1.1 Introduction to Business Management
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What is a business?
 Decision-making company or organization
 May/may not be for profit
 Involves the exchange of goods and services
 Produce goods and/or provide services
 Exist to satisfy the needs and wants of people, organizations, governments, etc.
 Enterprise – a group of people that tackles an objective, usually profit
 Quality of output depends on quality of inputs
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Main inputs in a business
 Capital
 Amount of money needed to run a business
 Man-made goods like machines, buildings, vehicles, and equipment needed for
business to operate
 Investment – increasing spending on capital
 Land
 Space where a business operates
 Raw materials and natural resources that are used in making a product
 Labor/manpower
 Physical & mental efforts of people to produce products/services
 Enterprise/entrepreneurship
 Management, organization, and planning of other three factors of production
 Actions of entrepreneur who shows initiative and takes risks to set up, invest, and
run a business
Main business functions and their roles
 Human resources
 Manages the workforce and laborers of the company
 Deals with recruitment, wages, communication, and motivation of employees
 Finance and accounts
 In charge of managing the organization’s money and assets
 Ensures accurate recording and reporting of financial documentation (to comply
with legal requirements)
 Marketing
 Ensure that a company’s products sell
 Concerned with identifying and satisfying consumers’ needs/wants
 In charge of promotions, advertisements, etc.
 Operations
 In charge of business functions and processes that produce the actual goods
 Concerned with research & development, delivery, stock management, etc.
Business sectors (or economic sectors)
 Primary
 Involves the harvesting of naturally available resources
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e.g. mining, agriculture, livestock, drilling, and logging
Regulated and protected by the government
Fuels (produces inputs for) the other economic sectors
Example countries: Vietnam, Philippines, Canada, Dubai
Example companies: Philex Mining, Del Monte, Dole
Secondary
 Involves manufacturing of raw products to finished or component goods
 Finished goods – exported or sold to domestic consumers
 Component goods – sold to companies in the tertiary sector
 Example countries: China, Scotland, Japan, Italy, USA
 Example companies: Coca-Cola, Honda, Del Monte
Tertiary
 Involved with service and retail
 Includes retail sales, transportation, entertainment, restaurants, media, healthcare,
banking, etc.
 Exploited in developing countries
 Philippines is a victim of brain drain: where professionals go abroad to look for
jobs making it difficult for companies in the tertiary sector to find the employees
they need
 Relies on the primary and secondary sector for inputs
 Example countries: USA, United Kingdom, Singapore, Hong Kong
 Example companies: JP Morgan, Convergys, Lotte
Quaternary
 Involves intellectual activities or innovation services
 Includes government, education, libraries, scientific research, information
technology, etc.
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Impact of sectoral change
 Change in economic structure (primary to secondary, secondary to tertiary, etc.)
 Industrialization
 When a country moves towards the manufacturing sector as its principal output
and employment (primary to secondary)
 Products become more refined and have more export potential
 Raises the standard of education
 Opens better job opportunities
 Developed nation
 Exploits the tertiary sector as the national output of employment
 Further raises the standard of education
 Examples of effects of shifting to the tertiary sector
 For a labor intensive manufacturer of aluminum cans
 Quality of products improve
 More distributors
 Less employees and higher wages for employees
 Can consider turning to robots and machines, as well as outsourcing
For the owner of a small seaside bed and breakfast
 Easier to find competent employees
 More income due to higher demand
 More competition
 People would rather work for bigger companies
 Can consider expanding
 For a family-owned vegetable farm
 More demand due to more stores
 Opportunity for a “dampa” system
 Less laborers
 Can consider opening a small business or outsource
Entrepreneurship (and the entrepreneur) vs. intrapreneurship (and the intrapreneur)
 Entrepreneurship is the process of starting a business, company, or organization
 The Entrepreneur
 The founder, and usually owner
 Big risk, big reward
 Organizes inputs of production into goods and services (outputs)
 Obtains money, buys the inputs needed and makes decisions.
 Takes risks and provides the vision for the business idea
 Assumes large financial risk
 Provides sufficient resources
 Intrapreneurship is similar to entrepreneurship but is done in an existing organization
 The Intrapreneur
 Is an employee of the organization
 Uses resources of company to undertake projects and therefore risks very little
 Rewarded in the form of a paycheck
 Does not act autonomously like an entrepreneur as he is dependent on other
employees or the organization he works for
Reasons for starting up a business or an enterprise
 Profit – positive difference between revenues and costs
 Fame
 Benefit human welfare
 Very fulfilling
 Family
 Legacy
Common steps in starting up a business and problems new ones may face
 Businesses often start up by looking for market opportunities (market gaps or niches)
 Niche markets are where small businesses can easily compete
 Factors to consider: What questions would businessmen ask about the factors?
 Business idea
 4 business inputs (capital, land, labor, and enterprise)
 Four departments/functional areas
 Possible problems faced by a start-up (either internal or external)
 Internal
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No land to establish a business
Product may not appeal to your location
Lack of manpower
 External
 Terrorists
 Politics or government
 National Calamities
 Limited resources
Business plan
 Report detailing aims and objectives of a business
 Planning tool that serves as a blueprint to address the issues of a startup business
 Meant for investors/banks to help them decide on whether to invest/approve loans
 Elements of a business plan
 Business – name of the business, type of the business, statement of aims and
objectives, details of the owner
 Product – details of goods/services, operations and equipment needed, suppliers,
price
 Market – who you’re selling to, market profile, competition (strengths and
weaknesses)
 Finance – money, start-up costs
 Personnel – employees and workforce, skills
 Marketing – marketing mix employed by business
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1.2. Types of Organizations
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Private vs. Public sectors
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Private Sector
 Goal is to make profit
 Owned, financed and run by private individuals or entities
Public Sector
 Goods and services provided by the government or local authority
 May be free or sometimes with a small fee
 e.g. public hospitals, museums, etc.
Types of for-profit/commercial organizations
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Sole trader
 Business that is completely owned and controlled by just one person
 Simplest form of business
 Owned by a single person who assumes all profits and liabilities
 Advantages
 Little legal requirements for setup
 All the income goes to one man
Less restrictions and easy decision-making
 Disadvantages
 All the income tax is shouldered by one man
 Unlimited liability (owner is the same legal entity as the business) and all the
debt incurred by the business is put on the owner
Partnership
 Company ran by two or more individuals who form a partnership
 Each person contributes money and resources, as well as sharing the
responsibilities of managing a business.
 Turns into a corporation if there >15 partners and will pay corporate tax.
 Has a deed of partnership stating the responsibility of each partner
 Involves presence of “silent” or “sleeping” partners, who do not make decisions,
merely giving money to the business and earning profit
 Advantages
 Liability is spread around
 Range of skills
 Higher capital
 Disadvantages
 Unlimited liability despite being spread out between partners
 Slower decision-making
Private limited company (LTD)
 Shareholders are limited to family, friends, business partners
 Shares cannot be sold to the public
 Type of incorporation
 Owner and company are separate entities
 Results in limited liability
 Registered at the Securities and Exchange Commision (SEC)
 Advantages
 Limited liability – when the company is sued or incurs losses, all a
shareholder will lose is his stock in the business.
 Higher capital, higher capacity for expansion
 Disadvantages
 More restrictions
 Corporate taxes (higher)
Public limited company (PLC)
 Company whose shares are listed on a stock exchange and can be freely bought
and sold by anyone
 Required by law to publish their complete and true financial position
 Type of incorporation
 Must conduct shareholders’ meetings
 An LTD can convert to PLC by offering stock market flotation or an initial public
offering (IPO)
 Advantages
 More capital raised from selling stock
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Limited liability
Continuity after death, freely transferable
Higher capacity for expansion
Disadvantages
 Possibility of a hostile take-over through shares, control can change
unexpectedly and be lost by the original owner
 Much more restrictions
 Corporate tax
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Types of for-profit social enterprises
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Cooperatives
 Organizations that are jointly owned and run by its members who share in
profits and benefits
 Advantages
 Shareholders must be help run organization, work is more spread out
 Equal voting rights/power among all shareholders
 Disadvantages
 Decision-making may be more time consuming or involve more conflicts
 Less profit for each shareholder as it is spread among many members
Microfinance providers
 Microfinance – loan service offered to individuals or groups with no access to
more conventional banking services (unemployed, low-income individuals, etc.)
Public-Private Partnerships (PPP)
 Public corporations are sold-off or transferred to the private sector
 Advantages
 Incentivized to be more efficient and productive
 Government can focus on other projects and infrastructure
 Enjoy the skills and talents of the private sector (can lead to increased
efficiency and productivity)
 Disadvantages
 Services provided would be more expensive
 Prices goes up, government has to subsidize (increase in taxes)
 Aim of profit may lead to cost cutting, lower quality, higher prices
Types of non-profit social enterprises
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Non-profit businesses
 Run not for profit but to benefit the public (especially the marginalized)
 Operational (objective or purpose) or advocacy (promote or defend a cause)
Non-profit organizations (NPOs) vs. non-government organizations (NGOs)
 NPOs
 Does not divide its funds between owners
 Aim is to raise funds and use it for their beneficiaries
e.g. service organizations or charities, Bantay Bata, PGH, PCSO
 NGOs
 Exists in the private sector
 NGOs participate in humanitarian projects, education projects, etc.
 e.g. WWF, UNESCO, Red Cross
Charities
 A non-profit organization that is exempt from taxes
 Deploys its resources for charitable purposes
 May raise funds to reduce poverty or to reduce environmental problems.
 e.g. Caritas Manila, Pondo ng Pinoy
Pressure Groups
 Organized groups that do not run for election
 Advocate certain interests such as environment, sexuality, religion, rights, etc.
 Seeks to manipulate the public or private sector for certain causes.
 e.g. PETA, Greenpeace, Church, LGBT
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1.3. Organizational Objectives
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Vision statement and mission statement
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Vision
 Describes a desired position for the company in the far future (“Where do we
want to be?”)
Mission
 Purpose of business, states what the business is and does
 How the vision statement will be achieved (“How do we get there?”)
Vision and mission statement
 Positive, ideal goals
 Parallel to business
 Customer centric
 Answers:
 Where are we now?
 Where do we want to be?
 How do we get there?
 How do we know we are there?
Aims, objectives, strategies, and tactics
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Aims – long term goals of what the company wants to be
Objectives – shorter term goals that are specific and measurable
Individual targets, departmental objectives, divisional objectives, corporate
objectives, mission, aim (pyramid, base to height is left to right)
Guides and unifies management and workforce
Basis for strategic planning
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Changing objectives and innovations (due to changes in environment)
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Companies change objectives when responding to internal and external changes
Context of company must be considered
Internal factors
 Corporate culture – way the organization works (aggressive, chill, etc.)
 Type and size of organization – small or big businesses run differently
 Age of organization – change must be consistent with times
 Financial status – profit goals, how much money the business has to use
 Risk profile of shareholders – If investors are risk-averse or risk-loving
 Private/Public sector
 Private = profit
 Public = serve
External
 State of economy – strong or depressed economy affects the company too
 Government constraints – government telling you not to expand somewhere
 Presence and power of pressure groups – (e.g. not to expand in the endangered
locations)
Corporate social responsibility (CSR)
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Builds trust and goodwill
Concept whereby organizations consider the interests of society by taking
responsibility for the impact of their activities on various stakeholders
Benefits:
 Better employee recruitment and retention
 Sense of value/purpose for employees
 Boosts company’s image/reputation
 Risk management against scandals, accidents, etc.
 Appeases pressure groups
 Brand differentiation and smoother operations
 Customer loyalty & goodwill
Disincentives:
 High compliance costs can lower profits
 Forced to use materials that are specialized and may reduce profit
 Ethics are not universal or unchanging anyway
 Lower profits may decrease personal bonuses which may lead to greediness
Attitudes change over time; acceptable practices before are unacceptable today.
CSR objectives adapt to changes in social norms/hot issues (i.e. tattoos, dyed hair,
jeans, single parents, gender bias, child labor, smoking, obesity, global warming,
etc.)
SWOT analysis
Qualitative form of assessment
Guides management for future strategies
Used alongside STEEPLE, which helps to further identify opportunities and
threats
 Internal factors
 Strengths – advantages that are basis for developing competitive advantage.
 e.g. experienced management, patents, loyal workforce/customers
 Weakness – negative factors
 e.g. poorly trained workforce, limited capacity, obsolete equipment, etc.
 External factors
 Opportunities – potential areas for expansion of the business and future
profits
 e.g. political/economical policies, social statistics & trends, etc.
 Threats – hindrances to the business
 e.g. economic environment, market condition competitors.
Ansoff Matrix
 Analytic tool to determine growth strategy by focusing on product/market combination
 Growth strategies
 Existing product + existing market = Market Penetration (low risk)
 Seeks to maintain or increase market share
 Price adjustments
 Increase of market promotion
 Minor product improvements
 Intense competition
 New product + existing market = Product Development (medium risk)
 Innovation to replace existing products
 Focusing on consumer needs
 Brand extension
 Capitalize on technology
 Consumers in existing market may not like the new product
 Existing product + new market = Market Development (medium risk)
 New distribution channel
 Expanding geographically
 Attract new market segments
 New consumers may not like the product
 New product + new market = Diversification (high risk)
 If successful, higher gains can be reaped from various industries
 Spreads out risks and safeguards against economic shocks over diverse product
portfolio
 Related diversification (same industry – e.g. McDonalds and McCafe)
 Unrelated diversification (different industry – e.g. Zesto and Zest Air)
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1.4 Stakeholders
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Stakeholders
 People who can be affected by and therefore have interest or stake in actions of the
business
 e.g. shareholder, employees, suppliers, customers, competition, government/state,
pressure groups, etc.
 Stakeholder Concept – priority to stakeholders rather than shareholders
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Interests of internal stakeholders vs. interests of external stakeholders
 Internal
 Employees
 Employment security, wage levels, conditions of employment, participation in
the business
 Managers
 Employment security, salary and benefits offered, responsibilities given
 Shareholders
 Owners of shares in the company, have decision-making power, receive
dividends (share of profit)
 Annual dividends, share price, security of investment
 External
 Suppliers
 Speed of payment, level and regularity of orders, fairness of treatment
Customers
 Value for money, product quality, quality of service
 Government
 Job creation, tax payments, value for output produced, impact on wider
society/economy
 Special Interest groups (SIGs)
 Banks, creditors, pressure groups, local community, trade/labor union
 Care about individual interests: payment of debts, environment, etc.
 Competitors
 Fairness of competitive prices, strategic plans of the business
Stakeholder conflict
 Not possible to satisfy all stakeholders all the time
 Conflict will always arise from new developments, business activities, etc.
 Stakeholder conflict resolution
 Arbitration
 To resolve industrial disputes between workers and managers
 Advantage
 Both sides agree to an independent arbitrator who will decide th
 Disadvantage
 Neither stakeholder group will likely receive what they want
 Decision is binding
 Workforce Participation
 To improve communication, decision-making and reduce potential conflicts
between employees and managers
 Advantage
 Gain cooperation of workers – better motivated and involved
 Disadvantage
 Waste of time and resources to be able to get all information
 Profit-sharing scheme
 Reduce conflict between workers and shareholders over allocation of profits and
benefits
 Advantage
 Sharing profits can encourage workers to work in ways that will increase
long-term profit
 Disadvantage
 Reduces retained profits and/or profits paid out to shareholders unless the
scheme pays off
 Share-ownership scheme
 To reduce conflict between workers , manager and shareholders
 Advantage
 Provides share options; employees and shareholders benefit and aligns their
interests with one another
 Disadvantage
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Administration costs, decreased ownership, qualification constraints may
limit motivation
Stakeholder Map
 A tool to analyze which stakeholders to prioritize for a given issue, mapped in a grid
classifying stakeholders in terms of interest and power
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1.5. External Environment
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STEEPLE
 Business tool for understanding a business’ external environment
 Looks at the market potential and situation
 Stands for Social, Technological, Economic, Environmental, Political, Legal, and Ethical
analysis (of the industry)
 External environmental factors are analyzed in decision making and strategy
development because they can heavily influence the business
 Social
 Attitude of society towards wide range of issues
 Population demographics (more young/old, more women/men, etc.)
 Roles and attitudes of people
 Cultural and religious beliefs
 Security and education
 Technological
 Use of tools and machines
Information technology
Innovations in technology
 Economic
 State of the economy
 Interest and tax rates
 Exchange rates and foreign relations
 Inflation rates, unemployment rates, etc.
 Environmental
 Abundance of natural resources or raw materials
 Threats from nature (or natural disasters)
 Waste disposal/recycling
 Political
 Laws (employment, consumer, business) & policies (fiscal and monetary)
 Changes brought about by new government
 Possible effects of political unrest
 Legal
 Employment or contract laws
 Trade unions
 Environmental protection regulations
 Ethical
 Client confidentiality
 Bribery and other forms unethical (and possibly illegal) business transactions
 Fair competition
How changes in STEEPLE factors affect a business’s objective and strategy
 Changes in trends, social norms, public opinion, views on ethics can affect the
company’s products, business activities, and the way they market their products
 Changes to legal or political factors may force businesses to change the way they
operate to comply with new laws or regulations
 Changes to technological factors could result to the company adopting newer
technology or machinery to increase efficiency or keep up with industry standards
 Changes to environmental factors could force companies to adapt to scarce raw
materials, frequent natural disasters, etc.
 Changes to economic factors (economic growth, interest rates, etc.) could affect the
costs of operations of the business, spending attitude of consumers, etc.
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1.6. Growth and Evolution
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Economies and diseconomies of scale
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Scale of operations/business
 Maximum output that can be achieved using available resources
 Scale can only be increased in the long term by employing more of all inputs
 Producing more =/ increasing scale of production
 Increase scale of operations attains economies of scale
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Economies of scale
 Increase in efficiency of production as the number of output increases
 Average cost per unit decreases through increased production
 Fixed costs are spread over an increased number of output
 Cost per unit = (total variable costs + total fixed cost) ÷ units produced
 Importance: customer enjoy lower prices due to the lower costs which in turn
increases market share or business could choose to maintain its current price
for its product and accept higher profit margins
 Types of economies of scale:
 Internal – achieved by the organization itself
 Purchasing (bulk-buying) economies
 Wholesale discounts
 Technical economies
 Investing in technology to reduce costs
 Financial economies
 Easier for large companies to receive loans from banks
 Marketing economies
 More efficient to advertise a large number of products
 Managerial economies
 Larger firms are able to hire specialists who help improve efficiency
 External
 Improved infrastructure (e.g. transportation)
 Advances in the industrial efficiency due to better training, innovations
in processes/machinery, etc.
 Growth of other industries that support the organization
Diseconomies of scale
 Economies of scale have peaks, if this point is passed, diseconomies of scale are
experienced
 Can occur when a company or even the whole industry becomes too big and
unit costs begin to increase rather than decrease
 Possible due to:
 Communication problems leading to poor coordination
 Overworked machinery and laborers
 Alienation of workforce and slower decision-making (for larger businesses)
 Diminishing marginal returns
 Decrease in the marginal (per-unit) output of a production process as the
amount of a single factor of production is increased, while the amounts of
all other factors of production stay constant
Small vs. large organizations
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Importance of small businesses
 Small firms create jobs
 Small businesses are often run by dynamic and innovative entrepreneurs
Provides competition for big business
Supply specialists goods and services for specific industries
Small firms can become big businesses in the future
Advantages
 Small business
 Easily managed & controlled by the owner
 Quicker to adapt to changing customer needs and feedback
 Offer personal service to customers
 Establishes better employer-worker relationships
 Large business
 Can afford to employ specialist, professional managers
 Benefit from more economies of scale
 More access to varied sources of finance
 Can diversify in several markets, thus spread out the risks
 Can afford more formal research & development
Disadvantages
 Small business
 Can’t afford to employ specialist, professional managers
 Doesn’t benefit from more economies of scale
 Less access to varied sources of finance
 Can’t diversify in several markets, thus spread out the risks
 Can’t afford more formal research & development
 Large business
 Difficult to be managed & controlled by the owner
 Slower to adapt to changing customer needs and feedback
 Can’t offer personal service to customers
 Establishes poorer employer-worker relationships
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Internal growth vs. external growth
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Internal/organic growth
 Occurs when businesses grow using its own resources to increase the scale of its
operations and sales revenue
 Methods used to achieve internal growth:
 Change of pricing strategies
 Increase advertising and promotions
 Offer flexible financing schemes
 Improve and innovate the product or service
 Sell in different locations
 Increase capital expenditure on production and technologies
 Train and develop staff
External/inorganic growth
 Occurs through dealings with outside organizations
 Vertical integration
The main business takes part in the primary, secondary, and tertiary aspect
of business
Horizontal/lateral integration
 Businesses unify under the same industry
 Between firms who have the same operations, but do not necessarily
compete with one another
 e.g. Ford bought Jaguar, Ford is low to mid class while Jaguar is high class.
They don’t compete and when they merge they now cater to a bigger
market
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External growth methods
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Conglomerate mergers, takeovers, or acquisitions
 Amalgamation of two businesses that are in completely different markets
 Results in dissolution of original business entities in favor of forming a new one
 Reasons for mergers:
 They want to increase revenue
 Fight the rising of prices together
 Increased customer satisfaction (new and better content)
 Bigger market
 Reasons for failure:
 The companies could not synergize
 The competition was stronger than the merged business
 Conflicting cultures
 Poor management and leadership
 Poor timing/recession
Joint ventures
 Two companies join for a specific undertaking and set-up a new legal entity
 e.g. Sony + Ericsson = Sony Ericsson
Strategic alliances
 Like a joint venture, but NO new legal entity is created (only for a specific
project or product)
 Profit is split between the two companies
Franchising
 An individual buys the right to operate under another business’ name
 Can be offered individuals or large businesses
 Franchisee pays a franchise fee (royalties and supplies) and is given a license to
operate by the franchiser
 Franchisee is a different type of entrepreneur – much less risk compared to the
normal entrepreneur
 Franchiser provides marketing, training and equipment to set-up
 Support to ensure business will have a good chance of success, retain good
brand image, and maintain standard of product/service quality
Franchiser may take a portion of profits and has a say on how the business
should be run
Franchisor
 Benefits
 Grow cheaply and quickly
 Less manpower to directly manage
 Income from franchise fee, royalties, and supply purchases
 Downside
 Not easy to revoke
 Less control over quality or performance of franchise
 Conflict in profit vs. volume
Franchisee
 Benefits
 Known brand results in strong start-up sales
 Support from franchisor
 Easy financing options
 Lower cost of supplies because of economies of scale (though
sometimes the franchisor charges high for supplies)
 Downsides
 Little freedom/flexibility in running
 Franchise/start up fee may be too costly
 Bad management in headquarters affects all branches
 Still not guaranteed success
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Globalization
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Expansion of a business worldwide
Contributing factors:
 Advancement in technology – reduced cost of production and information
interchange
 Trade liberalization and deregulation – easing of government rules, trade
barriers, tariffs
 Multicultural awareness – appreciation of foreign culture means consumers may
patronize products from other countries
 Language – ease of communication
Multinational corporations (MNCs)
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MNCs are businesses with operations in two or more countries.
Advantages:
 Expand customer base beyond the domestic market
 Achieve greater economies of scale
 Work around government barriers to imports
 Access to cheaper or more abundant raw materials and labour
Spread risks in any one market through diversification
Impact on domestic businesses of a host country
 Increase competition which increases customer expectations
 Drive up expenses and costs for local businesses
 May dominate particular markets and distribution channels
 Allows local businesses access to foreign capital and shareholders
 Can provide R&D, and technological advancement for local businesses
Impact on economic & socio-political conditions of host country
 Economical
 Foreign direct investments
 More options for consumers
 May threaten local industries
 Develop high-tech industries
 Balance of trade (exports > imports)
 Employment
 Job creation with new skills
 Unemployment when workers are displaced in local industries
 Sociological Impact
 Change in behavior, consumption patterns and lifestyle
 Environmental Impact
 Utilization of resources
 Increase waste
 Possible environmental degradation (leading to climate change)
 Political
 Calls for stabler policies (e.g. deregulation, removal of trade barriers)
 Public-private sector partnerships
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1.7. Organizational Planning Tools (HL only)

Decision-making
 Types of decisions
 Operational (daily) – policies, practice, rules, set procedures, etc.
 Tactical (regular/short term issues) – handled by management regarding their
respective departments
 Strategies (long term) – high level decisions made by top management on new
directions, growth, and issues affecting the entire organization or with long term
consequences
 Types of decision-making
 Intuitive decision-making
 Making decisions based on instinct or gut-feeling
 Less costly and time consuming
 May sometimes be considered as irresponsible decision-making
 Scientific decision-making
Basing decisions on a formal framework and data analysis
Greater chance of success
Takes longer and can be expensive
 Decision-Making Framework
 A guide or model that involves following certain steps to make the best and
most appropriate business decision in a given situation
 In a simple decision-making model, the following steps may be done:
 Identify the business problem, concern or issue
 Gather sufficient data and information
 Analyze data and information to produce a list of possible options
 Assess the costs and benefits of each option
 Select the most favorable and realistically achievable option
 Communicate this decision to the staff
 Review and evaluate the outcome, i.e. did it help the organization’s
objectives and what lessons were learned?
Fishbone/Ishikawa Diagram
 Cause and effect diagram developed by Prof. Kaoru Ishikawa
 Can usually be broken down into 6Ms (but not limited to)
 Machine
 Mother Nature
 Manpower
 Money
 Market
 Materials
 And usually into the 4Ps (but not limited to)
 People
 Policies
 Paraphernalia
 Procedure
 Stages of Fishboning
 Agree on the problem and write this on the right as the EFFECT.
 Brainstorm the main categories or generic ones (6Ms or 4Ps) = main bones
 Brainstorm all of the detailed reasons why problems might occur = small bones
 Analyze findings and investigate the main causes of the problem
 Recommendations for the improvement of the business based on the constructed
diagram.
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Decision tree
 Quantitative decision making tool representing available options to a business and
showing probable outcomes
 By comparing likely financial results from each option, the manager can minimize risk
and maximize returns
 Constructing a Decision Tree
 Decisions nodes (squares) and chance nodes (circles), representing the outcomes of
a decision
 Probabilities are shown with each possible outcome
 Economic returns are expected financial gains or losses of a particular outcome
 Expected Value
 Likely financial result of an outcome.
 (Economic return – costs) * probability
 Net EV is calculated from right to left
 Limitations
 Limited by the accuracy of the data used – estimate or guesstimate date and
outdated probabilities
 Merely aid the decision making process, but they cannot replace the
consideration of risk or the impact of qualitative factors

Force field analysis
 Decision-making tool that looks at helping or hindering forces towards a plan
 Analyzes factors that support and oppose the plan to decide whether or not to push
through with it
 Constructing a force field analysis
 Draw a large rectangle in the middle, write the proposed plan in it
 List down the supporting factors on the left side
 List down the opposing factors on the right side
 Rate each factor based on influence (usually on 1-to-5 scale, with 1
being leastsignificant/influential, 5 being most significant/influential)
 Using force field analysis
 Decide whether or not to push through with proposed plan given both
supporting and opposing factors and their respective importance
 Plan changes that may be implemented to strengthen supporting factors,
weaken opposing factors, and make the proposed plan more
successful/effective
 Limitations
 Factors and their ratings are subjective and may be biased
 May cause a division among decision-making parties on whether or not to push
through with plan

Gantt chart
 A type of bar chart that illustrates a project schedule
 Outlines the start and finish dates of important elements of a project
 Also shows relationship of these elements (i.e. Task B starts only when Task A finishes)
 Constructing a Gantt chart
 Rows are the elements/tasks
 Columns are the dates (left to right)
 Fill in boxes corresponding to duration of each task
 Draw vertical line to represent current date
 Limitations
 Relies on completed and accurate project breakdown structure (breakdown of
elements and tasks of project)
 Depicts time of tasks, but not scope or cost
4.1. The Role of Marketing
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
Marketing
 Addresses people’s needs and wants and influences target consumers to buy a specific
product instead of other competing products
 A management process involved in identifying, anticipating, and satisfying consumer
requirements profitably
 It is about satisfying consumer needs and wants through exchange
 It is a research based process of getting customers interested in a product through the
management of the 4 (or 7) P’s
Marketing goods/products versus services
 Goods/Products: 4Ps
 Product
 Place
 Price
 Promotion
 Services: 7Ps
 4Ps
 People (frontline staff appearance, skill, charm, helpfulness)
 Processes (time, ease, accessibility, payment, aftersales)
 Physical evidence (facilities, cleanliness, design, atmosphere, peripheral products)
 Has a product oriented approach
Product oriented vs. market oriented marketing
 Product Oriented Marketing
 Business develops products based on what it is good at making
 Mainly for products that are high tech, high quality, and high differentiation
Market Oriented Marketing
 Business develops products based on the market
 Geared to mass consumer markets using expensive market research, but is more
flexible and less risky
 Flexible: Adapts more easily as this approach is sensitive to market trends, such as
habits, needs, lifestyle, and taste
 Less Risky: More assurance of success since the product meets customer
requirements
Social vs. commercial marketing
 Social marketing
 Seeks to influence behavior to benefit society as a whole by selling a desired
behavior, thus satisfying societal needs
 Using social marketing (i.e. commercials, etc.) to bring about social change
 Celebrity endorser
 Media coverage
 Giving out cards
 Workshops/modules
 Movies
 Signature campaign – Pledge board
 Slogans
 Dropboxes
 Email/hotline/customer service
 Commercial marketing
 Seeks to satisfy customers by selling a particular needed product or service, thus
satisfying individual needs
 Delivering what people already want instead of changing what people want
Market
 A place or process which allows suppliers and customers to exchange physical goods,
services, information, etc..
 Exists to help facilitate trade where there is demand for a particular product, and
businesses willing to satisfy such demands
 Kinds of Markets
 Consumer – General public
 Industrial/Commercial – Businesses and governments
 Markets size
 Can be measured through the number of potential customers, the total volume of
sales achieved by the numerous businesses active in the market, or the value of said
sales
 Helps businesses assess whether a particular market is worth participating in due its
number of potential customers and the barriers to entry
 Market growth
 Rate the size of a market increases/decreases over a period of time
 Measured by an increase in the total value or volume of sales in a market
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Helps businesses assess whether a particular market is worth entering due to its rate
of growth or contraction
Market share
 The percentage of all the sales in a particular market that are held by a business, and can
be measured by the volume or value of the sales
 Importance
 Helps measure a firm’s performance and market position against other competitors
 Might indicate that a business is a market leader
 Can influence its competitors to follow the leader’s model
 Can influence the leader to continually enact strategies in order to maintain its
position
 Can indicate the degree of success or failure of a business’ current strategies
 Can lower prices or maintain higher profit margins as compared to competitors
due to better economies of scale
 Ways to increase market share
 Brand promotion
 Improved customer service
 Copyright and patent filing
 Product development
 Limitations
 May be difficult to identify the most important market share value for products that
cross into several markets
 Cannot be used as an absolute measure of a firm’s success or performance
 Firms can be intentionally lowering their market share as a result of its more
stringent client selection
 A decline in a firm’s market share can be a result of a new entrant and not
necessarily as a result of lowered sales
 Should mainly be compared against the most similar and closest of competitors,
and not necessarily the market as a whole
Marketing objectives
 Common targets that marketing activities will achieve
 Market share/leadership
 Acquiring a greater/bigger market share and volume by improving
sales/revenues (e.g. expansion, globalization, franchising, aggressive advertising,
further market penetration, etc.)
 Customer service
 Providing loyalty programs, after sales services/policies through quality staff
training
 Brand building
 Improving the image of the company through CSR, sponsorships, publicity,
packaging, etc.
 Growth strategies
 Innovation
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
Launching a totally original or new product into the market (attain the firstmover advantage)

Positioning
 Involves expanding or modifying product line/mix to enhance or change image.
 Successful marketing objectives are
 Aligned with business’ overall main vision-mission-goals (or VMGs)
 Appropriate to organization’s size, financial capacity and production efficiency
 Mindful of competition, external (PEST) factors and social issues
Ethics of marketing
 Ethics are the moral principles that guide business behavior
 Ethical marketing issues are increasingly significant in a period of rapid globalization
 What may be acceptable marketing practice in one place may not be in another
 Is it ethical?
 Pricing
 Sell a computer printer cheaply and then tie in customers to buy expensive
refill cartridges?
 Offer low airfares on the internet and then add taxes on after a purchase
has been made?
 Promotion
 Advertise toys on TV to young children who may not be able to distinguish
between program and advertising?
 Use sexual images to sell products in countries with deeply held religious
views?
 Place
 Sell products that are sexually suggestive or offensive to the culture of the
country/place these are sold in?
 Product
 Buy cheap and potentially dangerous supplies in order to cut prices?
 Design clothes for young children that are sexually provocative?
 Ethical Issues:
 Bait and Switch
 Misrepresentation
 Over-promise or Fraud
 Unsubstantiated Claims
 Fear Tactics
 Pester Power
 Socio-Cultural
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
4.2. Marketing Planning

Marketing mix
 Combination of key decisions that must be taken in the marketing of a product
 Consists of the 4 or 7 Ps (product, price, place, promotions, etc.)
Not all of the P’s have the same degree of significance in all cases
P’s must be coherent in an interrelated marketing plan
Marketers must be careful not to confuse consumers with conflicting messages
about the goods or services being sold
 (The Ps will be discussed in units 4.5 and 4.6)
Marketing plan
 Formal written document that outlines how a business intends to achieve its marketing
objective
 Contains detailed action programs, budgets, sales forecasts and strategies
 Effective marketing planning relies on a clear awareness of market trends, competitor’s
actions and consumer wants
 Marketing plan usually begins with a marketing audit which is a review of a business’
current marketing situation
 SWOT and the 4P’s employed
 Current PEST
 Review of current marketing strategies
 Elements
 Key marketing objectives
 Market research (target market, competition, market size, trends etc.)
 Marketing strategies for the marketing mix and specific activities
 Marketing budget
 Likely problems and backup plans
 Monitoring and review process (to be modified along the way)
Market segmentation
 Process of dividing the market into subgroups based on defined attributes
 Each segment has distinct identity, specific needs, and preferences
 Attributes provide each segment with a clear customer profiles allowing business to
target a segment with the appropriate marketing mix
 Successful segmentation requires a business to have a clear picture of the consumer in
the target market it is aiming to sell in
 Marketing mix has to be appropriate for the target market and positioning of the
business
 Profile segmentation by
 Demographics
 Age, group, gender, marital status, income group, social class, education,
profession, religion, language
 Psychographics
 Status, values, cultures, interests, politics, causes, beliefs, buying habits, decision
factors
 Geographic
 Location: urban, rural, cosmopolitan or closed, multicultural, island, low/uplands
 Climate: desert, tropical, four season, seasonal rain, humidity
 Advantages
 Define the market more precisely
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Identifies gaps in the market for exploitation
Minimize selling to consumers who have no intention of buying
Small firms can specialize in one or two target markets
Allows for price discrimination to maximize revenue and profits
 Disadvantages
 May need product variations to satisfy different segments:
 High cost for R&D, varied promotions, and production and inventory
 Excessive specialization is dangerous if your segment changes your attitudes or
behavior
 Using DAMAS for segmentation
 Differentiated
 Each segment must be unique in response to different elements of marketing
mix
 Actionable
 Business must be able to address the needs of each segment
 Measurable
 Size and purchasing power must be quantifiable
 Accessible
 Customer in the segment must be reached in a cost-efficient way
 Substantial
 Sufficiently large in order to generate profits
Target marketing
 Part of market research, comes after market segmentation
 Targeting refers to the market segment that a business wishes to sell to
 Appropriate marketing strategies are then developed for these target markets
 Niche/concentrated
 Targets a specific, well-designed segment that requires very specialized product
or high luxury item
 Undifferentiated/mass market
 Ignores segments but targets wide market to maximize volume
 Differentiated/selective
 Uses different marketing mix for each segment to address differences in
perceptions and lifestyles
Market positioning
 Basically consumer perception
 An analysis that looks at how consumers “perceive” brands (how they are ranked or
classified in the eyes of the consumer)
 Stages of positioning
 Identify the competitive advantage of the product (brand or USP)
 Decide on which strengths should be marketed to the segment
 Implement the desired positioning by using the appropriate marketing mix
 Brand VS. USP (Unique Selling Proposition)
 Corporate image is the consumer perception behind a brand
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USP is the differentiating factor that makes a company product unique and thus
motivates consumers to buy
Product position/perception map
 Shows the general market’s or consumers’ perceptions of a product’s or brand’s key
aspects in relation to other competitors in the particular market
 Mainly uses two variables, such as price and quality, convenience and environment,
taste and healthiness, etc.
 Uses
 Allows businesses to identify any gaps in its product portfolio or in the market, which
it can fill with new or existing products
 Can be used for targeting strategies
 Allows businesses to determine how to place their products more competitively
 Can inform businesses if the need to reposition their products arises
 Businesses may try to reposition its products according to market/consumer
tastes in order to further capitalize on consumer demand without developing
entirely new products
 Involves modifying the product’s image, features or target market
 Limitations
 Filling gaps in the market however shouldn’t always be a priority as gaps could exist
for reasons, such as generally low demand or low profitability, high barriers of entry,
etc.
 Firms also have to asses whether they have the capacity or ability to fill the gaps in
the market, and whether going into such gaps correspond to the business’ image


4.3. Sales Forecasting (HL Only)

Sales forecasting
 Quantitative techniques to estimate future sales using a range of forecasting techniques
 Forecasting allows for smoother cash-flow management, inventory & production,
financing
 Benefits
 Provides valuable information for a business about the trend of sales and what to
expect in terms of revenue
 Lets a business use quantitative data (past sales) and qualitative data (impending
changes) to assess the future of the company’s sales and success
 Limitations
 No one can predict the future
 Using different methods, businesses will end up with different scenarios and
different trends
 May confuse the business on what strategy to use

Methods of forecasting
 Four part moving average sales trends
 In order to remove the variations produced by seasons, trade cycles and other
variations, and moving average is used to make data smoother
 Given a set of actual sales, you take the average of four points of data (eg. 4 values
of revenue/month) and average them, moving left-right
Corresponds with how sales are usually reported which is quarterly
More difficult than 3 part moving average (only 3 points are used)
Time series analysis
 Predicts future sales by identifying underlying trend line
 Seasonal fluctuations
 Seasonal variations in demand
 e.g. pre-Christmas season is capitalized in the USA through the Black Friday
and Cyber Monday sales
 Random fluctuations
 Unpredictable fluctuations in sales
 Cyclical fluctuations
 Variations linked to economic cycle of booms and slumps
 Response
 Deliberate actions taken to affect sales (e.g. Sales promotion)
Extrapolation
 Plotting historical data and extending the trent to project future sales
 Simple but not very accurate
Delphi technique
 Using a panel of independent experts
 Experts go through a sequence of questionnaires, each of which builds on previous
ones, lasting throughout several rounds
 A facilitator provides an anonymous summary of the experts’ forecasts from the
previous round as well as the reasons for their judgments
Market research
 Identify trends and external changes that can impact sales and combine with
statistical data
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4.4. Market Research



Market Research
 Concerned with finding out whether consumers will buy a product or service, and is
done by analyzing consumer reactions
Reasons for market research
 Reduce the risks associated with new product launches
 Predict future demand changes
 Explain patterns in sales of existing products and market trends
 Assess the most favored designs, flavors, styles, promotions for a product
Market research process:
 Identify consumer needs and tastes
 Primary and secondary research into consumer needs and competitors
 Product idea and packaging designs
 Testing product and packaging with consumer groups
 Brand positioning and advertising testing
 Pre-testing of the product image and advertisement
Product launch and after launch period
 Monitoring of sales and consumer response
Types of market research
 Primary research
 Gathering data or feedback first-hand, through
 Questionnaires (short and focused, allows open-ended questions)
 Observation (foot traffic, queuing time)
 Sampling (new product or campaigns)
 Focus groups (asking groups of people)
 Interviews
 Advantages
 Up to date
 More relevant/direct
 Confidential and unique
 Objective
 Disadvantages
 Time consuming
 Costly
 Questionable validity
 Secondary research
 Collecting second-hand information from other sources like
 Market analyses (shows relevant market data)
 Government publications
 Academic journals
 Media articles
 Secondary research should be undertaken first because it is cheap, fast, comes with
plenty of sources and offers a wide range of information
 Advantages
 Cheaper and faster
 Range of sources
 Insight to trends
 Disadvantages
 May become obsolete or out of date quickly
 May be in an inappropriate format
 Partial information
 Widely available to competitors
Qualitative vs. quantitative research
 Qualitative research
 Used to get feedback to understand motivation , behavior, perception through focus
groups, expert panels, in-depth interviews of credible individuals
 Qualitative explores attitudes and opinions and can be very deeply relevant even if
only few are interviewed
 Can only give an indication and does not have statistical relevance.
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Relatively inexpensive but harder to analyze, more time consuming, and results are
subject to bias or skill of interviewer
 Quantitative research
 Used to get statistical data from total (for figures) or representative sample (for
opinion, decisions), using interviews that have closed questions or use ranking or
sliding scales
 Quantitative can only ask factual answers but may not reveal reasons why
 A larger representative sample is needed and must be designed well so it ends up
more costly to undertake
Sampling
 Consumer surveys ask consumers for their opinions and preferences
 It can obtain both qualitative and quantitative information
 How many…..
 What do you look for….
 4 points for consideration when making surveys
 What to ask?
 Questions are unbiased and unambiguous
 How to ask?
 Should the survey be self-completed or filled in by an interviewer?
 How accurate is it?
 Accurate and valid
 Who to ask?
 It is impossible to ask everybody even if it is just potential members of a target
market
 A sample reflects the characteristics of the survey population
 Sample should be significant and valid to avoid sample error
 Sampling methods
 Random sampling
 Random selection, based on the principle that everyone is given equal chance
 Stratified sampling
 Segmentation with number of respondents per group based on proportion to
the population
 Majority of the population will compose of majority of the survey
 Cluster sampling
 Used for localized surveys (e.g. towns, region, etc.)
 Sample based on a geographic location/ concentration of the target
 Quota sampling
 A certain number or quota is set, made up of samples from each segment or
random
 Snowball sampling
 Respondents are networked from a respondent’s referral
 Convenience sampling
 Respondents are chosen based on accessibility and proximity
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4.5b. The Four Ps – Price
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Price
 Self-explanatory – price of the product
 Must consider a product’s costs, how much customers are willing to pay, profit targets,
competition, etc.
Pricing strategies
 Cost-plus pricing
 Adding a percentage or predetermined amount (markup) to average cost per unit to
set the selling price
 Ensures a product will produce contribution
 Competition-based pricing
 Price leadership
 Set by the market leader and other firms simply follow
 Predatory pricing
 Temporary reduction in price to drive away competition
 Can be as aggressive as to sell below cost/at a loss
 Going-rate pricing
 Simply pricing at about the average price level of most products in the market
 Market-led pricing
 Penetration pricing
 Newcomers set their prices low to entice people to buy
 Price changes from low to high
 Risk: lower prices = lower reputation
 Price/market skimming
 Get a feel for what the market is like, set the price high, then as you understand
the market better your prices will slowly decrease
 Prices changes from high to low
 Price discrimination
 The price of a product varies per country, which depends on the market;
however, the products should not be easily traded
 Results to the government applying taxes/tariffs
 Loss leadership
 Products are sold at a loss, but regain their losses through their other products
 e.g. PS3 sold at a loss, but profits are gained through games
 Psychological pricing
 Some numbers are more appealing
 Promotional pricing
 Offer discounts, rebates, promotions, etc.
 Assure that your market likes discounts, otherwise there will be no reason in
offering the promotions
4.5c. The Four Ps – Promotions
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
Promotions
 Communicating to the market w/ the purpose of selling a specific product or brand
 Role is to inform, persuade, remind
 Successful promotional mixes uses AIDA Factors:
 Attention, Interest, Desire, Action
Types of Promotions
 Above the line (ATL)
 Use of mass media for promotions
 Very wide reach, but also very expensive
 Also called “pull promotions”
 e.g. TV, radio, newspaper, magazine, outdoor, cinema, etc.
 Below the line (BTL)
 Use of non-mass media promotional activities focused at target market
 Also called “push promotions”
 e.g. price deals, money-off coupons, direct Marketing/direct selling, sponsorship,
loyalty programs, word of mouth, buy-one-get-one-free offers
Promotional mix
 Promotional mix is the combination of promotional techniques that communicate
benefits from a product
 Elements
 Advertising – information and persuasion
 Public relations – image building and goodwill
 Sales promotions – stimulate sales and activities
 Personal selling – sales forces and agents
Guerilla marketing
 Use of unconventional, surprise, and memorable interactions in order to promote a
product
 Generally used by smaller businesses who have a smaller budget available for
promotions
 Uses smaller teams of promoters in a specific area, rather than through mass media
campaigns or involving the use of traditional forms of media
 Emphasizes on attracting media attention and creating a good or memorable impression
on the consumers
 Benefits
 Relatively low in cost and risk
 Helps engage in networking with not only customers, but even other potential
business partners as well, depending on how viral the campaign becomes
 Limitations
 Success depends highly on market research
4.5d. The Four Ps – Place
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Place
 How a product reaches its end user/customer from the manufacturer
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Distribution channels
 The different ways the product reaches the customers
 Has different levels depending on how many steps are required before the product
reaches the customer
 Zero level distribution
 Manufacturer sells directly to consumers
 E-commerce makes this more simple, feasible, cost effective and have a wider
market coverage
 e.g. restaurants, Apple, car manufacturers
 Types of direct marketing
 Telesales and marketing
 More expensive
 Direct to consumer, pitch and add more products
 E-commerce
 Cheaper, less cost
 Wide market coverage
 Direct mail or email
 Cheapest (no specialized skill involved)
 Usually ignored, low success rate
 Vending machines
 Physical product can be seen, attracts more customers
 Cost of machinery
 Prone to theft and vandalism
 Advantage: business has control over price, how product is sold, etc.
 Disadvantage: more costly
 One level distribution
 Manufacturer to retailer to consumer
 Advantage: product can reach more markets because of many retailers
 Disadvantage: less control
 Two level distribution
 Manufacturer to warehouse/wholesaler to retailer to consumer
 Can be one level if consumers purchase directly from warehouse
Intermediaries
 Wholesalers – buy products in bulk, sell to retailers
 Direct agents – independent businesses w/ exclusive right to trade a product in a
territory; agents may act on behalf of buyer or seller
 Retailers – outlets that sell directly to customers
Distribution Strategy
 Most businesses will use multichannel distribution strategies
 This is affected by:
 Cost and benefits of each level of distribution
 Nature of products
 Perishables are best at zero or one level
 FMCG’s are best at bulk wholesalers
Type or size of market
Urgency of use of the product
Firms must decide on the type of distribution that is most suitable
 Intensive (mass produced products)
 Selective (positioning or branding)
 Exclusive (for large investment or premium products)
Vertical integration is possible, but not usually feasible/cost-effective
Branding will give products leverage against power of distribution channels
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4.6. The Extended Ps (HL Only)
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People
 One of the four main inputs of every business
 All businesses have employees that help in conducting its daily operations
 Much more important in service-based businesses since more employees come into
contact with customers, as compared to product-based businesses
 Customer relations
 Employee that comes into contact with customers can create positive or negative
effects on the image and reputation of the business
 Service businesses require people who can interact positively with customers
 People are important in service; they deliver and maintain transactional
marketing
 Recruiting and training the right employees are essential to create a competitive
advantage
 Usually most important in the hotel and restaurant industries where quality of
service is valued quite highly
 Measuring people’s effectiveness
 Appearance
 Attitudes and aptitudes
 Efficiency
 Link to HR
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Training
 Customer feedback
 Communication
 People in the marketing mix
 Personal/direct selling
 People buy from people they like – attitude, skills and appearance need to be at
the very best levels
 Employees seek to:
 Build goodwill with customers with the longer-term aim of generating
orders
 Advise customers on the best purchase for their needs
 Persuade buyers to buy by identifying their needs and persuading them of
previously unidentified needs
Customer service
 Provide expertise, technical support, and coordinate the customer interface
 Ways in which complaints are handled can affect a business’ reputation
 Adds value by offering customers technical support, expertise and advice
Processes
 Methods of delivering or providing the service
 Processes that a business has in place to satisfy a customer’s wants reliably
 Services need clearly defined and efficient processes to support it
 Avoids confusion and promotes consistent service
 Examples of processes
 Payment methods
 Waiting times
 Customer services
 Delivery
 Post-sales care
 Processes in the marketing mix
 Direct Activities
 Adds value at the customer interface as the consumer experiences the service
 Indirect Activities
 Helps support many processes, and the service itself before, during and after it
has been consumed
 Numerous processes integrate together to create an overall marketing process
 Must strike a balance between customization and standardization
 Both consistent service and unique experiences are important
 Enhancements to the various processes can minimize costs and maximize profits,
improving overall efficiency
Physical Evidences
 The way the company appears from the outside
 Shows the quality and origin of service
 Can be used to charge a premium price
 Potential customers will make judgments about the organization based on physical
evidences before even having experienced the service at all
 Physical evidences in the marketing mix
 Given services are largely intangible, customers rely on physical aspects to judge
 Tangible aspects have to be designed in order to sway customer perception
 Physical environment
 Ambience
 Package of elements (e.g. color, music, smell, sound)
 Helps in elevating the experience of the service
 Ambience must be matched to the service that is being delivered
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Signages
 Set of signs, symbols and artifacts of the business
 Reflects the business’ image
 Spatial layout/functionality
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Way furniture and fixtures are set up or how machinery is spaced
The environment must help address the consumer’s needs
Consistency
 Physical evidences must be consistent with other elements of the marketing mix
 Ex. Expensive restaurants must not only justify their prices based on the quality
of the food, but with the type of cutlery, furnishings, and even the uniforms of
the servers used
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4.7. International Marketing (HL Only)
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International marketing
 Sale and marketing of a firm’s products in a foreign country
 Important in the face of globalization
 Businesses have many opportunities to expand internationally
 Foreign businesses will also serve as competitors
Methods of entry into foreign markets
 Exporting
 Direct selling to overseas buyers
 Direct investment
 Setting up additional production and distribution facilities in foreign markets
 Relatively costly
 E-commerce
 Exchanges facilitated through the internet
 Relatively lower costs and risks
 Joint ventures
 Two or more companies investing in a new project overseas
 Spreads risk while sharing benefits, resources, and knowledge
 Franchising/licensing
 Third-parties (possibly from foreign countries) pay for an established business’
name, products and image, and in return are allowed to operate
Opportunities and threats of entry into foreign markets
 Opportunities
 Expand marketing operations into growing and emerging markets
 Spreading overall risk between more markets, each at different stages within the
economic cycle
 Taking advantage of marketing and production economies of scale
 Threats
 High-barriers of entry
 Strong competition from the well-established local industry
 Differing consumer demands
Approaches to selling goods internationally
 Pan-global
 Standardized product across the globe
 Treats the whole world as a single market
Advantages
 Capitalize on existing strong brand
 Economies of scale (advertising/promotion)
 More consistency and standardization
 Disadvantages
 May offend local tastes and culture
 Risky if not tailored to the local market
 Global localization/glocalization
 Adopting a differentiated marketing mix that meets national and regional tastes and
cultures
 Thinking global, acting local
 Advantages
 Caters to local tastes
 More products (diversification)
 Spreads risks
 Cater to wider market
 Avoid any issues of cultural insensitivity
 Disadvantages
 May lose identity of brand
 More costly (research implications)
Branding in the global market
 Strong brand adds to competitive strength of a business and allows it to penetrate
overseas markets more easily
 Successful global brands enjoy marketing economies of scale, thus achieving consistency
in branding, cost savings, and brand loyalty
 Global brands can focus on local needs by modifying or glocalizing their products but
keeping core elements intact – local language and culture must be considered
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4.8. E-commerce
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E-commerce
 Also known as internet marketing
 Involves conducting commercial transactions electronically on the internet
Impact of e-commerce on the marketing mix
 Product
 Higher customization and broader product range to suit wide variety of individual
and cultural preferences in the global market
 Less packaging is required as it is not needed for added promotion
 Detailed information and digital versions
 Price
 Price transparency leads to higher competition as prices can now be compared
easily
 Competition-based pricing is more likely to be adopted
 Cuts intermediation costs
Near instantaneous price adjustments to suit sudden changes in demand or urgent
needs
 Place
 24/7 accessibility and global reach
 Added convenience for consumers
 Shorter and lessened channels of distribution reduces operating costs
 Promotions
 Quicker and cheaper communication
 Allows interactive promotions
 Relevant markets can be targeted easier
Types of e-commerce
 B2B – Business to business
 Caters to needs of business, transactions and distribution
 e.g. Alibaba, ECPlaza
 B2C – Business to consumer
 Sells directly to customers and provides other necessary services
 e.g. Tmall, Amazon
 C2C – Consumer to consumer
 Customers trade with each other for either good and/or services
 e.g. Taobao, eBay, Craigslist
Benefits and costs
 Businesses
 Benefits
 Relatively inexpensive when considering the total size of the potential market
reach
 “Big data” collection in order to gain more insight on consumer habits in making
purchases
 Rising general technological capabilities of consumers worldwide helps assure
more potential customers
 Costs
 Limited ability for consumers to physically interact with the products can cause
 Uncertainty in their decision to purchase
 Higher levels of dissatisfaction due to unmet expectations and can lead to
product returns
 e.g. fitting and size of clothes of online clothes vendors
 Consumer fears of internet security and fraud lead to more caution
 Additional shipping charges as well as tax not shown in the product’s listed price
can turn consumers away
 Consumers
 Benefits
 Extremely convenient and accessible
 Prices, depending on the type of product, can potentially be lower than in
traditional stores
 e.g. digital versions of media
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Added opportunity of re-selling used and/or rare products
Digital products can arrive near-instantaneously when downloaded
Costs
 Privacy and security issues
 Possibility of fraud, scams, etc.
 Support services may not be sufficient
 Limited immediate interaction with the business
 May not be completely accessible in some areas
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