Marketing:
Building
Customer
Relationships
*
CHAPTER
**
13
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Evolution of Marketing
• Production Era - Up to early 1900s
• Selling Era - 1920s-1950s
• Marketing Concept Era - 1950s 1980s
– Customer
– Service
– Profit
• Customer Relationship Era - 1990s+
Marketing Strategies in
Non-Profit Organizations
•
Practice
strategic
• Find a productive
planning
board of trustees
(Directors)
• Carefully segment
target market
• Make marketing the
focus; not short• Train & develop
term sales
volunteers for longterm
• Know your mission
and review mission • Be frugal- know how
strategy regularly
to manage finances
Elements in the Marketing Mix
Place
Product
Marketing
Program
Buy at
Computers
‘R Us
Price
Promotion
Marketing Process
1.
2.
3.
4.
5.
Find Opportunity
Conduct Research
Identify Target Market
Design Product
Product Testing
6. Brand Name, Design
& Price
7. Develop Distribution
System
8. Design Promotional
Program
9. Build Relationship
With Customer
Product Design
• Concept Test
• Test Market
• Package Design/Brand Name
Pricing Strategies
• Cost-Plus
• Skimming
• Value-Based
• Discount
• Competitive
• Loss-Leader
• Going-Rate
• Psychological
Source: Perdue University, May 2005
Other Things To Keep
In Mind With Price
• Payment Period
• Allowances
– Regular
– Seasonal
•
•
•
•
Bundling
Trade Discounts
Price Flexibility
Credit Terms
Source: Perdue University, May 2005
• Price Differences
– Target Customers
– Geographic Areas
• Volume Discounts and
Wholesale Pricing
• Cash and Early Pmt
Discount
Place Decisions
• Direct Sales
• Reseller Sales
• Market Coverage
– Intensive
– Selective
– Exclusive
• Inventory Size
• Logistics
Source: Perdue University, May 2005
Market Research Process
• Define the Question
• Collect Data
• Analyze the data
• Choose the best solution and
implement
Marketing Data:
Least Error Method
1.
2.
3.
4.
5.
Put someone in charge.
Give everyone a method of collecting data.
Identify the right data.
Centralize the data.
Use the Data.
Source: cmomagazine.com, September 2004
Sources for Marketing
Research Information
Secondary Data
• Government
Publications
• Commercial
Publications
• Magazines
• Newspapers
• Internal/General
Sources
Primary Data
• Surveys
• Focus groups
• Interviews
• Observation
• Online surveys
• Questionnaires
• Customer comments
The Marketing Environment
Economic
Competitive
Technology
Customer
Social
Global
Different Markets
• Consumer
• Niche
• One-to-One
• Business-toBusiness (B2B)
Market Segmentation
• Target Marketing
• Geographic
• Demographic
• Psychographic
• Benefit
• Volume
Influences on
Consumer Behavior
Culture
Reference
Learning
Group
Customer
Cognitive
Subculture
Dissonance
Consumer Decision Making
Sociocultural
Marketing mix
•Product
•Reference groups
•Price
•Family
•Place
•Social class
•Promotion
•Culture
•Subculture
Psychological
•Perception
•Attitudes
•Learning
•Motivation
Decision-Making Process
•Problem Recognition
•Information Search
•Alternative evaluation
•Purchase decision
•Postpurchase evaluation
• (cognitive dissonance)
Situational
•Type of Purchase
•Social surroundings
•Physical surroundings
•Previous experience
Planning For
More Business
•
•
•
•
•
What do we do well-and not do well?
What are we really selling?
To whom do we sell?
How do we reach our target group?
How can we break through the clutter?
Source: Investor’s Business Daily, February 9, 2004
Business-to-Business (B2B)
1. Number
2. Size
3. Geographic
Concentration
4. Rational
5. Direct Sales
6. Personal Selling
**
Financial
Management
CHAPTER
*
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McHugh
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Finance & Managers
• What is Financial
Management?
–Finance
–Financial Manager
• Importance of
Finance
Most Important
Skills Needed by CFOs
People Development
10%
19%
Building Relationships
Communication Skills
26%
Creativity
27%
38%
Objectivity
51%
Leadership
Strategic Planning
55%
Analytical Thinking
75%
0%
Source: CIO Enterprise
10%
20%
30%
40%
50%
60%
70%
80%
Women CFOs
• As of May 2006, 35 of the 500 largest
companies in the US had a female CFO
• Five largest companies with female
CFO: Citigroup, Home Depot, Verizon,
Marathon Oil, and Medco Health Solutions
• Top 3 reasons that helped women achieve
their current position: Supportive boss,
Supportive spouse, and culture of the
organization
Source: cfo.com, June 1, 2006
Non-Finance
Functions of CFOs
Business Development
60%
P & L Responsibility
53%
MIS
49%
Reengineering
39%
Revenue Growth
25%
HR & Admin.
18%
Other Skills
5%
Sales
Marketing
2%
1%
0%
Source: CIO Enterprise
10%
20%
30%
40%
50%
60%
70%
What Financial Managers Do
Where CFOs Get
Their Financial Information
Magazines
9%
Radio
5%
Don't Know
1%
Internet
11%
Television
12%
Colleagues
15%
Source: USA Today
Newspaper
47%
Financial Managers:
Ask Your Clients
1. What are the client's goals in areas like lifestyle,
retirement, saving for college education and their
health care as well as that of their dependents?
2. When do they want to reach their goals?
3. What steps have they already taken toward
achieving their goals?
4. How do they feel about taking investment risks
for a potential higher rate of return?
5. How involved do they want to be in monitoring
their progress toward their goals?
Source: Fpanet.org
Financial Planning
Short-term
Forecasting
Capital
Budget
Feedback
Financial
Plan
Long-term
Forecasting
Operating
Budget
Financial
Controls
Cash
Budget
Feedback
Budget Process
• Financial Plan- Financial Statements
• Types of Budgets
– Capital
– Cash
– Operating (Master)
• Financial Controls- Feedback
Need for Operating Funds
• Manage Daily Operations
• Controlling credit operations
• Acquire Inventory
• Capital Expenditures
Why Firms Need Funds
Short-Term Funds
• Meeting monthly
expenses
• Unanticipated
emergencies
• Cash-flow problems
• Expanding current
inventory
• Temporary promotional
programs
Long-Term Funds
• New product
development
• Replacing capital
expenditure
• Mergers or
acquisitions
• Expansion into new
markets
• Building new facilities
Sources of Funds
Short-Term
• Trade Credit
• Promissory Notes
• Family/Friends
• Banks, etc.
– Secured Loan
– Unsecured Loan
• Factoring
• Commercial Paper
• Credit Cards
Long-Term
• Debt
– Term-Loan
– Bonds
• Secured
• Unsecured
• Equity
– Stock
– Retained Earnings
– Venture Capital
Who Can Issue Bonds?
1. Federal, state, and local
governments
2. Federal government agencies
3. Corporations
4. Foreign governments and
corporations
Sources of Equity Financing
Internal
Sources
Retained
Earnings
Owner
Contributions
Sale of
Partnerships
Equity
Capital
External
Sources
Venture
Capital
Public Sale of
Stock
IPO
Summer of 2006
• 89 companies filed plans to raise money through
IPO – looking to raise $16.3 billion
• 17 companies withdrew their plans to proceed
with their IPO – were hoping to raise $3.89
billion
• Withdrawing – Go Daddy Group and PNY
Technologies
• Filing – Double-Take Software and
Hansen
Medical
Source: redherring.com, August 18, 2006
Google IPO
•
•
•
•
•
Launched – August 2004
IPO Price -- $ 85 per share
Seeking to raise $2.7 billion
Unusual auction-style offering
With IPO, the company must
shed light on the inner workings
• Key competitors – Yahoo and Microsoft
• As of March 31, 2004 Google employed
about 1,900 employees
Source: cnet news.com, April 30, 2004; Forbes, September 17, 2004
Venture Capitalists
• Finance new and rapidly growing companies
• Purchase equity securities
• Assist in the development of new products or
services
• Add value to the company through active
participation
• Take higher risks with the expectation of higher
rewards
• Have a long-term orientation
Source: NVCA.com
Securities
Markets:
Financing and
Investing
Opportunities
Nickels
*
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Understanding Business, 8e
McHugh
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© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Functions of
Securities Markets
• Long-Term Funding
for Businesses
• Place to Buy/Sell
Securities
(Investments)
Capital Markets
• Primary Markets (IPO's)
• Secondary Markets
Investment Banker
• Assist Sale/Issue of
New Securities
• Underwrite issues
• Sells to Institutional
Investors
Bond Market
• Coupon/Interest Rate
• Denomination ($1,000)
• Principal
• Maturity Date
• Classes
• Unsecured/Debenture
• Secured
Bonds
Advantages
Disadvantages
• No Vote
• Interest is TaxDeductible
• Temporary Source
of Funds
• Can be repaid
before maturity
with call provision
• Increase Debt
• Legal Obligation to
Pay Interest
• Repaid on Maturity
Date
Special Bond Features
• Sinking Fund
• Callable
• Convertible
Debt vs. Equity Financing
Debt Financing
• Secured or
Debenture
• Must be repaid on
maturity date
• Interest must be
paid whenever
specified
Equity Financing
• Preferred or
Common
• Investment never
has to be repaid
• Not legally
obligated to pay
dividends
What is Stock?
• Ownership
• Certificate
• Par Value
• Dividends
• Common vs. Preferred
Stock
Advantages
• No Repayment
• No Legal Obligation
• Does Not Create
Debt
Disadvantages
• Voting Rights
• Dividends not TaxDeductible
• Management Works to
Keep Stockholders
Happy
Organized
Securities Exchanges
• New York Stock
Exchange (NYSE)
• American Stock
Exchange
(AMEX)
• Over-the-Counter
(OTC)
• NASDAQ
Investment Criteria
• Risk
• Yield
• Duration
• Liquidity
• Tax Consequences
Investing in Bonds
Corporate
Bonds
Municipal
Bonds
US Treasury
Bonds
From 1 to 20 years
From 1 to 40 years
From 2 to 30 years
Taxable
Exempt from federal
taxes and some state
and local taxes
Exempt from state and
Attractive to investors
in high tax brackets
Government backing
provides maximum
safety
May be riskier than
government bonds,
but may have higher
yields
local taxes
S & P’s Top Credit
AAA-Rated Companies
1. Automatic Data Processing
2. Exxon Mobil
3. General Electric
4. Johnson & Johnson
5. Pfizer
6. United Parcel Service
Source: Business Week, 2006
Compared to
having 32 Top
Companies in
the ’80s
Investing in Stock
• Growth vs. Income
– Capital Gain vs.
Dividend
•
•
•
•
Blue Chip vs. Penny
Market Order
Limit Order
Stock Split
How Stock Splits Work
100 shares of
ABC stock
selling at $80
100 shares @ $40
2 for 1
Stock Split
Declared
100 shares @ $40
Lower Price
increases Demand
Increased demand
increases price
100 shares @
$45
100 shares @
$45
How Much Profit Has Been Made?
Return From Most
Widely Held Stock
Rank
Price
One Year Total
Return
General Electric
$34.66
-2.2%
Microsoft
27.97
4.1
Pfizer
21.35
-21.0
ExxonMobil
57.38
17.0
Cisco Systems
17.37
-11.1
Johnson & Johnson
63.34
5.6
Intel
25.11
4.6
Citigroup
47.94
7.6
Source: Money, January 2006
Mutual Funds
• Pool Investors’
Money
• Best for Small
Investors
• Index Fund
• Diversification
• No-Load vs. Load
• Open-End vs.
Closed-End
Sales of Mutual Funds
Worldwide
(In Billions)
Q4, ’03 Q2, ’04 Q4, ‘04 Q2. ‘05
All Funds
$73
$22
$166
$166
Equity
116
75
100
65
Bond
-4
-12
43
49
Money Market
-67
-58
-10
*
Balanced/mixed
23
4
24
26
Other
5
13
8
25
Source: USA Today, 10/16/2000
Source: Investors Business Daily, February 10, 2006
Types of Investments
Traditional
– Stocks/Bonds
– Gov’t
Securities/CDs
– Money Market or
Mutual Funds
– Real Estate
High-Risk
– Stock on Margin
– Junk Bonds
– Commodities
Components for Optimal
Portfolio Performance
• Diversification
• Timelines
• Safety & Risk
• Income & Total
Return
Do Corporations Provide
Enough Information?
5%
15%
NO
YES
NOT SURE
80%
Source: USA Today
How does Buying Stock
on Margin work?
Step 1
Step 2
An investor
wishes to buy
100 shares at
$100 per share
However, the
investor has
only $4,000
available to
invest
Step 3
Step 4
The investor
finds he is able
to buy the
stock with a
40% margin
The investor
puts up $4,000
and borrows
$6,000 from
the broker
Measures of Investment
• Stock Quotations
• Bond Quotations
• Mutual Fund Quotations
Stock Quotes
• % Change in YTD Price
• High/Low Price
• Company Name & Stock Symbol
• Last Dividend Per Share
• Dividend Yield
• P/E Ratio
• # of Shares Traded
• Closing Price
• Net Change- Price
Mutual Fund Quotations
• Fund Name
• Net Asset Value
(NAV)
• Net Change in
NAV
• YTD Return
• Long-Term
Return
Original 12 Dow Stocks (1896)
• American Cotton Oil
• Laclede Gas Light Co.
• American Sugar
Refining Co.
• National Lead
• American Tobacco
• North American Co.
• Chicago Gas
• Tennessee Coal, Iron,
& Railroad Co.
• Distilling & Cattle
Feeding Co.
• U.S. Leather
• General Electric Co.
• U.S. Rubber Co.
How Much
Have They Grown?
1955
2003/2004
S&P 500
45.48
1126.21(’04)
NYSE
$207.7 Billion
Mutual
Fund
Industry
1 Million
Source: Fortune, 2004
$17.8 Trill (’03)
accounts
250 Mill (’03)
100
funds
8,000
$2.5 Billion
assets
$7 Trill
What Adults Believe About
Wall Streets’ Key Players
Good for USA
Successful Ones
Deserve High Pay
% Adults That Agree
With the Statement
Most are Honest
Dominated by Greed
Most Firms Would Break
the Law to Make More $
Only Want to Make $
Essential to the
Economy
40
Source: USA Today
45
50
55
60
65
70
75
**
CHAPTER
*
Demonstrating
Ethical
Behavior
and Social
Responsibility
4
Nickels
*
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Understanding Business, 8e
McHugh
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© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Ethics
• More Than Legality
• Standards are
Fundamental
• Ethics begins with each
of us
Top U.S. Ethical Issues
Improper Accounting Practices
Deceptive Sales/Marketing Practices
Conflicts of Interest
Lying on Reports/Falsifying Records
Dishonesty with Customers
Lack of Public Trust in Corporate America
Bribes and Kickbacks
Unfair Treatment of Employees/Customers
Securities and/or Bank Fraud
Discrimination
Producing Low-quality or Unsafe Products
0%
Source: CMO Magazine, October 2004
10%
20%
30%
40%
50%
60%
Ways to Prevent
Unethical Behavior
Increasing Penalties
for Offenders
Employee Education
Programs
Publicity About Those
Being Punished
A Code of Conduct
Adding Ethics Classes
to College Programs
New Laws
0%
Source: CMO Magazine, Oct. 2004
10%
20%
30%
40%
50%
60%
70%
80%
Most Popular Ways to
Monitor Employees
• Internet (74%)
• Background Exams (62%)
• Store and Review Email (43%)
• Store and Review Computer Files (31%)
• Videotape Employees (18%)
Source: USA Today
Ethics Check Questions:
• Is It Legal?
• Is It Balanced?
• How Will It Make Me Feel About
Myself?
Why Don’t We
Trust Corporations?
Unethical Business Practices by Accounting Firms
Misappropriation and Underfunding of Pension and
401(k) Funds
Misleading Communications
Underperforming Board of Directors
Excessive Compensation for Executives
Source: USA Today
56% 58% 60% 62% 64% 66%
Factors Influencing
Managerial Ethics
Individual
• Values
• Work
Background
Organizational
Environmental
• Top Level Mgmt.
Philosophy
• Competition
• Family Status
• The Firm’s
Reward System
• Personality
• Job Dimensions
• Economic
Conditions
• Social/Cultural
Institutions
Codes of Ethics
• Compliance-Based
• Integrity-Based
Steps to Improve
U.S. Business Ethics
1. Top management support
2. Employees’ understanding
3. Managers’ training
4. Ethics Office
5. Outsiders must be informed
6. Enforcement of ethics code
Levels of Corporate
Social Responsibility
Societal Responsibility
Stakeholder Responsibility
Ecological
General
Customers Profit Responsibility
Owners/Stockholders Employees
Public
Suppliers/Distributors
Public Interest Groups
Source: Marketing, 5/E by Berkowitz, Kerin, Hartley, and Rudelius.
Environment
Corporate Responsibility
(Percent of country’s top 100 companies that publish
separate CR reports)
Japan
UK
France
Germany
US
Italy
Spain
0%
Source: Financial Times, June 15, 2005
10%
20%
30%
40%
50%
60%
70%
80%
90%
Social Audit
• Company
• Outside Groups that serve
as watchdogs:
– Socially-Conscious Investors
– Environmentalists
– Union Officials
– Customers
International Ethics
and Social Responsibility
• Ethical problems are Not Unique to the
U.S. managers
• Demand for Socially Responsible
Behavior from Global Suppliers
• Joint Initiative on Corporate
Accountability and Workers’ Rights
• Inter-American Convention Against
Corruption
Best Company Reputation
• Johnson & Johnson (80.6)
• Coca-Cola (79.7)
• Google (79.5)
• UPS (79.4)
• 3M (78.8)
Source: USA Today
Most Admired
Global Companies
1.
2.
3.
4.
5.
General Electric
Toyota
Procter & Gamble
FedEx
Johnson & Johnson
Source: Fortune, 2006
6. Microsoft
7. Dell
8. Berkshire Hathaway
9. Apple Computer
10. Wal-Mart
**
Managing
Risk
Nickels
*
McGraw-Hill/Irwin
Understanding Business, 8e
McHugh
*
BONUS
CHAPTER
*
C
McHugh
1-83
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Riskiest Jobs
Farmers & Ranchers
Refuse Collectors
Structural Metal Work
Pilots & Flight Engineers
Logging Workers
Fishing
0
(Source: Bureau of Labor Statistics)
20
40
60
80
100
120
140
Workplace Deaths
Workplace deaths
2.500
2.000
2005 numbers
1.500
1.000
500
0
Transportation
Assualts and violence
Cause
(Source: www.iii.org)
Exposure to harmful
substances/environments
Managing Risk
• Types of Risk
• Reduce/Avoid Risk
• Loss-Prevention
Program
• Risk Management
Strategy
• Self-Insure
• Buy Insurance
– Uninsurable Risk
– Insurable Risk
– Law of Large
Numbers
– Rule of Indemnity
– Sources of
Insurance
Types of Risk
Pure Risk
• Potential for Loss with
no Potential for Gain
Speculative Risk
• Potential for Loss with
Possibility for Gain
Options After Risk
is Identified
• Reduce the risk
• Avoid the risk
• Self-insure against the
risk
• Buy insurance against
the risk
Self-Insuring Against
Risk
•
•
•
Many companies and municipalities have
turned to self-insurance.
Companies turn to this option because
they either can’t find or can’t afford
conventional property/casualty policies.
Firms set aside money to cover routine
claims and buy only “catastrophe”
insurance policies to cover big losses.
Costliest Disasters
Hurricane Katrina '05
Hurricane Andrew '92
11/09/2001
CA Quake '94
Hurricane Charley '04
Hurricane Ivan '04
Hurricane Hugo '89
Hurricane Frances '04
0,0
(Source: Insurance Information Estimates)
10,0
20,0
30,0
= projection
40,0
50,0
Worst Terrorist Acts
1. September 11, 2001 (U.S.): Hijacked
airliners crashed into the World Trade
Center and the Pentagon caused
$20.7 billion insured property losses.
2. April 24, 1993 (U.K.): Bomb exploded
near NatWest tower in the financial
district caused $974 million insured
property losses.
(Source: www.iii.org)
Types of Uninsurable Risk
Market Risk
Political Risk
Personal Risk
Operational Risk
Guidelines for Evaluating if
Risk is Insurable
1. The policymaker must have an insurable
interest.
2. The loss should be measurable.
3. The chance of loss should be measurable.
4. The loss should be accidental.
5. The risk should be dispersed.
6. The insurance company can set standards
for accepting the risk.
Rule of Indemnity
The rule of indemnity says
that an insured person or
organization cannot collect
more than the actual loss
from an insurable risk.
Types of Insurance
• Health
• HMO
• PPO
• MSA
• Disability
• Workers’
Compensation
• Liability
• Other Business
Insurance
• Life Insurance
for Business
• Home-Based
Business
Types of Property
& Liability Insurance
•
•
•
•
•
•
•
•
•
•
Fire
Automobile
Homeowner’s
Computer coverage
Professional liability
Business interruption
Nonperformance loss protection
Criminal loss protection
Commercial credit insurance
Title insurance
Average expenditure
Average Expenditures for
Auto Insurance in the U.S.
$900,00
$800,00
$700,00
$600,00
$500,00
$400,00
$300,00
$200,00
$100,00
$0,00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
Source: www.iii.org
Types of Life Insurance
• Group life insurance
• Owner or key executive life
insurance
• Retirement and pension plans
• Credit life insurance
Insurance Industry
• World insurance premiums totaled $3.4
trillion in 2005 according to Swiss Re.
• The Highline/National Association of
Insurance Commissioners data show
U.S. insurance premiums totaled $947.9
billion in 2005.
• In 2005, five hurricanes (Katrina, Wilma,
Rita, Ophelia and Dennis) caused $57.3
billion in damages, or 94% of total 2005
losses.
Source: www.iii.org
