MARKETING FLOW CHART SHOWING THE CHANNELS OF DISTRIBUTION
FACTORS TO CONSIDER WHEN CHOOSING A CHANNEL OF DISTRIBUTION
Nature of Product. Perishable products like milk, vegetables and expensive items like gold
require direct distribution channels.
Reliability of a channel and its image. Choose a channel that provides and avails products
to customers whenever need arises so as to encourage repeat purchase.
Cost Effectiveness. Choose a channel that is less costly and reduces the total price of your
product.
Location of target customers. If customers are near, the business direct distribution
channels is more appropriate than any other channel where customers are far and dispersed.
Availability of storage facilities. If producers, wholesalers and retailers have storage
facilities, the customers can buy from any depending on their convenience.
Nature of the market. When the market area is small, direct selling is preferable and for
bigger markets, other channels are appropriate.
Nature of customers. Customers who need credit and home delivery enables entrepreneurs
use direct distribution channels.
Nature of the business being operated. A single product firm uses a longer channel of
distribution so as to reduce the cost of delivering goods directly to customers.
Availability of middlemen. If middlemen are not willing to provide transportation and
other sales services then direct distribution is adopted.
Degree of competition. In highly competitive environments, entrepreneurs use longer
channels that can cover a wide area.
REASONS FOR CHOOSING AN EFFECTIVE DISTRIBUTION CHANNEL
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To maximize sales
To maximize profits
To minimize costs
For being convenient to operate by both the entrepreneur, seller and to the customer.
Qn: You are producing beverages on a Large Scale.
(a) List the channels of distribution you use in your business
(b) Give reasons for choice of these channels
(c) Draw a marketing flow chart of your business.
METHODS OF SALES PROMOTION
(A) ADVERTISING
This refers to giving information about a product to the prospective customers to
make them more informed and interested in buying it.
Ways of Advertising for small business/ firms
 Print media. This includes advertising in Newspapers, magazines, direct mail and
posters.
 Broadcast media. This involves advertising over the Television and radio stations.
 Out of home media. This form of advertisement uses Bill boards, sign posts, neon
signs, handouts, banners etc.
 Direct marketing activities. This uses telephones or direct contact of the seller and
buyers.
 Other advertising media. These include, brochures, price lists, trade fair and
exhibitions and use of a directory, business cards, photographs etc.
 Window display. Neat and attractive arrangement of commodities for sale in
windows of the seller’s premises.
 Advertising on the side of vehicles and bags. Firms name and Product are printed
on polythene bags and on vehicles.
Importance of advertising to an entrepreneur
 Increases demand for the product being advertised hence increased sales and more
profits to the business.
 It creates awareness to customers about the existence of entrepreneur’s products and
new futures of the product.
 In increases the market share which leads to business expansion and economics of
scale.
 It reminds the customers of existence of certain goods and this boosts the sale in
areas where demand was declined due to lack of knowledge.
 It encourages frequent use of a product which enables entrepreneur to retain market
share
 It bridges the gap between entrepreneur and customers through press phone call etc
which eventually proves on relationship.
Factors to consider when choosing the medium of advertising
 Cost of the media. select the advertising media like radio, posters etc. that are cheap
and affordable in order not to affect the business profits and have those that are
expensive like television, newspapers, etc.
 Target customers. If adverts is targeted to the rich use television and magazine and to
ordinary people one uses radio, signposts, poster, banners, etc.
 Age group of customer. If you are targeting youths use television and magazine and
the adults mostly prefer listening ones radio, reading newspapers etc.
 Speed and urgency of information. If entrepreneur wants to sell goods very fast
urgent and speedy medium like radio, television and daily newspapers are
appropriate to appeal to audience.
 Geographical area to be covered. If to adult to cover wide area regional newspapers
or radio if used and for a small area use posters etc.
 Media used by competitor. Use a better media from that of competitors for a
competitive advantage.
 Availability of the medium. Use media that is available and affordable by business.
 Channels of distribute, use media that is in line with or in favor of the distribution
channels e.g. media that can mention entrepreneur, whole sellers, retailers and
agents.
Forms of after sales service
 Free of charge repair for a specific period e.g. 6months, 1year etc.
 Cleaning and servicing of equipment’s at regular intervals free as at very reasonable
rates
 To provide technical advice regarding the use of equipment in case a customer has a
problem
 To ensure availability of spares,
Reasons for the design for the promotional programe
 To introduce new products to the market.
 To make customers aware of the existing products.
 To retain the market share of the business products.
Role of middle men in chain of distribution
 Advertising. They make buyers and sellers aware of the available goods they are
interested in.
 Minimize transport expense. They facilitate movement of goods from producers to
final consumers.
 Stabilize prices. They regulate flow of goods from producers to consumers hence
stabilizing the market price.
 Financing the business. Middle men like wholesalers finance the business by paying
promptly to the producers.
 Information. Facilitate the flow of information from producers to consumers as
regards change in demand, fashion, taste, output, quality and prices.
 The producer is saved from burden of setting up depots, distribution centers, ware
houses etc.
 Meddle men are in better position to deal with customers that producers.
 They provide customer services like delivery, credit warranties and guarantee to the
customers.
 They avoid the risks involved in selling small quantities to the consumers e.g.
breaking the bulky.
Reasons for sales promotion
 To remind customers of existence of the product.
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To increase consumer awareness of a product e.g. newly launched products.
To encourage increased purchases by existing consumers.
To demonstrate superior qualities of a product compared to that of competitors.
To correct misleading reports about the product.
To develop the public image of the business rather than the product.
Other methods of sales promotion
 Renovation of building. Is improving /uplifting the quality /sale value of building to
look more attractive.
 Sponsorship. Entrepreneur sponsors different activities like games, where business
products are talked about e.g. MTN sponsors football and Coca-Cola sponsors
musicians.
 Politeness to customers. Handling customers with care and in a friendly manner.
 Public relation. Is the deliberate attempt by business to ensure public informed about
its trading and other activities.
 Offering price reduction. Seller slightly lowers the prices of his products so as to
boast his sales
 Personal selling /creative selling
Disadvantages of personal selling
 It is an expensive method of sales promotion and does not guarantee high returns.
 It is self-sufficient and it has to be supported with other forms of promotion and
advertising.
 The resulting costs incurred are passed on to consumer in form of increased prices.
 It appeals to very few people at a time.
 Specialized training result in higher overhead costs.
 It appeals to very few people at a time.
 Sales persons pressurize customers to buy products they never wanted to buy with an
aim of earning commission.
 In denoted sales persons may not stimulate demand for the product.
 Success in sales largely depends on personal attributes of sales person.
 Resources like funds, vehicles allocated to sales persons can be misused and abused.
Objectives of pricing
 To target market share by setting an attractive price.
 To maximize short run profits, charge a high price.
 To maximize long run profits charge a low price.
 To stimulate growth of the business by charging low prices that increase volume of
sales.
 To target return on investments through charging high price.
 To maintain price leadership arrangements by merging the price.
 To discourage entrants by charging low prices.
 To stabilize the market by charging a competitive price.
 To speed exit of small firms by charging lower prices
Factors affecting price decisions
 Cost of product. Where costs are high the small price will also be high and vice
versa.
 Demographic factor. Decision to set a certain price is affected by number of
customers(population), there location, economic strength and consumption habits of
potential buyers
 Level of consumption. Producers of similar products charge competitive prices if
competition level is high for low level if competition of high price is set.
 Government influence, government sets prices for essential goods.
 Channels of distribution. Where a product is sold through direct channel, a high
price can be paid by consumers.
PRODUCTS
Product refers to a good or service that is offered to the market.
Types of products
 Goods are tangible items which have utility and sold by businessmen.
 Services. Are intangible things
Development. Is developing an idea and testing it.
Introduction . Is a stage at which product is put to the market on sale. At this stage
sales grow slowly, informative advertising is used until product becomes known.
 Growth. Sales start to grow rapidly, advertising is changed to persuasive advertising,
firm begins to make profits, revenue begins to outweigh costs, prices are reduced a
little as new competitors enter the market, competitors try to take some of your
customers.
Maturity. At this stage
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Sales increase slowly
The stage last for years
Competition is high
Market becomes saturated as there is too many firms competing for customers
Decline stage. Here
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Sales decline steadily.
The product lost its appeal.
Products will be withdrawn from the market.
Prices for products become so low.
Products becomes un profitable
Withdrawal stage.
 Very low sales
 Losses are incurred.
Causes for the decline in sales of a given product
 When product reaches a level saturation. Is when many competitors producing many
same goods resulting in decline in sales.
 When there is introduction of substitute products, sales for previous product in
market decline.
 When cost of production, distribution etc. exceeds sales revenue.
 When quality of product is poor/low.
 When the price is set too high so that customers cannot afford.
 Changes in fashion, color, shape, design etc. of substitute goods.
 When the product has out grown and resources used to produce this product has
been changed to other uses
 When market share has reduced compared to other competitors i.e. decline in market
share.
Ways of increasing sales of declining produce
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Demulsifying uses of the produce. Adding more function
Proper branding of product, distinguishes it from the rest.
Carrying out sales promotion campaign.
Reducing prices slightly
Widening the target market i.e. broaden customers.
Changing the distribution channels.
Add more value to the product e.g. new model in case one realized additions
(textbooks) etc.
Appropriate technology refers to technology which is most suitably adapted to the
conditions of a given situation. Its technology that is compatible with human, financial and
material resources that surround its application.
Characteristics of appropriate technology
 Suitable enough to be used by people who have limited education and skills. It does
not require much specialized training.
 Low cost. Should not depend on expensive materials that are imported. It has to use
the available resources and how energy cost.
 Adaptation to the surrounding condition. It has to be different in each application.
 Flexible or adaptable to the changing needs of the community.
 Should be acceptable to the people who are going to use it. People have to be willing
to use the technology.
 It has to bring about change.
Financial planning in business
Refers to determining how best the available money can be used to satisfy all the
business needs
Business operations (needs) that involved use of money.
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Production
Marketing
Personnel
Administration
Capital. Refers to initial amount of money used to finance the business and other
factors of production.
It is contributed by owner from his personnel resource or by borrowing.
Types of capital
1. Capital owned/owner’s equal to/net worth
Refers to funds that belong to owner at a given date. It consists of amount of funds
increased by owners directly from personnel sources plus net profit is minus net loss
made by the business minus. Drawings made by owners so, capital owned =initial
capital +net profit – drawings net loss.
2. Working Capital.
Is the excess of current assets over current habits. It’s the amount available to meet
its day to day expenses of running the business / refers to possession of a business
held for a short time and used to finance the day to day running of the business e.g.
Raw materials, fuel, supplies of stationary, stock of finished goods etc.
Working capital =current assets – current habits
Current assets.
These are possessions of a business that stay in the business for a short time and are
all used for creating business wealth e.g. cash, bank, stock, debtors, bills receivable
etc.
Current liabilities. Refers to short term debts of a business which it has not yet paid
to those who supplied it with goods or services e.g trade creditors, bills payable,
bank overdraft, short term loans etc.
3. Capital employed.
Is the total sum of the funds (money) invested in business from all the
sources.
Capital employed = fixed assets + working capital
4. Fixed Capital / Assets
Refers to total amount or resources/ money held up in permanent asset of the
business. It is property held for continuous use in business usually for more
than one year e.g Land, building, machinery and equipment, vehicles,
furniture etc.
Fixed Capital = Total of all fixed assets of a business / loan capital/ longtime
liability.
5. Borrowed Capital
Refers to funds borrowed from external sources for a longtime basis usually
more than one year e.g. bank loans, mortgage loans, and debenture.
6. Circulating Capital
Refers to money (funds) invested in form of stock, debtors, cash balances i.e.
total value of current assets.
FACTORS TO CONSIDER WHEN ESTIMATING WORKING CAPITAL
REQUIREMENTS OF BUSINESS
Size of the business. Large business require more working capital than small ones since
they have more obligations to meet in terms of raw materials, labor costs, fuel,
administrative expenses etc.
Nature of business. Some businesses like professional auditors, dressing saloons, requires
low level of working assets compared to a large manufacturing business that require high
level of working capital.
Length of Cash cycle. If the length of cash cycle is high, more working capital is needed
than when the length of cash cycle is short.
Volume of sales. The higher the volume of sales, the higher the level of working capital.
Stability of sales/ revenue. If the firms sales are stable, there is no need for keeping large
sums of working capital and for unstable and unreliable the business will require large sums
of working capital.
Working Capital Requirements
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Raw materials/ stock
Labor Costs
Fuel
Supplies of stationery
Spare parts
Basis for accessing the amount for working Capital
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Volume of Sales
Level of Profits
Number of Debtors
Number of competitors in the same business
FACTORS TO CONSIDER WHEN ESTIMATING THE FIXED CAPITAL
REQUIREMENTS OF A BUSINESS
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Size of Business
Nature of business
Length Cash Cycle
Stability o Revenue/ Sales
Costs of fixed assets for example Land, Buildings etc. More money is required to
purchase fixed assets that are expensive than when the costs of fixed assets is cheap.
Examples of working capital requirements of a carpentry workshop for one month
illustrated below.
No
Item
Cost sum
1
2
3
4
5
6
7
Cost of timber
Wages of item in production
Glue, Vanish and nails
Managers salary
Stationary and posters
Fuel and transport
Cash for uncertain of repair
500,000
150,000
100,000
150,000
10,000
40,000
50,000
1000,000
Examples of fixed capital required by a carpentry workshop.
No.
1
2
3
4
5
Item
Land (hiring)
Building (hiring)
Machinery and equipment
Furniture
Motor vehicle
Cash
100,000
200,000
1500,000
1500,000
3,000,000
Total fixed capital requirement
5,300,000
Estimating total capital requirements of the business
Total capital requirements = Food capital +working capital
For a carpentry workshop
No
1
2
Item
Fixed capital requirements
Working capital
Total capital requirements
Capital
5,300,000
1000,000
6,300,000
Sources of capital
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Personal sources. This is from a personal’s own savings or sell of person’s property.
Borrowing. Involves borrowing from friends, banks and other financial industries
like insurance, commercial banks, micro finance etc.
Family contribution. Family contributes capital in terms of money and fixed assets
like land, buildings, furniture, machines, vehicle to the business.
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Trade credit. Is when suppliers offers a trade goods on credit and does not demand
payment till goods are sold. The business is able to make profits which when
accumulated entrepreneur uses it to start and run a business independently.
Fundraising/Grants/Donors. Grants or donation received from organizations like
UWESO (Uganda Women’s Effort to Save Orphans), TASO (The Aid Support
Organization), NSSF (National Social Security Fund) are sources of capital for
many businesses.
Selling Shares. Is when entrepreneurs raise funds by selling shares of his business to
other willing investors and become part owners of business.
Forming partnership. Entrepreneur raise funds by going into partnership until his
friends or other people he knows e.g groups.
Forming Co-operatives. Is where entrepreneurs mobilize s up to minimum of 30
people who start a co-operative by pooling little money and create a bigger sum with
which to start a business.
Gifts and offers. From well-wishers, friends and relatives.
Advantages of using Personal sources
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Allows entrepreneur to make his own decisions, planning and use of money any time
he wishes.
Entrepreneur bears no direct extra costs e.g. interests, negotiation delay and other
inconveniences.
Entrepreneur is complete control one the benefits arising from his business
operations.
Disadvantages of using Personal source
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In the event of failure, entrepreneur loses his personal resources.
Personal sources may be too small to start a viable business.
Entrepreneur bears business risks alone.
Advantages of using gifts and offers
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Free and may not have any direct costs.
They may be up the limited resources of entrepreneurs.
Disadvantages of gifts and offers as source of capital
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They are not reliable since the recipient has no control as to when they will come and
how much will come
They create dependency relationships and unnecessary interference in one’s business.
They may not be timely as they come as an
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They may have strings attached the them which may make them expensive and
inconvenient
They may offer alternative for quality consideration.
Advantages of using a loan.(Borrowed capital)
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Makes extra resources available to entrepreneurs.
Encourages handwork that results from external monitoring and added interest in
business.
It enforces discipline on the part of the borrower due to external monitoring.
Disadvantages of using a loan
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The entrepreneur pays interest and other loan charges which increases the operating
cost.
The loan funds may not be available at the time when wanted.
The repayment obligations may be tight and cause the borrower to have cash flow
problem.
The borrower is subjected to external control over his/her business.
In case of failure to repay the loan, the borrower may lose security pledged to the
lender in addition to the collapse of the funded business.
NB A loan is money either in cash or lend that is sourced from banks, friends wellwishers and other financial intuitions with a view of repaying it back at a later date with
or without interest.
Advantages of trade credit or supplies credit
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It is a same way of obtaining business supplies/raw materials and services.
May not involve interest charges.
Reduces operating costs by doing away with things like sourcing, ordering etc.
Disadvantages of trade credit
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May be associated with higher cost prices particularly where entrepreneur has
no choice of changing to another supplier.
May lead to inferior goods and services