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.
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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:
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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.
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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:
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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.
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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.
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Effects of Obligation
The duties of the debtor
In the delivery of a determinate thing, which is identified by its individuality:
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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:
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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:
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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:
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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:
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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:
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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:
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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:
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Divisible obligation - the prestation can be partially performed.
Indivisible obligation - the prestation cannot be partially performed.
According to the value of the prestation:
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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:
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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
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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)
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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:
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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:
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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.
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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:
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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:
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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:
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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:
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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
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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:
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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:
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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.
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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.
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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