve their standards. Good business ethics should be visible to all who come into contact with the business. Ethical policies should be included in business plans, in the business’s mission statements, and in all other business documents. 3. The ethical entrepreneur ought to seek out favourable opportunities to make his or her ethical commitment bona fide. It is the business of an entrepreneur to communicate clearly to all, from the initial stages of business, the ethical standards they employ. This entrepreneur will no doubt enjoy both financial success and a superb reputation. 4. The ethically made entrepreneur should be un-naively aware of the inevitable and unavoidable tensions in the business world, and anticipate these tensions not with fear, but with resilience, and so be able to put in place, a reasonable action plan that helps the entire team to deal with these tensions before the situations are actually encountered. This practice should be included in the business’s plan and mission and become part of a more formal “ethics training” for all. 5. Not every situation can be anticipated, but the ethical entrepreneur must always keep an open door policy so that new and uncommon ethical issues can be worked out as they arise. 6. The ethical entrepreneur looks for opportunities to engage the business as a whole and align them to the community and its needs. This aids in team building and strengthening interpersonal relationships 7. The ethical entrepreneur thinks and talks about the ethical values that matter at any given opportunity. The frantic and elaborate, rapid growth of start-ups makes it easy to submit to the temptations of malpractices in order to stay alive in this highly competitive business world. Always keep your objectives clear in front of you and visible for all to see and acknowledge. 8. The ethical entrepreneur challenges growth and renews the commitment to ethical practices. Businesses change as they grow, and so to, do their objectives. As the entrepreneur and his/her business grows, re-valuation is important and needed where ethics is concerned. Ethical values and the commitment to continued ethical practices must be reworked and re-communicated every time change occurs, thereby preparing all involved in the business to deal with the changing and evolving ethical dilemmas. 9. The ethical entrepreneur looks for opportunities to engage the business as a whole and align them to the community and its needs. The rewards of being an ethical start-up are many. Personal and business success is accomplished, and client and team satisfaction is the most prominent benefit for all. Everyone feels better about themselves and the butterfly effect happens magically as everyone freely and satisfyingly chose to act ethically in their dealings with others. For the individual entrepreneur, a reputation for much needed ethical practices can place your business on the top lists of ethical businesses with which others will unhesitatingly choose to do business with, increasing your opportunities for successful business partnerships. It is imperative, that the entrepreneur today understand that the business they run has responsibilities to everyone. Franchising and Direct Marketing 1. Franchising Franchis is an opportunity for entrepreneurs to enter the business by utilizing the experience, knowledge and support of the franchise giver. Often entrepreneurs start new businesses, small business would likely succeed. With a franchise, entrepreneurs will be trained and supported in the marketing effort and will use a name that already has an established image. People who are facing an urgent situation to have his own business would probably feel that the franchise is the easiest solution. However, there are some important risks in the above matter. Franchise can be defined as an agreement where the company or the sole distributor of products that have a trademark gives exclusive rights to companies, distributors, or independent retailers in return for royalty payments and adjust to standard operating procedures. People who offer franchise (franchisor) and an experienced people in business for several decades and have knowledge about what works and what does not. Franchise is a person who buys the franchise and given the opportunity to enter into new business with a great chance to succeed. The main advantage of franchising is that the entrepreneur does not need to bother with matters relating to starting a new business. Giver of the franchise will provide businesses with the operation plan a clear direction. Recipient franchise given advice or a business location has been determined. In the retail franchise like McDonald's, location analysis conducted to ensure that the business will achieve the goals set. Assessment of traffic conditions, demographics, business growth in an area, competition, etc. is an integral part of the decision on where to place a business. Often involves a franchise that has been established which will provide a direct recognition of recipient franchise in the market area. This does not guarantee success but it gave impetus to start a business with a positive image. 2. Investment Risks In Business Franchising. Franchising business involves many risks that should be known by the selfemployed before they consider such investment. We hear McDonald's, Kentucky Fried Chiken, but each is successful there must be a failure. Franchising business requires hard work and not suitable for the passive. This business requires hard work because of business decisions such as withdrawal of labor, scheduling, purchasing and accounting remain the responsibility. The steps can be taken to reduce or minimize investment risk in franchising: 1. Conduct self-evaluation. Entrepreneurs should do the evaluation themselves to ensure that businesses entering franchising is right for him. The answers to these questions will form, determine whether the right decision. - Do you people who like to start your own business?. - Do you enjoy working with others?. - Do you have good health?. 2. Researching the franchise. Not every franchise is right for you. Entrepreneurs must evaluate to decide which franchise business The most appropriate. A number of factors to be considered before making decision a. An established franchise business and has not been established. There are many advantages and disadvantages in investing in an established franchise business and has not been established. Investing in a franchise business that has not been established would be an inexpensive investment. However, this is balanced with great risk. Recipient franchise may make mistakes that result in business failure. Reorganization constant will cause confusion and miss management. However, business investment in the franchise that has not been established is a challenge which could bring big profits when the business. b. Financial stability of the franchise business. Purchasing a franchise by entrepreneurs should be made after the investigation financial stability of the franchise owner. There are many factors which will help entrepreneurs determine the stability and capability bring in profits from the franchise business organization in the long . c. Potential market for franchise businesses. It is important for entrepreneurs to evaluate the market area from which customers will interested in the new franchise. One easy way is to map community or local area and try to evaluate the flow past traffic and population demographics of the area. Information then flows traffic can be observed by visiting the area. Direction of flow past traffic, ease of entry in the business, and the amount of traffic flow can estimated from observations. Demographics of the area determined from the data census. There should also find the location of competitors in areas that may have a potential impact on business. If the franchisee is willing and funds are available, will help conduct market research in the market area. Attitudes and interests in new ventures can be assessed in marketing research. If resources are not available for the study of marketing research, research can be done by a local college as part of study projects. d. Potential gains for the new franchise. As is the case with business beginner, it is important to develop income statements, balance sheets, pro forma cash flow. Giver of rights should provide projections for calculate the required information. 3. Franchise Agreement Contract or franchise agreement is the final stage to become a franchise users. At this stage the lawyer who is experienced in franchise would be necessary. This Agreement contains all the specific requirements and obligations of users of the franchise. Things like marketing exclusivity will protect the user's local franchise has the same franchise. Conditions that can be refurbished will indicate the length of contract and the requirements to renew it. Financial requirements will determine the price of the franchise, the schedule of payments, royalties to be paid, and others. Termination of financial agreement should indicate the terms of what would happen if the effort of the wearer franchise went bankrupt. Termination issues franchise agreements usually often bring lawsuits than other issues in franchising. Therefore, the conditions set out above should provide a fair market value if the user wants to sell franchises. 4. Direct Marketing There is growing concern in the new business involving direct marketing. He provides profitable opportunities than any other beginner type because entrepreneurs typically bear the risk of a small initial capital and can benefit from its marketing efforts on customers who can be reached through direct marketing techniques. Because direct marketing is a specialized and entrepreneurial approach because it offers some benefit as the franchise, this approach is discussed here. 1. Definition of Direct Marketing. Direct marketing can be called direct mail delivery, mail order delivery, and immediate response. Everything including the direct marketing category because it involves the "total activity" where the sales affect the transfer of goods and services to the buyer, directing his efforts on the observer by using one or more media for the purpose of collecting responses via telephone, postal mail or personal visits from prospective customers. 2. Innovations that Accelerate Growth of Direct Marketing. The growth of direct marketing has been accelerated by a number of important innovations. Credit cards as such speed up transactions by mail order, can avoid paying in cash. The development of computers allows the preparation of large amounts of data, for example regarding the customer, the list of goods, and others. Growth media newspapers and television and radio broadcasts also help accelerate the growth of direct marketing techniques. When demographic factors such as increased education, income, and lifestyle change, the more developed the convenience and efficiency of direct marketing. Consumers can use the telephone or mail to buy household necessities to luxury goods. 5. Advantages Of Direct Marketing. The main advantage of direct marketing is the ease of breaking into the business and needs a small capital. Any person may come in the direct marketing business without a business license and complex skills and educational requirements necessary. Besides the ease to enter the business, capital requirements needed to enter in direct marketing effort is also minimal. Not required large facilities, shops, or the number of employees big to fit in the direct marketing business. Capital required is usually used for printing, posting, and other lists. All this can be done as a part-time business until the business generates cash flow that can support management efforts. This is different to other new business that requires hard work and the full attention of entrepreneurs. Direct marketing business also enables entrepreneurs to enter the market quickly. Products and services can be tested to determine customer interest with minimum cost. If a particular product or service works, supply can be easily expanded to meet the potential demand of that particular product. - Important Considerations Starter As is the case with the new venture, entrepreneurs need to solve these important issues. Entrepreneurs can start a business marketing direct part-time with a small capital. An important problem with This small overhead is the use of post office box or address road, whether allowing the use of credit cards, and use duty-free shipments. Street address will give credibility to uasaha-new business and because it is the goal itself that should be given priority. Local street address allows customers to view products up close. The use of credit cards increase yield potential. He also adds credibility and gives comfort to the customer. This may be important for expensive products because it allows customers to finance the purchase. The use of duty-free items may increase spending for self-employed. However, this will improve customer response because it easier to order. 6. Alternative Techniques Direct Marketing. A number of alternative strategies can be used by entrepreneurs on the efforts of beginners. 1. Classified advertising (classified advertising). The simplest approach and is not expensive for the entrepreneur is selected ads in newspapers and magazines. Magazines or newspapers should be identified that will achieve market products / services that are appropriate. Classified ads can bring high profit results. 2. Display advertising (display ads). This type of advertising allows entrepreneurs to buy the columns in magazines or newspapers. He gave the opportunity to explain clearly about the description of products / services. Besides, discount coupons can be inserted in the ad so that customers can cut it to send with your payment. 3. Shipments direct mail (direct mail). This technique allows entrepreneurs to send materials directly to prospective customers. This technique should be used when there are product and market segments clearly. 4. Catalog sales (catalog sales). Catalog printing quality is a very expensive investment for entrepreneurs. Although this is easier than selling in retail stores. Catalog should stimulate the interest of customers. The advantage is that the catalog allows repeat sales because the catalog may be stored for use in the future. 5. Direct response marketing media (media directy renponse marketing). Radio, television and telephones may be used as an alternative approach to marketing products or services. Radio and television advertising is seen as a form of broadcast media. In buying broadcast time rather than space, as advertising displays, entrepreneurs face a different problem. In buying time, no schedules available, which complicates planning. These costs will vary, depending on the time, station, ad length, and size of the listeners and viewers who might be achieved. Tele marketing is also a method of selling products or services that are very popular. The costs can be reduced to a minimum but still achieve a broad audience and viewers. Tele marketing advantage is that which gives immediate feedback to the user. So a higher response rate than other methods. Entrepreneur can identify communities with a telephone conversation by demographics to people who might be great to buy products / services. 7. Multi Level Marketng. Understanding and How to Work MLM. One way the company to penetrate the market quickly is with a system of multilevel marketing (multi level marketing). MLM is marketing systems that rely on direct sales (direct selling) through a network of distributors who formed a chain, in where every distributor who recruited and hired is always something to do calculation of commissions and bonuses. The aim of multilevel marketing system This is to spread the product and supply distributor as well as consumers. Due to product marketing is done directly to consumers, the success of marketing activities is depending on the number and ability of the distributor in selling. Besides the success of an MLM is also determined by the quality of products and services, ie products that meet consumer desires, familiar with health and environment, and of course the distributor must follow the rules of the game business MLM company. Judging from the manner and place relate to consumers, businesses retail can be divided into two: store retailing and non-store retailing. Supermarkets, convinience stores, department stores, super stores and show catalog rooms including retail stores, which means consumers come to shop to shop. While that including non-store retailing direct marketing responses, such as mail order katalogs, telemarketing, and so forth. Both stores and non store retailing strengths and weaknesses of each. MLM included in the in home selling, just merge, sort and select strength of the two groups and cover up its weaknesses. In conventional marketing systems and products of the plant must go through line single agent, agent territory, city agencies, wholesalers, shops and stalls, new to the consumer. Each unit involved issue cost and benefit of the magnitude of the different eventually become a burden for consumers as the cost of distribution. Cost higher distribution mainly contributed at the retail level. In MLM path relatively short. Goods are distributed from factory to a single agent, then through the members (distributors) to consumers. Thus, cutting the costs that occur on conventional distribution channels. How MLM, it is also different from other direct sales system. MLM is different because of factors seem more stressed consumers and distributors as a source of corporate life. "Without the customer and the distributor, the company nothing because they are an integral part of the company's business," according to a culture that developed in the MLM system is to maintain relationships with distributors and consumers. MLM salesperson called the distributor is self-employed independent, which has given management training, kewiraniagaan, product knowledge and disipil themselves, to then be taught in new distributors he sponsored. However, distributors This is not an employee of MLM!. If someone is interested in becoming distributor, he can apply directly to the MLM company and then trained. Because distributors are not employees of the company, he shall capable of autonomous in running its business. Income from gains on foreign distributors selling price and the purchase price, plus a bonus of progressive achievement of sales distributor network, including the sponsoring downline (distributors sponsors). The calculation of income is calculated by a mathematical formula that stimulates increased sales and expansion of the network simultaneously. To ensure this income calculation and apply the MLM company that provides computerized monthly reports to the distributor of the results achievement. Meanwhile, to give peaces of work for distributors, MLM companies guarantee their products cannot be bought from other general retail stores. Price war between the distributors will not happen because the selling price set by the central office MLM companies. Financial Statements and Manufacturing Importance of Financial Statements Accounting plays a critical role in decisionmaking. Accounting provides the financial framework for analyzing the results of an executed set of decisions and makes possible the continuous success of a business or improvement in operations. Secondly, accounting provides much of the necessary information needed in making good decisions. Thirdly, the management accountant provides a knowledge of basic decision-making tools that helps find the best alternative in decision-making. It is the accountant’s knowledge about preparing financial statements and his or her abilities to analyze and interpret financial statements that makes the controllership function in a business so valuable to management. However, it is also important for management to have a fundamental knowledge of financial statements, particularly regarding the analysis and evaluation of financial statements to make decisions. A primary objective of a business is to increase the assets from operations. By operations is meant all the revenue and expense transactions of a business for a defined period of time. Since the excess of revenue over expenses (net income) increases the equity of a business, it is often said that the primary objective is to increase stockholders’ wealth, assuming the business is a corporation. The success of a business in financial terms, then, depends on how well management manages revenues and expenses. In other terms, the decisions that management makes concerning the operations of the business are of paramount importance. Management has the responsibility to make the kinds of decisions that generates net income. Revenues are the inflow of assets caused by the operations of the business. The term revenue necessarily implies increases in assets. If a transaction does not cause an increase in an asset, then that transaction is not a revenue transaction. Following is a list of several types of items that fall under the category of revenue: Revenue Sales Interest Income Rental income Asset Inflow Cash or Accounts receivable Cash or interest receivable Cash or rent receivable Expenses are the outflow of assets from the operations of the business. Expenses are caused by activities necessary to generate revenue. When revenues exceeds expenses as is the goal, the difference is called net income. If a transaction does not cause a decrease in an asset, then that transactions is not an expense. Following is a list of several expenses and the asset decrease associated with that particular expense. Expense Cost of goods sold Salaries Supplies expense Depreciation, building Asset outflow Prepaid insurance Expired life of the service value Supplies Expired cost of a building Technically, the asset outflow associated with salaries is not cash. Payments are made to workers and other employees because they create something of value. In more technical terms an expense is the expired value of an asset. A janitor is paid to clean floors. The thing of value acquired is a clean floor and as long as the floor remains clean, it is something of value. However, when the clean floor becomes dirty again, then the value of the clean floor asset has expired. Because many assets have a very short life, the accountant often simply records the expense even though the value of the assets at the time of recording has not yet expired. Often the acquisition of an asset is not paid for immediately and the amount then owed is called a liability. Liabilities are debts or obligations to pay at some future date and are a common form of financing in a business. There are three primary sources of assets in a business: (1) revenues (2) liabilities (3) capital. The five key words from an accounting viewpoint and also from a management viewpoint are assets, liabilities, capital, revenue, and expenses. In one sense, the purpose of management is to make asset, liabilities, capital, revenue, and expense decisions. Since the income statement shows revenues, expenses and net income and the balance sheet shows assets, liabilities, and capital, we can say that the purpose of management is to manage assets, liabilities, capital, revenue, and expenses. Stated simply, the purpose of management is to manage financial statements. Because of the importance of sound operations and financial condition, it is critically important for both management and accountants to have a sold understanding of financial statements. While accountants prepare financial statements, it is management that creates financial statements through the decisions it makes. Because of the importance of financial statements, the rest of this chapter is concerned with presenting the fundamentals of financial statements for a manufacturing business. The four financial statements of critical value in this text are as follows: 1. Balance sheet 2. Income statement 3. Cost of goods manufactured statement 4. Statement of cash flow Financial statements are based on well defined accounting concepts and standards, some of which are fairly technical and require some concentrated study to learn and use. The following is a list of accounting terminology and concepts important in understanding financial statements for a manufacturing business. Cost of Goods Manufactured Statement Material used = materials (beginning) + material purchases - materials inventory (ending) Cost of goods manufactured = materials used + factory labor + manufacturing overhead + work in process (beginning) - work in process (ending) Income statement Cost of goods sold = finished goods (beginning) + cost of goods manufactured finished goods (ending) Finished goods (beginning) plus cost of goods manufactured is often called goods available for sale. Net income = sales - cost of goods sold - operating expenses The difference between sales and cost of goods sold is often reported as gross profit. Balance Sheet Assets = liabilities + stockholders’ equity Assets = current assets + fixed assets + other assets Liabilities = current liabilities + long-term liabilities Stockholders’ equity = common stock + premium/discount on common stock + retained earnings Statement of Cash Flow Change in cash = sources and uses from operations + sources and uses from financing activities + sources and uses from investing activities. While the above equations may seem a bit complex and imposing, these relationships still, nevertheless, form the foundation of financial statements for a manufacturing company. Since it is critical that managerial decision-makers understand and use financial statement information, it is essential that the serious student of management understand these basic financial statement relationships. A complete set of financial statements for the last period of operations may be found in chapter 9 of The Management/Accounting Simulation. FUNDAMENTAL OF ACCOUNTING IB FINANCIAL MANAGEMENT IA LAW ON OBLIGATION PHILIPPINE TAX SYSTEM PRICING STRATEGY INTEGRATED MARKETING PROFESSIONAL SALESMANSHIP ENTREPRENEURSHIP FRANCHISING AND DIRECT MARKETING MARKETING ANALYSIS SERVICES MARKETING MARKET RESEARCH TEAM SPORTS CUSTOMER RELATIONSHIP MACROECONOMICS CREATIVITY INNOVATION HUMAN RESOURCES MANAGEMENT PRINCIPLE OF MARKETING PARTNERSHIP AND CORPORATION PRINCIPLE OF MANAGEMENT