Final Copy em Module 8.17
Final Copy em Module 8.17
Module
Entrepreneurial Mind
First Semester
S.Y 2020 -2021
Instructor’s Name:
Ms. SOPHIA MARIE V. PINTOR
Velez College / 2020 Entrepreneurial Mind
This module is aimed at helping students who opted to choose modular rather than the
online learning. The module aims to develop student’s confidence in using critical thinking
skills in Entrepreneurship.
As a general overview, this module aims at achieving the following essential aspects:
1. Learning Outcomes: A set of learning objectives provides a preview of the chapter
material and can be used by students to check whether they have understood and
retained important points geared toward achieving the necessary skills and
knowledge in Entrepreneurial Mind.
2. Time Frame. You will need approximately 18 weeks to finish and complete all the
recommended activities of this module. Essentially you will be taking control of your
learning environment. Your most significant considerations will be time and space;
that is; the time you dedicate to the environment in which you engage in that
learning.
3. Motivation. This is the topic opener where you mind is being set on a particular
lesson and the experience you will be encountering in exploring the topic.
4. Summary and Discussion Question. Each chapter closes with a summary of key
points to be retained. The discussion questions are a complementary learning tool
that will enable students to check their understanding of key issues, to think beyond
basic concepts, and to determine areas that require further study. The summary
and discussion questions help students discriminate between main and supporting
points and provide mechanisms for self-teaching.
5. Evaluation. This consists of the exercises given at the end of every discussion to
measure if you have understood the lessons you are studying.
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Course Description:
In this introductory business course, students learn the basics of planning and launching
their own successful business. Whether they want to start their own money-making
business or create a non-profit to help others, this course helps students develop the core
skills they need to be successful. They learn how to come up with new business ideas,
attract investors, market their business, and manage expenses.
This course aims to provide students with an understanding of the nature of enterprise and
entrepreneurship and orientates students towards an entrepreneurial mindset. It
introduces the role of the entrepreneur, innovation and technology in the entrepreneurial
process. Being entrepreneurial is not necessarily about starting a new venture, but is about
seeking opportunities and taking action to bring those opportunities into reality. It involves
"building something from nothing" and successful entrepreneurs know how to manage and
mitigate uncertainty and risk.
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TABLE OF CONTENTS
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TABLE OF CONTENTS
b. Partnership
c. Corporation
Chapter 9: Marketing
Marketing Research
a. Importance of Market Research
b. Market share forecasting
c. Forecasting Company Sales
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MOTIVATION
An Entrepreneurial Story
The video features 31-year-old, Joseph Calata from Bulacan, Philippines. He is Philippines’
Youngest Billionaire. He started his business at the age of 19 years old. As demands grew, he
looked into the agricultural market and he successfully set-up other business ventures because of
this. His success has brought global media attention. Now he uses some of his profits in making
his own foundation giving scholarship grants for the sons of Filipino farmers who wish to study
agricultural course overseas.
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2. What other factors do you see as significant in the success of his business?
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DISCUSSION
Entrepreneurship can be defined as a field of business that seeks to understand how opportunities
to create something new (e.g., new products or services, new markets, new production processes
or raw materials, new ways of organizing existing technologies) arise and are discovered or created
by specific persons, who then use various means to exploit or develop them, thus producing a
wide range of effects (Baron, Shane, & Reuber, 2008, p. 4)
A concise definition of entrepreneurship “is that it is the process of pursuing opportunities without
limitation by resources currently in hand” (Brooks, 2009, p. 3) and “the process of doing something
new and something different for the purpose of creating wealth for the individual and adding value
to society” (Kao, 1993, p. 70)
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An entrepreneur can be described as “one who creates a new business in the face of risk and
uncertainty for the purpose of achieving profit and growth by identifying significant opportunities
and assembling the necessary resources to capitalize on them” (Zimmerer & Scarborough, 2008,
p. 5).
An entrepreneur is “one who organizes, manages, and assumes the risks of a business or
enterprise” (Entrepreneur, n.d.).
Personal Attributes:
1. Creativity is the spark that drives the development of new products or services or ways to do
business. It is the push for innovation and improvement.
2. Dedication is what motivates the entrepreneur to work hard. Planning of ideas must be joined
by hard work to succeed.
3. Determination is the extremely strong desire to achieve success. It includes persistence and the
ability to bounce back after rough times.
4. Flexibility is the ability to move quickly in response to changing market needs. It is being true
to a dream while also being mindful of market realities.
5. Leadership is the ability to create rules and to set goals.
6. Passion is what gets entrepreneurs started and keeps them there.
7. Self-confidence comes from thorough planning, which reduces uncertainty and the level of risk.
8. “Smart” consist of common knowledge or experience in a related business endeavor.
Require Education
Required Skills
-Tolerance for risk taking and a willingness to leave the security of a conventional and tedious job
-The ability to multitask is key
Career Outlook
-Earning for entrepreneurs vary drastically, and income is often unstable, especially in the early
days of a new business.
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1. Business consultant - Business consultants provide advice about business issues, such as the
development and implementation of business plans, how to streamline operations or how to
expand into a new market.
2. Management analysts – The person who evaluates a business’ systems, procedures and
operations, they may also review a business’ financial matters, such as the ratio of income to
expenditures.
3. Sales – Someone who works in sales or run the department needs to know how businesses run.
They need to know how to represent a company, manage accounts, and follow up on leads.
4. Research and development – to work in R&D, you need to understand business concepts,
procedures, and practices. With all of the training and education someone has received learning
about entrepreneurship, they are well prepared for this type of position.
5. Not-for- profit fundraiser – Being able to raise funds requires understanding the importance of
business and networking relationships. It is a great place for someone with this type of degree
because you will have experience in studying advanced concepts that can be used to your
advantage on the job.
6. Intrapreneur – An intrapreneur is an inside entrepreneur, or an entrepreneur within a large
firm, who uses entrepreneurial skills without incurring the risks associated with those activities.
Entrepreneurship is thus important for a number of reasons, from promoting social change to
driving innovation.
For example, a few information technology companies made up the IT industry in India during the
1990s. The industry quickly expanded and many other sectors benefited from it. Businesses in
associated industries—such as call center operations, network maintenance companies, and
hardware providers—flourished.
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Education and training institutes nurtured a new class of IT workers who were offered better, high-
paying jobs. Infrastructure development organizations and even real estate companies capitalized
on this growth as workers migrated to cities where employment was growing.
Additionally, increased employment and higher earnings contribute to better national income in
the form of higher tax revenue and higher government spending. This revenue can be used by the
government to invest in other, struggling sectors and human capital. Although it may make a few
existing players redundant, the government can soften the blow by redirecting surplus wealth to
retrain workers.
For example, the water supply in a water-scarce region will, at times, forces people to stop working
to collect water. This will impact their business, productivity, and income. Imagine an innovative
and automatic pump that can fill people's water containers automatically. This type of innovation
ensures people are able to focus on their jobs without worrying about a basic necessity like water.
More time to devote to work translates to economic growth.
For a more contemporary example, smartphones and apps have revolutionized work and play
across the globe. Smartphones are not exclusive to wealthy countries or people. As the growth of
the smartphone market continues, technological entrepreneurship can have a profound, long-
lasting impact on the world.
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Community Development
Entrepreneurs regularly nurture ventures by other like-minded individuals. They also invest in
community projects and provide financial support to local charities. This enables further
development beyond their own ventures.
Some famous entrepreneurs, such as Bill Gates, have used their money to finance good causes,
from education to public health. The qualities that make one an entrepreneur are the same
qualities that help motivate entrepreneurs to pay it forward.
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EVALUATION
A. Acrostic Activity
Instructions: Construct your self -definition of the word entrepreneurship. Create a brief phrase
or sentence for each letter of the word ENTREPRENEURSHIP.
E-
N-
T-
R-
E-
P-
R-
E-
N-
E-
U-
S-
H-
I-
P-
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SELF-ASSESSMENT
Essay Writing
Instructions: Construct an essay. A blank paper is provided. You may use an additional paper for
this activity.
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REFERENCES
https://openpress.usask.ca/entrepreneurshipandinnovationtoolkit/chapter/chapter-1-
introduction-to-entrepreneurship/
https://www.investopedia.com/articles/personal-finance/101414/why-entrepreneurs-are-
important-economy.asp
“Ang Batang Bilyonaryo – Filipino Entrepreneur”
https://www.youtube.com/watch?v=K5KJC_SNQKM
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RUBRICS
Criteria Excellent Proficient Adequate Limited
50 40 30 20
Use of Three or more Three or more reasons Two reasons are Arguments are
Reason excellent reasons are are stated, but the made but with weak or
and stated with good arguments are weak arguments. missing. Less
support support. It is evident somewhat weak in than two
that a lot of thought places. reasons are
and research was put made.
30% into this assignment.
30 25 20 15
Word Word choice is Word choice enhances There is evidence Word choice is
Choice, creative and enhances the argument. There of attention to limited. There
Grammar, the argument. There are few errors in word choice. There are numerous
Mechanics are no errors in grammar, mechanics, are several errors errors in
& Spelling grammar, mechanics, and/or spelling, but in grammar, grammar,
and/or spelling. they do not interfere mechanics, and/or mechanics,
with understanding. spelling. and/or
20% spelling.
20 15 10 5
Comments:
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I. MOTIVATION
Read Section 1.2 ‘Scoping and defining entrepreneurship’ in Exploring Entrepreneurship: Practices
and Perspectives (Blundel and Lockett, 2011, pp. 4–9) and make your own notes on the working
definitions of ‘entrepreneurs’, ‘entrepreneurial activity’, ‘entrepreneurship’ and ‘enterprise’ that
are offered in the text. Also spend a few minutes considering the different kinds of activity that
might be described as entrepreneurial, based on the ways it is organized, the context in which it
takes place and the goals that are pursued in its name.
Now watch: Fraser Doherty from Edinburgh, who started making jam at home with his
grandmother at the age of 14, he became the youngest ever supplier to a major supermarket chain
when Waitrose launched the range in March 2007. As the demand grew, he looked into the jam
market and spotted a gap for a healthier brand which he successfully marketed to supermarket
chains. His success with SuperJam has brought global media attention.
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2. What other factors do you see as significant in the success of his business?
3. What was Fraser’s initial business obstacle? How did he managed to solve this predicament?
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DISCUSSION
The entrepreneurial mindset is about a certain way of thinking -- it is about the way in which you
approach challenges and mistakes. It is about an inherent need to improve your skill set and to try
and try again.
Entrepreneurship is an activity that assures the viability and growth of the economy. Through
entrepreneurship, goods and services are produced, employment is provided to many people,
taxes are paid to the government, the products and services of suppliers are brought, and future
entrepreneurs are provided with venues for training.
Much of the entrepreneurial mindset involves a steadfast commitment to a very narrow vision.
This drive allows entrepreneurs to carry out the necessary steps to accomplish that vision. The
problem is that the demands of the day can get in your way, creating a space where your vision
recedes. This leaves room for frustration and doubt, which can lead to stagnation or worse.
The Entrepreneur’s task consists of assembling the resources consisting of land, labor, and capital
for the purpose of producing goods and services. The entrepreneur is also responsible for deciding
on the rate of output his venture must produce. He also bears the risk inherent to the venture. If
the entrepreneur’s task appears to be a great burden, the prospect of profit make it bearable.
Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an
opportunity for a different business or a different service. It is capable of being presented as a
discipline, capable of being learned, capable of being practiced. Entrepreneurs need to search
purposefully for the sources of innovation, the changes and their symptoms that indicate
opportunities for successful innovation. And they need to know and to apply the principles of
successful innovation (Drucker, 1985, p. 19).
Drucker (1985) argued that innovation should be viewed as an economic or social phenomenon
rather than a technological term. Innovation is not about making new inventions, but rather
about recognizing how to take advantage of opportunities and changes: “Systematic innovation
therefore consists in the purposeful and organized
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search for changes, and in the systematic analysis of the opportunities such changes might offer
for economic or social innovation” (p. 35). This is consistent with Schumpeter’s (1934) view that
innovation arises from new combinations of materials and forces.
Individual competencies are the combination of learnable behaviors that encompass attitudes
(wanting to do), skills (how to do), knowledge (what to do), practical experiences (proven
learning), and natural talents of a person in order to effectively accomplish an explicit goal within
a specific context.
Collective competencies are the synergistic combination of the individual competencies of team
members within organizations. There is a continuum that exists from low-functioning teams to
high-functioning teams. High-functioning teams, although very rare, are those that apply
collective competencies the most effectively (Matthews & Brueggemann, 2015, p. 10).
Core competencies are those that are collectively held and that include “the learnable behaviors
the entire organization must practice in order to achieve competence in relation to the
organization’s purpose and its competitive environment. A core competency encompasses the
knowledge, skills, and technology that create unique customer value” (Matthews &
Brueggemann, 2015, p. 11):
Organizations need to identify what core competencies they need to cultivate in their precious
human resources in order to meet a competence level that rises above the competition. The
three tests to identify a core competence are:
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Entrepreneurs must assess their and their organization’s individual competencies to better
understand how to fill competency gaps and build collective and core competencies.
Elements of Innovation
Matthews and Brueggemann (2015) identified the following 12 elements of innovation. They
argued that innovation is best understood by first examining each of the following elements.
Innovation Degrees
Incremental innovations are small-scale improvements on what is already being done, often with
the intention to improve efficiencies to reduce costs, or improve products or services offered:
“Both Six Sigma and Lean are well-regarded managerial quality improvement programs that
explicitly target the removal of many types of organizational waste and variability…. An
incremental innovation can be used to differentiate products for marketing purposes” (Matthews
& Brueggemann, 2015, p. 34).
Evolutionary innovations involve doing new things for existing customers and markets, and also
doing things that extend product offerings to new customers and new markets (Matthews &
Brueggemann, 2015).
Revolutionary innovations are when businesses pursue new products, businesses, customers, and
markets. The impacts from these types of innovations can be much higher than from either
incremental or evolutionary innovations (Matthews & Brueggemann, 2015).
Innovation Types
There are many types of innovations. “Organizing innovation into types makes it is easier to
understand how you can use multiple types of innovation simultaneously. The fundamental
innovation types include products, customer experiences, solutions, systems, processes, and
business and managerial models” (Matthews & Brueggemann, 2015, p. 37). Matthews and
Brueggemann (2015) combined the innovation degrees with the innovation types to develop The
Innovation Matrix.
Innovation Direction
Innovation direction is a concept that encompasses forward and reverse innovation.
Innovation direction is a notion that is based on the source and target of the innovation. A
forward innovation would have its source in country X and the target in country X. A reverse
innovation would have its source in country Y and later.
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Innovation Risk
The entrepreneurial ecosystem described earlier in this book indicated that individuals, firms, and
organizations are interconnected in ways that impact each other. According to Matthews and
Brueggemann (2015), co-innovation risk occurs when multiple actors in the ecosystem attempt to
innovate, which leads to the possibility that a new innovation developed by one company is ready
at a different time than a dependent second innovation developed by another firm. For example,
it can be disastrous for a computer hardware company to release a new product that is dependent
upon new software if the company developing that software does not make it available on time.
Adoption chain risk also occurs when multiple firms in the value chain are simultaneously
developing new products and services. If one firm, for example, releases a product that must be
serviced by a different company before that other company is prepared to offer that service, the
product release can fail (Matthews & Brueggemann, 2015).
Companies must take the lead in bringing business and society back together. The recognition is
there among sophisticated business and thought leaders, and promising elements of a new
model are emerging. Yet we still lack an overall framework for guiding these efforts, and most
companies remain stuck in a “social responsibility” mindset in which societal issues are at the
periphery, not the core.
The solution lies in the principle of shared value, which involves creating economic value in a way
that also creates value for society by addressing its needs and challenges. Businesses must
reconnect company success with social progress. Shared value is not social responsibility,
philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the
margin of what companies do but at the center. We believe that it can give rise to the next major
transformation of business thinking.
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The purpose of the corporation must be redefined as creating shared value, not just profit per
se. This will drive the next wave of innovation and productivity growth in the global economy. It
will also reshape capitalism and its relationship to society. Perhaps most important of all, learning
how to create shared value is our best chance to legitimize business again (Porter & Kramer,
2011, p. 4).
Innovation Thresholds
Organizations should strive to achieve their innovation threshold:
An innovation threshold is a marker that each business sector needs to achieve in order to be
competitive. To thrive, an organization cannot under-innovate, while over-innovation would be
wasteful and ineffectual. Innovation thresholds range from low to high, and are different for each
business sector. Once an organization achieves the innovation threshold, additional innovation
may not matter (Matthews & Brueggemann, 2015, p. 52).
After achieving their innovation threshold such that more innovation might not generate enough
extra value to make the effort worthwhile, organizations must rely on other innovation
competencies. For example, some industries like insurance and airlines have a relatively low
product innovation threshold, so after reaching it they must rely on other forms of innovation and
entrepreneurship competencies “such as creativity, culture, strategy, leadership, and technology”
(Matthews & Brueggemann, 2015, p. 53) to further advance their goals. Higher technology fields
normally have higher product innovation thresholds and can gain much by striving for more
product innovations.
Innovation Criteria
Matthews and Bruggemann (2015) argue that a design should be judged based on its desirability,
feasibility, and viability: “An innovative design needs to be desirable, feasible, and aligned with a
sustainable business model” (Matthews & Brueggemann, 2015, p. 53).
Innovation Processes
Another element of innovation is the set of planned innovation processes that are required to
make innovation happen. These processes must balance the need to provide customers with what
they want with what is technologically feasible and financially viable. One example of an
innovation process is design thinking.
Innovation Diffusion
Lundblad (2003) defined diffusion of innovation as “the adoption and implementation of new
ideas, processes, products, or services” as she studied the diffusion of innovation “within and
across organizations” (p. 51). This concept is particularly important because many sectors of the
economy strive for organizational improvement, but “innovations often are not diffused within
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and across organizations to achieve improvement” (p. 51). To illustrate her point, she described
how research in the healthcare sector has led to the development of new advancements in clinical
practice and process improvements, yet—despite the relatively low cost to implement many of
these process innovations—it often takes many years before these improvements are adopted
into practice, if they ever are. This means that often there is a gap between when an innovation is
developed and when it is implemented in practice.
The Theory of the Diffusion of Innovation can help us understand what we must do in terms of
implementing steps and processes for innovations to be diffused into the areas of practice where
they are needed. There are four main elements of the theory.
The first element of the theory is the innovation itself, whether that be an idea, a product, a
process, or something else that is new to the potential adopters. The theory says that there are
several characteristics of the innovation that affect its rate of adoption, including its complexity
and its compatibility with whatever it will be connected within some manner (Lundblad, 2003).
The second element is communication, specifically the processes used by people to share the
information needed to develop a common understanding. The rate of adoption will depend upon
the sources of communication, even more so than the technical information contained in the
messages (Lundblad, 2003).
Time is the third element of the theory. According to Rogers (2003), who developed the Theory of
the Diffusion of Innovation, three considerations are related to the time element. The first is the
innovation-decision process that describes the gap in time between when a potential early
adopter learns about an innovation and either adopts it or doesn’t. There are several stages that
the potential adopter goes through during this time frame. Second, Rogers (2003) classified
potential adopters as “innovators, early adopters, early majority, late majority, and laggards”
(Lundblad, 2003, p. 54) based upon how early they were likely to adopt an innovation. Finally, the
rate of adoption describes how quickly the innovation is adopted. As Lundblad (2003) noted,
Innovation adoption tends to follow an S-shaped curve, meaning that only a few individuals
initially adopt the innovation; but as time moves on and more and more individuals adopt, the
rate increases. Eventually, though, the adoption rate levels off and begins to decline. (p. 54)
The final element of the theory is social system. Rogers (2003) said that diffusion of innovation
occurs within a social system, which might be somewhat limited, like the members of an
organization, or widespread, like all of the consumers in a country. Some members within a social
system, such as“opinion leaders, change agents, and champions” (Lundblad, 2003, p. 55),
influence others.
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Innovation Pacing
Innovation pacing refers to the speed with which an organization delivers innovations, and how
that impacts its ability to compete: “Pacing is influenced by your innovation capability and the
ability of your customers to adopt those innovations” (Matthews & Brueggemann, 2015, p. 60).
Innovation Value
Red ocean strategies focus on competing with other players for market share within industries
that currently exist. This type of thinking can be a constraint if it restricts organizations’ abilities to
adapt to change and to figure out ways to pursue blue ocean strategies, namely entirely new
markets, business models, industries, and other opportunities that others have not yet been
conceptualized or pursued. Blue ocean strategies are not about competing with others; they are
about rendering competitors irrelevant because they are not playing in the same field as your
organization, and, more importantly, they are not matching the value that you create for
customers in the new market that you opened up: “Value without innovation is an improvement
that may not be sufficient for organic growth. Innovation without value does not provide the utility
that customers would be willing to purchase. Innovation needs to be aligned with value comprised
of utility, price, and cost” (Matthews & Brueggemann, 2015, p. 62).
Disruptive Innovation
The last element is disruptive innovation:
Disruptive innovations are different than incremental, evolutionary, and revolutionary innovation
degrees. A disruptive innovation is not a revolutionary innovation that makes other innovations,
such as products and services, better. Rather, a disruptive innovation transforms any type of
innovation that historically was expensive and complicated into an innovation that is affordable,
simple, and available to broader markets (Matthews & Brueggemann, 2015, p. 63).
The transition from a new venture to a long- term enterprise consist of the pre-start –up stage,
start-up stage , early growth stage and late growth stage.
The factors of production are rewarded accordingly and if the entrepreneur is successful, he
receives profit.
The entrepreneur cannot feel secure of continuous success in his new venture. There are
competitors he must be contend with.
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Starting an enterprise entails four ‘gates’ to reach the ‘House of Prosperity’. Each gate has its
unique requirements. Like a race, entering one gate and finishing that stage is not an assurance
the next one will readily be open. It is only when all tasks in the four gates are successfully
accomplished that prosperity and success can be attained.
These four gates to the ‘House of Prosperity’ can be found in the recently launched book
‘Entrepreneurship: Starting an Enterprise, Having an Innovative Mindset’ (by Josiah Go and Chiqui
Escareal-Go) available at National Book Store and Power Books nationwide.
The first gate in the entrepreneurship journey is the preparation gate. Here, the entrepreneur
looks into money, model (business model) and mentorship. The wealth conversion principle states
that wealth is created by converting money or cash (or its equivalent) into inventories, and back
to cash when sold at a profit. If credit terms have been granted, it should be collected. Having the
right business model is indispensable in order to maximize revenue while pursuing cost efficiency.
Mentors can give the appropriate pieces of advice for the entrepreneurs to avoid mistakes,
accelerate the learning curve or even open windows of opportunities. The entrepreneur also
needs ample knowledge /intelligence or IQ, while building an ecosystem appropriate for his/her
business during the preparation stage.
The second gate is the marketing gate, composed of mindset, market, and message. Here,
opportunity seeking, screening, and seizing, are formulated. Having an innovative mindset gives
the entrepreneur an edge, as formulation of offers are purposely differentiated and distinctive,
avoiding the commodity trap that may lead to costly price or promo wars. Here, entrepreneurs
identify a profitable target market as well as understand how the market makes purchase
decisions. Messages are then drafted in order to resonate with the buying goals of the target
markets. The entrepreneur needs creativity or CQ to keep growing the business during the
marketing stage.
The third gate is the execution gate, composed of machinery, methods, and management skills.
Value is actually created when strategies formulated are executed. Machinery is having an
organization that can deliver its intended value. Methods, on the other hand, are processes that
routinize what needs to be done efficiently and effectively, while management skills entail
knowledge of people handling and reward handling, and having leadership skills. The entrepreneur
needs emotional quotient or EQ to build the right culture to get things done.
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The fourth and final gate is the self-leadership gate, which includes having the tenacity to keep
moving forward, having a compelling mission, and aspiring to have self-mastery. Entrepreneurs
will encounter challenges in business and he or she must possess adaptability and grit in order to
pivot and keep moving forward. Having clarity with the firm’s mission helps unify the team as well
as customers, while mastery entails knowing what the entrepreneur wants to be, with thinking
and sensemaking skills, as well as mastering influencing, discovering and executing skills. The
entrepreneur needs high adversity quotient or AQ not just to survive but make a difference with
the business.
Entering all four gates allows the entrepreneur to experience the two benefits of the House of
Prosperity. The first is about having accomplished the 5 critical tasks: having
2) cash flow,
3) profit,
5) vision/mission.
2) a meaningful self-
3) good health,
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EVALUATION:
I. Instructions: Answer the following questions. (30 pts)
1. Why is entrepreneurship an important component of economic development?
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SELF-ASSESSMENT
Read Case 1.1 Helen Child: an entrepreneur looks back in Exploring Entrepreneurship: Practices
and Perspectives (pp. 2–3).
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Questions:
1. How does Fraser’s entrepreneurial experience compare to that of Helen? List the main
similarities and differences (you may also wish to include a comparison with your own
direct or indirect experiences). Watch “Fraser Doherty - SuperJam” (duration: 08:15
minutes). Youtube video https://www.youtube.com/watch?v=e5aYvxUOULY
2. Read Section 1.2 on google type in the search engine ‘Scoping and defining
entrepreneurship’ in Exploring Entrepreneurship: Practices and Perspectives (Blundel and
Lockett, 2011, pp. 4–9) In what ways do you think the success of Helen’s new venture can
be explained by: (a) individual-level factors (Chapter 12); (b) social factors (Chapters 11 and
13)?
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3. What practical lessons about entrepreneurship would you take from Helen’s experience?
4. How did the stories of these entrepreneurs compare? Did you notice any similarities,
either at the individual level, or in terms of external factors (for example social or
economic trends) that have helped shape their entrepreneurial careers?
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REFERENCES
https://josiahgo.com/the-4-gates-of-entrepreneurship/
https://openpress.usask.ca/entrepreneurshipandinnovationtoolkit/chapter/chapter-9-innovation-and-
entrepreneurship/
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RUBRIC
Use of Used specific and Used relevant Used examples Used incomplete
textual convincing examples from from texts to or vaguely
evidence and examples from the texts support most developed
historical the texts studied studied to claims in the examples to only
context to support claims support claims writing with some partially support
in the writing, in the writing, connections made claims with no
making insightful making between texts. connections made
30% and applicable applicable between texts.
connections connections
between texts. between texts.
30 25 20 15
Comments:
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MOTIVATION
What would you do if……?
“You are in a class taking an exam, you are struggling, your teacher turns her back and the
student in front of you has the the answer sheet available for you to see, what would you do?
Questions to consider:
1. Could your decision become habit forming?
2. Is it legal?
3. Is it the right thing to do?
4. Could I defend my actions?
5. Is it just, balanced and fair?
6. How will I feel about myself?
DISCUSSION
An entrepreneur is one who organizes, manages and assumes the risk of an enterprise. An
entrepreneur visualizes a business, takes bold steps to establish undertaking, coordinates the
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various factors of production and gives it a start. An entrepreneur should be aware of ethics and
social Responsibility in business and should follow them in order to maintain the ecological
balance in the society. The study and examination of moral and social Responsibility in relation to
business practice and decision making in business is known as “Business Ethics”.
The term “business” is commonly referred to the commercial activities achieved at making profit,
but gradually there is a substantial change in the way in which people viewed the business.
In the past primary objective of a business was profit maximization but the present perspectives
on business objectives are not maximization. Besides profit maximization the entrepreneur needs
to fulfil the ethics in the business
Definition
James and stoner said, “Values are a relatively permanent desire that seems to be good in them”.
Social Responsibility implies that business man should oversee the operation of an economic
system that fulfils the expectations of the public. - W.Fredick Social Responsibility has been
defined by Andrews “By social Responsibility, we mean the intelligent and objective concern for
the welfare of society that restrains individual and corporate behaviour from ultimately
destructive activities, no matter how immediately profitable, and leads in the direction of positive
contributions to human betterment, variously as the latter may be defined.”
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1) Public Image. The activities of an entrepreneur towards the welfare of the society earn goodwill
and reputation for the business. People prefer to buy products of a company that engages itself in
various social welfare programs. Again good public image also attracts the honest and competent
employees to work with such employers.
2) Employee Satisfaction. Employees are the part of the society. If you satisfy your needs, then
you are doing social work.
3) Ethical Leadership. It is the belief that what entrepreneur does has a strong influence on
employees. If manager cheats, Lies, steals or manipulates, then they are sending wrong signals to
employees.
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one day salary to help victims of Bihar floods. Wipro has set up a foundation named Azim Premji
Foundation to help improve education of the elementary schools in rural India.
5) Environment Management. Managers and Organizations can do many things to protect and
preserve the natural environment which includes plastic less business by giving paper bag, creating
eco-friendly product, by eliminating production.
6) Consumer Awareness. Consumers have become very conscious about their rights. If you are
giving high quality products at cheap rate, that is kind of social Responsibility
1) Value system influences the choice of organizational goals and strategies adopted to achieve
those goals.
2) Individual judge organizational success as well as its achievement on the basis of their value
system.
3) Values determine the extent to which individuals accept organizational pressure and goals. If
these do not match their value they throw the organizational pressure and goals and even leave
the organization.
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3) Goals of an Entrepreneur Value of an entrepreneur will have a direct influence on the goals and
objective he sets. The following are the goals of a typical entrepreneur are:
Customer Satisfaction
Achievement of departmental and organizational goal
Employee Motivation
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Two-way activities, CSR make the upliftment of society, which in turn will co-operate with
business firm in achieving their business goals.
To make the best use of natural resources so as to raise the level of national income and
standard living of people.
To create more and more employment opportunities for semiskilled people
To protect the ecology of nation.
To contribute to the economic development of backward region of the country.
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Conclusion
All the Entrepreneurs should consider ethics and social responsibility as their part of life. Doing
business legally and ethically will lead a development to the country. The entrepreneur should do
business without affecting the society. We all have an image of our better selves-of how we are
when we act ethically or are”at our best”. We probably also have an image of what an ethical
community, an ethical business an ethical government, or an ethical society should be Creating
ethical organizations and governments makes our society as a whole ethical in the way it treats
everyone. The government also should take necessary steps for the development and welfare of
Entrepreneurs.
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EVALUATION
Instructions: Multiple Choice: Write the capital letter of your choice on the space provided
before the number. (Score = x2)
_____1. Business ethics deals primarily with
a. Social responsibility
b. The pricing of products and services
c. Moral obligation
d. Being unfair to the competition
_____3. According to the concept of moral intensity, a worker is most likely to behave ethically
and legally when
a. A manager observes his or her behavior closely.
b. The worker has intense morals.
c. The consequences of his actions are minor.
d. The consequences of the act are substantial.
_____5. Small - business owner Jason is thinking about giving a potential customer an expensive
paid vacation to Las Vegas for her and her husband. When asked if he is being ethical,
Jason replies, “Look whatever works, works.” Which ethical principle is Jason most likely
using?
a. Focus on the rights of individuals
b. Pragmatism
c. Utilitarianism (consequences)
d. Focus on integrity (virtue ethics)
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_____6. Bonita is an ethically centered production manager so she will ship a product
a. Only after all its problem have been eliminated
b. Only if the shipping people use packing material that does not harm the
environment.
c. Only after an ethics committee has approved it.
d. As quickly as she can to meet the customer’s schedule.
_____8. According to concept of moral laxity, workers will often behave unethically because
a. They have planned to be unethical.
b. They come from dysfunctional families.
c. Other issues seem more important at the time.
d. Management pressures them into unethical behavior.
_____10. Which of the following is not recommended as a method for a company to protect
itself against sexual harassment charges?
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EVALUATION
Situation 1: Miguel Sutton applied for a payroll clerk job with Search Services, a market research
firm. To improve his chances in getting the job, he exaggerated his work experience on his résumé.
Based on this résumé, Miguel was hired. After one year, he received above-average ratings during
his annual performance review. Shortly thereafter, his boss met Miguel’s former supervisor and
learned the truth.
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Situation 2: National Automotives assembles a safety system for passenger automobiles. This
system substantially reduces severe injuries to drivers involved in accidents. In an effort to
increase profits, National recently took steps to cut costs and increase production. National has
begun using some less expensive components. These components increase the system’s estimated
failure rate from 12 to 15 failures per 10,000 accidents. Despite this increase, the company
continues to meet the government’s safety standard of 20 failures per 10,000 accidents.
Instructions Use the three-step checklist to determine whether or not the action by National
Automotives demonstrates ethical behavior.
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REFERENCES
http://ijrmbs.com/vol4issue1/nivethigha.pdf
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RUBRIC
25 20 15
10
Use of textual Used specific and Used relevant Used examples Used incomplete
evidence and convincing examples from from texts to or vaguely
historical context examples from the texts studied support most developed
the texts studied to support claims claims in the examples to only
to support claims in the writing, writing with some partially support
15% in the writing, making applicable connections made claims with no
making insightful connections between texts. connections made
and applicable between texts. between texts.
connections
between texts. 8
12 4
15
10 7 5 3
Comment/s:
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MOTIVATION
Instruction: This short activity will get you moving and assessing your own strengths as future
entrepreneurs. The activity was developed using the characteristics of entrepreneurs identified
by WESST, a business development organization serving New Mexico, https://www.wesst.org/.
Part 1:
Read the Handout 1: “Entrepreneur Statements” and Handout 3: “Growing Your Entrepreneurial
Skills.” Handout 3 is designed to be completed on your own. Choose two out of the 10 statements
from the handout that describe an area you would like to improve. You will analyze why these two
characteristics are important for an entrepreneur and set SMART goals—specific, measurable,
attainable, relevant, and timely—to improve these skills.
Part 2:
Entrepreneurship
One of the four factors of production, or productive resources, it is the process of discovering new
ways of combining the other factors of production.
http://www.econlib.org/library/Enc/Entrepreneurship.html
A B C D
1. Leadership 4 3 2 1
2. Competition 4 3 2 1
3. Money 3 1 4 2
4. Mistakes 2 1 3 4
5. Ideas 2 1 3 4
6. Interpersonal 2 4 3 1
7. Work 2 4 3 1
8.Physical stamina 4 3 2 1
9. Problems 2 1 4 3
10. Planning 3 4 1 2
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If you scored from 32–40 points, born to be an entrepreneur: People scoring in this range tend to
have strong interpersonal skills and are comfortable taking the lead. Their money and planning
habits indicate they will have the financial resources and self-discipline needed to put their
business ideas into action. These individuals can easily handle long work hours and high levels of
responsibility when pursuing their goals. They don’t mind selling themselves and their ideas to
others and thrive on competition.
If you scored from 23–31 points, entrepreneurial under the right circumstances: People scoring
in this range have some characteristics associated with entrepreneurs, but they may need to work
on other skills before starting their own business. For example, some who are shy now may
become less so as they become experts in their field of knowledge or actively seek opportunities
to develop more confidence in social situations. People who tend to be spontaneous with money
or life decisions now may become more strategic in these areas as responsibilities increase.
If you scored less than 23 points, don’t worry, only 14 percent of the Philippine population are
entrepreneurs: According to the 2014 Global Entrepreneurship Monitor, only 14 percent of our
population are entrepreneurs. These business owners will need you or you may decide to develop
more of these skills as you age! It is predicted that 24 percent of entrepreneurs will hire 20 or
more workers over the next few years. That means good career opportunities for you even if you
do not have any interest in running your own business. Who knows, you may become so good at
your area of expertise that you end up going out on your own one day.
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1. Look at your performance in each area associated with successful entrepreneurs. Identify two
of the areas in which you would like to improve your skills and record them here.
2. Using the definition of entrepreneurship and the forces motivating entrepreneurial risk taking,
explain why you think these two areas are important to being a successful entrepreneur
3. Set a short-term goal for each area you identified in #1 above. Be sure your goal can be
accomplished within the next year and is SMART. SMART stands for specific, measurable,
attainable, relevant, and timely.
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DISCUSSION
Have you ever thought running your own business? Do you think you can handle to the stress and
hard work that go with running a small business enterprise?
Entrepreneurship has brought great success to some, but it’s not a career path for all.
The key to succeed in a small business enterprise is your entrepreneurial ability to produce the
desired results. Before embarking on your first business, it’s worth spending some time evaluating
your own preparedness for entrepreneurship.
Try to examine your own personality and compare it with the Personal Entrepreneurial
Competencies (PEC) of a successful entrepreneur. Ask yourself if you are ready to enter the world
of business. If your answer is yes, take this reminder: “Successful entrepreneurs continuously
develop and improve their PEC’s”.
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Every person has a personality that is unique and different from others. Each personality type
has a corresponding type of job that fits it. A certain personality, however, may fit in more than
one type of job, although the level of fitness will be different with each job.
What is Personality?
-refers to the patterns of characteristics that distinguishes one person from another.
-It includes the person’s traits, values, motives, genetic blueprints, attitudes, emotional
reactivity, abilities, self-image, intelligence, and visible behavior patterns.
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Table 3
The Entrepreneur Compared To Other Risk Takers
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Entrepreneur Manager
Is visionary and bears all financial risks Works for salary, and does not have to
bear any risks.
Key motivation for them are achievements Their motivation comes from the power
that comes with their position
Reward for all the efforts is profit he earns Remuneration is the salary he draws
from the enterprise from the company
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Internal locus of control, need for achievement, risk tolerance, and entrepreneurial alertness are
dimensions of personality traits which lead a person to develop the entrepreneurial intention.
Effects of these personality traits dimensions on the entrepreneurial intention have been
examined in this study. The trait approach is based on McClelland’s (1961) psychological work on
entrepreneurs. Bird and Jelinek (1988) claim that successful entrepreneurs distinguish
themselves from unsuccessful ones by the interaction of their internal locus of control and
external locus of control (Gaddam, 2008: 39). According to Frese (2009), need for achievement,
locus of control (self-efficacy), innovativeness, risk taking are important personality attributes
whereas education, experience, mental ability and knowledge are important human capital
attributes for entrepreneurial orientation (Frese, 2009: 459).
Locus of control (LoC) is the degree of control of a person over his/her life. Internal LoC shows
that a person believes his/her decisions can control his/her life whereas external LoC shows that
a person’s life is affected from external factors such as destiny, luck, other people beyond his/her
decisions. It is expected that people who have internal LoC can determine their career paths,
have entrepreneurial intentions and start their own businesses.
LoC is a measure of the belief of people in their ability for controlling the environment through
their actions. Brockhaus and Horwitz (1986) believe that people perceive the outcome of an
event or their behaviors within their control (internal LoC) or beyond their control (external LoC)
based on the theory of LoC. They (1986) claim that LoC is a good measure to distinguish the
successful entrepreneurs from the unsuccessful entrepreneurs. They (1986) revealed that
entrepreneurs whose businesses survived for three years had higher LoC than other people.
Several studies which verify that internal LoC influences entrepreneurial intentions have been
conducted in the literature (Brockhaus and Horwitz, 1986; Hansemark, 1998; Mueller and
Thomas, 2000; Gürol and Atsan, 2006). People who have higher internal Loc will take risks and
establish businesses. They believe that their actions can control the environment. Many studies
showed that entrepreneurs had higher LoC than other people (Brockhaus and Horwitz, 1986;
Hansemark, 1998; Mueller and Thomas, 2000) (Orman, 2009: 25-27).
LoC is a personality characteristic which shows the level of control feeling. Hisrich and Peters
(1998: 68) believe that LoC is “an attribute indicating the sense of control that a person has over
life.” Green et al. (1996) believe that LoC is “the degree to which a person perceives success and
failure as being contingent on his/her personal initiatives.” People who have limited internal
control believe that things happen due to destiny or accidents. Venkanthapathy (1984) assumes
that internal control is one of the most dominant entrepreneurial characteristics. Entrialgo et al.
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(2000) add that people who have high scores on feeling of control have clear visions of the future.
Mazzaro et al. (1999) state that when the internal LoC of people is stronger, entrepreneurial
intention is greater (Kristiansen and Indarti, 2004: 59- 60).
Rotter believes that (1966), internal LoC is related to entrepreneurs who believe their actions
determine obtained rewards. People who have high internal LoC feel that they can control
outcomes, must try harder and be more persistent for outcomes to establish and manage new
ventures. On the other hand, externally controlled people can be more passive. When a person
believes that he cannot control outcomes, he doesn’t try to change his environment to establish
a new venture (Rauch and Frese, 2007: 359).
Lefcourt (1972) believes that internal expectancy shows a propensity to affect a person’s
environment. Wichman and Oyasato (1983) claim that internally-oriented people have greater
learning and adaptive abilities. Rotter (1966) differentiates people in two categories: people who
are more internally-controlled and people who are more externallycontrolled. People who are
more internally-controlled show their interests more successfully, and manage themselves over
crucial life occurrences. They can regulate social interactions much better and depend on other
people less. According to Dailey and Morgan (1978); Panday and Tewary (1979), entrepreneurs
are more internally-controlled. Brockhaus (1982) and Bonnett and Furnham (1991) add that
successful entrepreneurs are more internally-controlled. Spector (1982) states that internally-
controlled people determine their goals and ways to reach to them. He (1982) adds that
internally-controlled people act “more adequately with less restrictive work conditions and role
ambiguity.” Brockhaus (1982) believes that an essential requirement of entrepreneurial potential
is the intention to carry through. Brockhaus (1987) compared the internal orientation of
entrepreneurs when they established their new ventures and 13 years later than the
establishments. He (1987) found that successful entrepreneurs who could manage their
companies for 13 years were more internally focused than unsuccessful ones who lost their
companies (Raab et al., 2005: 74-75).
Need for achievement (nAch) is the drive of a person to succeed. People who have high nAch
have entrepreneurial intentions. They are eager for success. They want to show themselves as
entrepreneurs who can establish successful businesses in competitive markets.
The nAch can be defined as having a desire and ambition to be successful. There are several
researches showing the significant effects of nAch on entrepreneurial intentions (Johnson, 1990;
Hansemark, 1998; Gürol and Atsan, 2006). McClelland (1961) claims that people with higher
desires and ambitions to be successful (nAch) have higher potential to become entrepreneurs.
There are comparative studies supporting McClelland’s theory (Johnson, 1990; Hansemark,
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1998). Gürol and Atsan (2006) found out that entrepreneurially inclined students who had higher
nAch wanted to establish their own businesses (Orman, 2009: 27-28).
The nAch can be considered as struggling against challeging tasks. Murray (1938) was the first
researcher who defined achievement motivation. McClelland (1961, 1978, 1987) revealed the
relationship between achievement motivation and entrepreneurial intention. Other studies have
been conducted to reveal the nAch for entrepreneurial intention (Lynn, 1969; Nandy, 1973;
Johnson, 1990; Müller, 1999; Sagie and Elizur, 1999). Müller (2002) believes that nAch, internal
locus of control, risk taking propensity are three attributes for entrepreneurial potential of
people (Raab et al., 2005: 73-79).
According to McClelland (1965: 8), nAch could be measured in people and groups. He (1965) adds
that it can be measured by coding spontaneous thoughts of people as in stories they tell, for the
frequency with which they think about competition with excellence standards.
Rauch and Frese (2007: 353) reveal that there is a correlation between the nAch and
entrepreneurial behavior in their meta-analysis. According to them (2007: 358), nAch shows that
a person chooses a task which has moderate difficulty, takes responsibility for results and expects
feedback. The nAch is important for entrepreneurs who would like to achieve tasks. Mc Clleland
(1961) reveals that entrepreneurs have more achievement motive compared to managers (Rauch
and Frese, 2007: 358).
Terprstra et al. (1993) believe that the nAch consists of the desire for being successful, the
tendency for taking calculated risks, and the desire for concrete feedback. Lee (1997) claims that
the nAch is a “unitary disposition that motivates a person to face with challenges in the interest
of attaining success and excellence.” McClelland (1961, 1971) states that nAch affects
entrepreneurial intention. He (1961, 1971) classifies people who have high nAch as people who
have strong desires for being successful. People who have high scores on nAch scale prefer to
take risks and responsibility and are interested to observe the results of their decisions. According
to McClelland (1965: 7), a person who has high nAch is “more self-confident, enjoys taking
carefully calculated risks, researches his environment actively, and is very much interested in
concrete measures of how well he is doing.” Scapinello (1989) found that people who had high
nAch accepted failure less. He (1989) proposed that nAch affected attributions to succeed.
Nathawat et al. (1997) claimed that low nAch was associated with low expectations, failure, low
competence, selfblame and low inspirations (Kristiansen and Indarti, 2004: 59).
Risk Tolerance
Taking calculated risk is the latest approach in entrepreneurship. Risk taking can lead both
success and failure. Thus, entrepreneurs should calculate risks of their actions before they take
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them, evaluate advantages and disadvantages of risk taking in all stages of entrepreneurship.
Entrepreneurs tolerate risks more than other people. Tolerating risks is a major trait for
entrepreneurs to succeed. Entrepreneurs take career, financial, family and reputation risks when
they decide to establish their own ventures. People who can tolerate risks can have
entrepreneurial intentions and start their own businesses.
Schumpeter believes that entrepreneurs need to take risks while they are making decisions
(Brockhaus and Horwitz, 1986). Cantillon and Mill state that risk taking attitude of an
entrepreneur will differentiate him/her from managers or employees (Brockhaus and Horwitz,
1986; Iversen et al, 2008). Several empirical studies have been conducted to Ahu Tuğba Karabulut
/ Procedia - Social and Behavioral Sciences 229 ( 2016 ) 12 – 21 15 determine the risk taking
propensity as a key factor to understand an entrepreneur (Gürol and Atsan, 2006; Tang et al,
2008; Verheul et al, 2006). They found out that risk taking propensity had a significant influence
on entrepreneurship. Verheul et al (2006) revealed that risk taking propensity was related with
employment choice in Europe and the United States. Researchers conducted studies which
verified the influences of risk taking on entrepreneurial intention (Gürol and Atsan, 2006; Tang
et al, 2008; Verheul et al, 2006). Tang et al. (2008) showed an evidence that risk-taking propensity
was an important factor to explain entrepreneurial process. Gürol and Atsan (2006) found a
significant evidence that risk taking propensity was an important factor to explain the
entrepreneurial intentions of university students (Orman, 2009: 28-29).
Entrepreneurs should tolerate risks. They have to make decisions in uncertain situations. Stewart
and Roth (2004) believe that entrepreneurs take risks (Rauch and Frese, 2007: 359-360).
Risk taking propensity is handling risk and uncertainty and being ready to bear them. People who
take risks can choose alternatives with lower chance but advantageous results. They want to
make decisions in uncertain situations more. Entrepreneurs take several risks for capital, career,
prestige, and family relations. A person who has entrepreneurial intention should have an
optimum degree of risk orientation. Several studies reveal that entrepreneurs take higher risks
than other people (Ahmed, 1985; Meyer, Walker, and Litwin, 1961; Liles, 1975; Broehl, 1978).
Begley and Boyd (1987) state that risk taking propensity shows how a person copes with risky
decision situations. Matthews and Scott (1995) believe that risk tolerance is required for
entrepreneurial thinking and being an entrepreneur. They (1995) add that people who would like
to establish their ventures face with risks and deal with uncertainity (Raab et al., 2005: 75).
Risk taking is a personality trait which shows the willingness and tendency of a person to take
risks. Entrepreneurial activities have risks so risk taking is related to entrepreneurship. Covin and
Slevin (1989) believe that risk propensity is a dimension of entrepreneurial orientation. Sexton
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and Bowman (1983) state that entrepreneurial behavior is related to moderate risk level in a
person. Begley and Boyd (1987) claim that entrepreneurs have greater risk propensity than
managers. Thus, risk propensity is a predictor for career choice. “The difference between
entrepreneurs and non-entrepreneurs may be a question of risk tolerance, and of how they
process information regarding the potential success of a new business opportunity.” Busenitz
(1999) and Palich and Bagby (1995) revealed that entrepreneurs categorized business situations
as less risky than other people. Palich and Bagby (1995) added that entrepreneurs categorized
risky situations as positive. Segal, Borgia, and Schoenfeld (2005) believe that “tolerance and
positive attitudes toward risk predict entrepreneurial intentions” (Sánchez, 2013: 451).
According to Jain and Ali (2013: 129) risk taking is a psychological variable reflecting a person’s
ability to take calculated risks and achievable challenges. They (2013: 129) add that it is usually
used to describe entrepreneurial behaviour. They (2013: 129) believe that “risk taking propensity
is inherent in entrepreneurial intentions.” Brockhaus (1980) defined “risk propensity as perceived
probability of receiving the reward associated with the successful outcome of a risky situation.”
McClelland (1961) highlights that “entrepreneurs have moderate risk taking propensities.” Gasse
(1982) acknowledges that personal risk, social risk and psychological risk are related to an
entrepreneur. If an entrepreneur has financial obligations due to his/her unsuccessful enterprise,
he/she can face with financial losses which can jeopardize his/her future life standards (Jain and
Ali, 2013: 129).
Entrepreneurial Alertness
Kirzner (1973, 1979, 1982) developed the concept of "entrepreneurial alertness" which
suggested that entrepreneurship was discovering and exploiting opportunities and resources
when the economy moved to equilibrium. The entrepreneur identifies opportunities, recognizes
production factors and products with low prices to foresee profit opportunities. Kirzner assumes
that information-seeking behavior is the main property of entrepreneurial alertness. Kaish and
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Gilad (1991) conducted the first empirical test to the theory of alertness (Kirzner, 1973), found
empirical support for it, and revealed that entrepreneurs used information differently and
became more alert to opportunities. They (1991) proposed that entrepreneurs improved their
alertness to opportunities by using information to assess business opportunities’ potential. They
(1991) added that entrepreneurs scanned environment for information that leaded to
opportunities but managers depended on economic analyses to search opportunities. Kaish and
Gilad asked "How do entrepreneurs position themselves to encounter opportunities?" Kirzner
(1973) and Kaish and Gilad (1991) reveal that the hypothesis of alertness supposes that
entrepreneurs are more persistent but less focused for solving problems and searching
opportunities. Entrepreneurs explore unobvious opportunities and identify them by linking
various information in new ways when the market reaches equilibrium for known opportunities.
Kaish and Gilad (1991: 49) point out that "Alertness will exhibit itself in a continuous 'search' for
information, through broad and undirected scanning that will take place at unconventional times
and places, as opposed to a directed, rational search, which takes place in appropriate times...and
expected places...where managerial search is more likely to occur" (Busenitz, 1996: 35-37).
Baron (2006) points out that entrepreneurial alertness depends on unique cognitive abilities of a
person such as innovation and intelligence. Ardichvili et al. (2003) believe that high levels of
alertness toward information are essential to confirm potential opportunity. They (2003) define
that alertness is a behavioral tendency, where people pay close attention to incidents and
objects. They (2003) add that alertness is sensitive to information. The theoretical framework
proposed by Ardichvili et al. (2003) shows that entrepreneurial alertness has a positive effect on
opportunity identification. Entrepreneurs develop and evaluate opportunities after they confirm
and realize them. Polities (2005) reveal that ability of an entrepreneur to recognize opportunities
is stimulated by enhanced entrepreneurial alertness. Shapero and Sokol (1982) propose that high
levels of alertness will increase the possibility to find opportunities. Kaish and Gilad (1991) state
that entrepreneurs can be more alert to identify opportunities if they obtain information before.
They (1991) add reflecting, reading, discussing and detecting information to entrepreneurial
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alertness concept. They (1991) acknowledge that entrepreneurial alertness increases the
capability to identify opportunities (Chang et al., 2014: 1-7).
Gelderen et al. (2008) believe that entrepreneurial alertness (Kristiansen and Indarti, 2004)
affects intention of students to be entrepreneurs (Astuti and Martdianty, 2012: 107).
Entrepreneurial Intention
Bird (1998) believes that intention is the state of mind which directs intentions and actions of a
person towards entrepreneurship. Linan and Rodriguez (2004) state that intention is the effort
of a person to act entrepreneurially (Khan, 2013: 187-188). Hmieleski and Corbett (2006: 48)
believe that an entrepreneurial intention is an intention to establish a high-growth business.
Pruett (2012: 94) believes that entrepreneurial intentions are plans to pursue business ownership
careers.
Lau, Chan, and Man (2000) believe that encouraging entrepreneurial characteristics related to
entrepreneurship development can affect entrepreneurial intention. Baron (2000) acknowledges
that psychological traits predict entrepreneurial intention. Rauch and Frese (2007) believe that
locus of control, propensity to take risk, self-efficacy, need for achievement, tolerance for
ambiguity, and innovativeness are psychological characteristics associated with
entrepreneurship. Bygrave (1989) showed a model including “need for achievement, internal
locus of control, tolerance for ambiguity, and risk-taking propensity as determinants of
entrepreneurial intention.” Robinson et al. (1991) revealed that achievement, innovativeness,
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locus of control, and self-confidence would predict entrepreneurial attitudes (Sánchez, 2013:
449-450).
Entrepreneurial intentions are affected by holistic thinking and analytic thinking. Thought
processes underlie business plans, opportunity analysis, and all goal-directed behaviors (Boyd
and Vozikis, 1994: 63-65).
Kakkonen (2011: 227) explain that the students must have willingness and motivation to be
entrepreneurs and have an intention for that. She (2011) explored perceptions of university
students’ business competences and entrepreneurial intention. She (2011) found that students
were confident to rate their business competences and the perceptions of their entrepreneurial
intention was low (Kakkonen, 2011: 225-227).
Conclusion
Locus of control is the degree of control of a person over his/her life. People who have internal
locus of control can have entrepreneurial intentions and choose to be entrepreneurs. They may
believe that their decisions and actions can affect the success of their businesses. Need for
achievement is the drive of a person to be successful. Having high need for achievement leads
high entrepreneurial intentions. People who have high need for achievement want to prove
themselves as successful entrepreneurs. Risk tolerance is a major trait of entrepreneurs since
they face with risks more than other people. People who tolerate risks can have more
entrepreneurial intentions. Entrepreneurs should take calculated risks while they are establishing
and managing their businesses. Entrepreneurial alertness affect entrepreneurial intentions.
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People who have entrepreneurial alertness can have entrepreneurial intentions. They can search
for opportunities to establish and manage their own businesses. Entrepreneurial intention is the
intention of a person to be an entrepreneur. People who have entrepreneurial intentions can be
more successful when they establish their ventures. They can be more dedicated to
entrepreneurship when they face with problems in the process of managing their ventures. Locus
of control, need for achievement, risk tolerance, and entrepreneurial alertness are dimensions
of personality traits which affect entrepreneurial intention. According to research findings, locus
of control, need for achievement, risk tolerance, and entrepreneurial alertness affect
entrepreneurial intention. Thus, personality traits affects entrepreneurial intention. Personality
traits has a positive effect on entrepreneurial intention. This study is designed to make
contributions to both academicians and potential entrepreneurs. Academicians can examine
personality traits and other factors which affect entrepreneurial intention by conducting follow-
up studies. Potential entrepreneurs can understand personality traits affecting the
entrepreneurial intention much better and improve these traits to become successful
entrepreneurs.
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EVALUATION
MATCHING TYPE
Instructions: Column A lists the characteristics of a successful entrepreneur. Draw a line from
the items in Column A that connects the correct definition of terms listed in Column B. Write
the letter (capital letter) of your answer on the space provided before the number.
COLUMN A COLUMN B
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II. Read and study the situation that describes the entrepreneurial characteristics or attributes.
Answer the questions by writing the letter (capital letter) of your choice on the space provided
before the number.
_____1. What PEC must she possess if there are customers who complain about the quality of
her product?
a. Patience c. Versatile
b. Hardworking d. All of the above
_____3. If she wants to ensure a profitable business operation, what characteristic will she
maintain?
a. Commitment c. Futuristic
b. Goal Oriented d. Opportunity Seeker
_____4. Mrs. Magno follows the advice of a friend to be flexible especially if she intends to open
a retail business. What PECs has been demonstrated by Mrs. Magno?
a. Self – confidence c. Open to Feedback
b. Reliable and has integrity d. Persistent
_____5. She tells Mary, her best friend that she has strong will and does not give up to find a
solution to a business problem. What PECs has been demonstrated by Mrs. Magno?
a. Hard work c. Self- confidence
b. Persistence d. Risk – taking
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SELF-ASSESSMENT
Instructions: Below is a list of Personal Entrepreneurial Competencies (PECs) of a successful
entrepreneur. Put a check mark on the 2 nd column that indicates your strong PECs. The check
mark on the 3rd column are those PECs that need to be developed. After answering the PEC
checklist, proceed to answering the guide questions.
Hardworking
Self-confident
Builds for the future
Profit – centered
Goal – oriented
Persistent
Copes with failure
Responds with feedback
Demonstrates initiative
Willing to listen
Sets own standards
Copes with uncertainty
Committed
Builds on Strengths
Reliable and has integrity
Risk-taker
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SELF-ASSESSMENT
2. Why is it necessary to compare one’s personal characteristics, attributes, lifestyles, skills and
traits to the personal entrepreneurial competencies of a successful entrepreneur? How to
you relate your PECs to the PECs of a successful entrepreneur?
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3. Can you prepare an action plan that would address your areas of development and strength
based on your PECs? How does your action plan help sustain your strong areas and or
address your development areas based on your PECs?
REFERENCES
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RUBRIC
Use of textual Used specific and Used relevant Used examples Used incomplete or
evidence and convincing examples examples from the from texts to vaguely developed
historical from the texts texts studied to support most examples to only
context studied to support support claims in claims in the partially support
claims in the writing, the writing, making writing with some claims with no
making insightful and applicable connections connections made
30% applicable connections made between between texts.
connections between between texts. texts.
texts.
15
15
25 20
20 15 5
10
Comment/s:
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MOTIVATION
An Entrepreneurial Story
Watch “John Gokongwei Jr. Story: TINDERO NG MANI NA NAGING BILYONARYO” (duration:
13:20 minutes). Youtube video: https://www.youtube.com/watch?v=dZjoj1khLS4
“Power List Asia - Mr. John Gokongwei“(duration: 10 minutes)
https://www.youtube.com/watch?v=wkoUphMNzok
The video is a story of an orphan boy selling peanuts in their backyard so he could provide for
himself during World War II. Watch how John Gokongwei Jr. did from the sale of peanuts to
establishing many large businesses such as Universal Robina and Cebu Pacific. As a result, John
Gokongwei Jr. was among those recognized by Forbes magazine as the richest man in the
Philippines.
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Question:
1. How Mr. John Gokongwei Jr. started his business? How did he face with adversity?
2. What lesson/s did you learn from the video on the life of the business tycoon, John
Gokongwei Jr.?
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3. What was Mr. John Gokongwei Jr. criteria in searching for a viable business to expand or set-
up on?
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DISCUSSION
The success of a new entrepreneurial venture depends on the adaption of a sound business
idea. The same requirement applies to an established business
A sound business idea is an economic opportunity which is within the reach of the enterprise
and which could provide a desirable value
Good venture ideas may be generated through unanticipated means or deliberate search. The
individuals' exposure to his work, hobbies, acquaintances, or chance events constitute the
unanticipated means of generating business ideas. Deliberate search consists of using search
questions and idea prompting which could be derived from encounters with someone else's
idea, a customer request, or some other event
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The person's work - employees who are in direct contact with customers are sometimes
confronted with demand for products or services that are not currently provided by the
company.
The person's hobbies - there are times when a person's hobby turns out to be a business
opportunity. A hobby is a useful means of developing some skill which could be useful later
when the hobbyist decides to operate a business
The person's acquaintances - there a times when a person fails to notice the existence of a
business opportunity. Sometimes, it takes another person to make him aware of the wisdom
of starting a new business venture. This other person could be a friend, neighbor, or just
anybody he meets once in a while
A chance event encountered by the person - there are times when a person encounters an
event that will provide him with a clue to a business venture.
1. using search questions - business ideas are expected to provide answers to some needs.
Answers can be obtained if the right questions are asked. When questions are used to draw out
specific answers, they are referred to as "search questions"
2. Idea prompting - encounters with someone else's idea, or a customer request, or some other
event may provide hints or cues leading to business ideas
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4. Final Selection
1. Status quo
2. Shorter list
3. Zero listing
Market Feasibility
o Positive indications: (1) stable and sufficient demand (2) potential competitive strength of
the firm
o Sources of Market Information (1) Prior studies of the market or related markets by the
company (2) actual poll of the population samples (3) negotiations with prospective
customers to solicit orders.
1. Stable and Sufficient Demand - a business idea will not last if there is insufficient demand for
whatever product or service that is contemplated. Demand that remains constant or shows
signs of growth throughout long periods indicates the probability of market feasibility. Demand
must also be large enough to justify the investments that will be needed by the venture
2. Competitive Strength - the business idea must be such that the venture can effectively
compete with current or potential competitors. the competitive strength of the competitions
must be determined in terms of product offerings, price, distribution, methods, promotion
methods, and others
*sources of market information (info required to determine the market fit of the business idea:
1. Prior studies of the market or related markets by other companies, government agencies, and
entrepreneurs
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3. Negotiations with prospective customers to solicit orders and determine whether or not they
will actually buy.
Final Selection
I. Final Selection
1. Status quo - means all business ideas listed passed the adapted criteria
2. Shorter list - means some of the ideas generated were eliminated
3. Zero listing - means all business ideas generated were eliminated.
Technical Feasibility - Business ideas often times appear easy to execute, but it is not really so
when converting them into real products or services with the required quality or quantity.
Anything can go wrong in the attempt to assemble the needed resources. Difficulties may be
encountered in the procurement of materials and manpower.
Production difficulties could take form of unstable supply of materials, unreliable or
fluctuating power supply, and others. Nevertheless, technical concerns such as those must
first be cleared before subjecting the business idea to further consideration.
Financial Feasibility - analysis of financial prospects of the proposed business idea (1) income
statement summarizes revenues, expenses, and profits over a given period (2) balance sheet
statement shows planned or expected financial position of the enterprise on a particular
date.(3) cash flow statement shows the planned or expected cash sales and or purchases.
The purpose of entrepreneurship is to provide a source of income to the entrepreneur. This
will not be possible if the venture will not be profitable. Any business idea that cannot provide
some indication of profitability must be screened out may be determined through an analysis
of the financial prospects of the proposed business idea. This may be done in 2steps:
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2. The determination and analysis of financial ratios derived from the projected statements
Projected financial statements - the forecast of something which will happen in the
future
projected income statement - financial record summarizing a firm's planned or expected
financial performance in terms of revenues, expenses, and profits over a given time
period
Projected balance sheet - shows the planned or expected financial position fo the
enterprise on a particular date
Projected cash flow statement - one which shows the planned or expected cash sale
and/or purchases
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o More bright ideas will be generated if employees feel free to participate in the creation
of solutions to problem.
6. Structural mechanisms that aid creativity
o The urge to create solutions to problems would be heeded by the innovative person
more easily if there are structural mechanisms within the organization to support the
exercise.
8. Flexibility
o One of the distinct characteristics of the creative organization is flexibility.
o The creative employee is allowed to engage in creative activities on hours most
convenient to him and the company.
o Flexibility may also applied to place of work, like allowing the creative employee to work
in the place where he feels he can be more creative.
o Encouragement of creativity and risk-taking - creativity refers to activities involved in
finding solutions to problems that hinder the achievement of the firm's objectives. It is
the proactive way of solving problems. Business idea is the output of activity. Testing an
idea will require a certain measure of risk taking
Rewards for creativity - when an activity is rewarded, there is an assurance that such
activity will continue existing. Creativity is no exception.
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of the organization. The firm will benefit from the good effects of employee participation.
This is so because there is a chance that more bright ideas will be generated if employees
feel free to participate in the creation of solutions to problems.
Structural mechanisms that aid creativity - the urge to create solutions to problems would
be heeded by the innovative person more easily if there are structural mechanisms within
the organization to support the exercise. Example: the unit that is responsible for
providing logistical support to activities that are creative in nature. the person in charge
of the unit is usually qualified to manage such activities as creativity
Training in the creative process - creative pursuits are a bit complicated and it will help if
those expected to perform such functions are properly trained. although some persons
have natural talents for generating business ideas, those who are not considered as such
would benefit from acquiring the required skills through training
Flexibility - one of the distinct characteristics of the creative organization
-the creative employee is allowed to engage in creative activities on hours most
convenient to him and to the company. whenever possible, his working hours are
adjusted to accommodate the time that he is most creative
Once you have come to the revelation that you are an entrepreneur that may not thrive in the
8 to 5 corporate arena, you might be at a loss regarding what to do about it. Even with the
necessary drive, skills and abilities, many would-be business owners struggle with finding just
the right idea to get behind. However, this shouldn’t discourage you. There are several really
good techniques and resources to help you discover the business idea for you.
1
Start with a bit of self examination. Discover what your passions are, what educational
background and any skills or expertise you have. Find out what you most enjoy doing or what you
are most talented at; this might suggest what industry or industries you should focus on for your
business idea. Jot down your results. Be general, ideas for a business might jump out at you or
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they may not at this stage. Remember what is important here is to identify a business industry
that would fit your talents and interests.
2
Review your own personal needs or desires within the fields of interest or industries identified in
Step 1. Identify a real need of your own and you may find a relevant need to be filled across the
industry. An online outlet to design and order customized skateboards for you might just be
something you could pioneer and deliver to the skateboard community for big profits. List
anything you can think of that you would pay for within your areas of interest; these results will
be the beginnings of concrete business ideas.
3
Ask your friends, family and co-workers who share the same interests what their needs or wants
might be within the industries you are investigating. Find out what they think are the best ways
those needs could be filled. Ask them how much they might be willing to pay to have those needs
addressed. Make the research conversational and relaxed, and you’ll be surprised at how many
ideas you can generate.
4
Go to the library and look through journals and magazines that cover the industries you want to
focus on. Look for business trends that indicate where the industry is headed. Find out what the
“next big thing” is and you could be the business leader to bring it to market.
5
Research online business sites, such as Inc.com or Entrepreneur.com, which and offer articles on
new business ideas as well as forums to discuss any new ideas you might have. Review the
information and interact with other forum participants. Use this opportunity to bounce ideas
around, receive feedback and pick the brains of like-minded entrepreneurs.
6
Use the feedback you’ve gotten through the previous steps to refine your list. Drop ideas that
don’t have a large enough market or that may be too costly to start up. Summarize each of your
business ideas into a short phrase and research them on the internet. Find out if anyone else has
tried to produce your business idea in the past or present. Research and study their successes
and failures. Learn how you can improve on their efforts or if the idea is one that the market is
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ready for at all. This should help you identify the one or two ideas that are really ready to be
pursued.
35 Of the Most Successful Small Businesses
Of course, starting a business is not the end of the journey; you still need to make sure it grows
and stays healthy by making regular investments. Because if you don’t put any money into your
business, it will definitely stagnate, and, if you fail to do something about it, you might have to
face closing your business.
All small businesses are ruled by one simple law: “It takes money to make money.”
So, once you start your business, always keep in mind that you should always plan for inversions,
even if these mean getting external funding.
1. Handyman
You’d be surprised at the number of individuals who don’t know how to change a light bulb — or
simply don’t have the time! If you’re an expert at building and know your way around a well-
manned home, this is the job for you. Handymen are usually paid by the hour and can have
multiple clients at once. You can also partner with larger handymen companies as an employee
or franchisee partner, meaning they will take a percentage of your pay, but give you loads of
work in return, generally.
2. Online courses
It’s a no-brainer. Any form of education is commonly considered as priceless. Think of running an
online course – teaching a second language or even English (particularly for immigrants), news
writing, design, SEO techniques… The possibilities are endless, depending, of course, on your
area of expertise. You can provide a course on real estate brokering or the stock market, auto
mechanics, or any subject a student is interested in learning. This is a profitable business venture,
and once you establish a base of students, it can be one of the most profitable businesses since
the overhead expenses are meager.
You could work out special arrangements with other digital content companies that can provide
you with tools to help carry out your lessons. The most costs involved in this would be the
minimum amount you pay for your domain name and hosting space or the fee a digital content
outfit will charge you for featuring your course in their platform.
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3. Child-Oriented Businesses
Whether it is newborn or post-pregnancy services, enrichment activities, or daycare, babies are
everywhere. The beauty of child-related businesses is that if you’re a true fan of children,
youwon’t work a day in your life. This business is less likely to suffer as there will always be a
need for childcare, which makes it one of the most profitable businesses.
4. Tutoring Center
With the increasingly demanding and competitive lives we’re leading today, students in their
formative years are almost always compelled to excel in their studies. Parents are aware of this.
They generally don’t mind spending money to help their kids achieve good academic standing –
reason enough to make starting a tutoring center a pretty profitable business. If you are or have
been a teacher, this is the type of business that’ll be right down your alley. Some people may
simply require a background or some experience of helping someone get through his/her school
test requirements. If you’ve got some specialized skills (Math, foreign language, creative
graphics, etc.), it’ll help promote your business and start getting students right away. It’ll be good
to locate your tutoring center in the vicinity of a big school where you can hand out fliers and
install posters or small ads. A tutoring program for a student running for 8 weeks with 1- 3-hour
sessions typically comes with a fee ranging from $500 – $1800. That accounts only for one
student: definitely, this is one of the most profitable businesses you can consider.
5. Real Estate and Real Estate Brokering
If you have an extensive network, this business is especially for you. Apart from setting your own
schedule and working on your own time as a realtor, you can also acquire a broker license and
establish a brokerage firm. Brokers act as an intermediary between sellers and buyers. With an
average net profit margin of 17.4% for leasing and 14.8% in sales, real estate has a lot to offer,
and once you have acquired experience, it can turn to be one of the most profitable businesses.
6. Dental Offices
Smile big — dental offices are high up on the list of the most profitable businesses in 2019. Yes,
the overhead costs to set up this type of business are high, but with returning patients and
excellent referrals, the practice will pay for itself. Additionally, there’s the added benefit of
cosmetic tooth bleaching being a booming business (a $3.2 billion industry to be exact). If you
got it, flaunt it — whether that’s pearly whites or a successful dental practice.
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9. Business Consulting
If you’re an expert in your industry and have been working at it for years, consider consulting.
Consultants who are most successful tend to embark on the journey later in their careers, have
niche expertise, and are incredibly organized and well-connected. Plus, they know how to scale
a business and have the keys to keeping clients happy. Just like other types of freelancing, being
an independent consultant is a business and requires networking and negotiating.
10. IT Support
As we become increasingly technologically inclined, the IT field is one of the most profitable
careers, and an IT support company can be one of the most profitable businesses. Those who
know how to deliver IT support are in high demand in every industry and can charge high fees for
their services.
11. Self-Publisher
Write about what you know and offer an ebook or paperback online for passive residual
income. High-quality content sells, especially series novels and books on technology, fitness,
cooking, parenting, and non-fiction books about business and money.
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designer is only increasing. Consider the low cost of starting your own website design service
company, since you can run it from home. If you think you need some extra education on
technology, you can find a course that suits you on this list.
13. Logo Design
Again, another freelance position worth considering. You need to be a visual type of person and
highly creative and be able to show a shining portfolio. Make sure you can come up with unique
ideas, and do the homework of researching the potential market: while the demand for logo
designers is high, also is the competition.
14. Accounting & Tax Preparation
Every year, accounting makes it into the list of the most profitable businesses. This category also
encompasses payroll services and bookkeeping. Most people would rather pay someone than do
it themselves or learn how to do it. Anything from a small accounting firm to a tax accountant
will always be in style.
15. Party Services
We all love a good party, and even better — a good party planner. Even in times of economic
despair, weddings and birthday celebration still happen. Party services can be flexible and
versatile, covering planning, catering, bartending, and serving, among other functions. Since you
can use contractors for most of these services, the overhead costs can be as low as you negotiate
them.
16. Personal Training
If you have a passion for helping others feel like their best self, personal training is the route for
you. This is last on the list because although it is a booming small business field, it’s also not a
field for those who are shy or not willing to get out there. It’s all about networking and sharing
your passion. Helping others look better is not a simple task, so be proud of your work, get out
there, and train hard.
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research beforehand because getting started requires at least a Bachelor’s degree and be
prepared for a high overhead cost.
18. Food Trucks
The foodie movement continues to grow! A few years back, consumers were hesitant to buy food
from a truck parked in a parking lot. Now, there are actually food truck festivals for foodies who
can’t get enough. If you have a mouthwatering recipe and want to make a business out of it, the
days of brick-and-mortar are over. You can pick a truck, paint it your favorite color, and get to
ridin’ and cookin’. Before you begin considering a food truck business, head to your local health
department to inquire about the required permits. In addition to being a street food vendor, you
can offer your services to cook for weddings, barbeques, festivals, and other celebrations.
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With tourism on the upswing in most parts of the world, getting into this travel business should
prove to be one of the most profitable businesses.
26. Freelancing
This can go many routes: graphic design, freelance writers, and social media gurus. The
outsourcing services are continuing to make a difference in the way companies interact with their
employees. Which means more opportunities for freelancers to take on projects. Websites such
as UpWork and Creative Circle make it much easier for freelancers to become visible.
27. Copywriting
For the past couple of decades, the increasing number of hours people spend on the internet has
raised the demand for quality web content. This is where somebody with a true talent for
language and creative imagination can succeed as a copywriting entrepreneur. Good copywriters
create advertising and marketing materials that a lot of online and offline businesses need.
What’s more, you don’t have to have a big, expensive commercial space as most copywriters
work from their homes as freelance writers with practically no overhead expenses.
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depending on the duration of their stay. Along with this, your services could include dog walking,
training, and grooming. Some start-up capital will be needed to cover the costs of setting up a
website, getting a mobile pickup, and stocking up on grooming materials.
1. Cleaning businesses
One of the top concerns during the coronavirus scare is the ability for people to clean and
disinfect their homes. This wouldn’t usually be much of an issue, except the COVID-19 spread has
caused a panic among shoppers. This has led to everyday cleaning products such as disinfectant
wipes, bleach, hand sanitizer, and other multi-purpose cleaners to be sold out at most, if not all,
stores.
As a result, people who regularly wouldn’t hire a cleaning service to disinfect their homes are
doing so now. Having a professional clean your home during coronavirus not only guarantees an
adequately clean house but that it’s disinfected with the proper products.
Cleaning businesses would have an inside track on getting these products, as they could get them
from wholesale distributors.
One thing that is important for cleaning businesses, though, is to take precautions when doing
the job. Going to people’s homes could expose the workers to the coronavirus more so than
other jobs. Necessary precautions such as wearing masks, gloves, and other protective gear—
and then sanitizing it all when leaving—is a good idea.
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2. Delivery services
Many people will choose to bypass making trips out of their home to places where groups of
people congregate in short proximity to each other while the coronavirus threat is still strong.
That means more and more people may turn to delivery services to do everything from getting
groceries to stocking up on everyday items.
Most likely there are plenty of large businesses that handle this already—such as Postmates or
grocery-store specific shopping programs. But you could start a small business that handles local
deliveries in your area. This could prove to be especially fruitful if your region isn’t serviced by
any of the large delivery businesses already.
You could get your business started by simply calling around to local businesses and making a
partnership with them. They could then promote your service on their website, to try to attract
spending at their store, even if people aren’t leaving their homes.
For you, this delivery service won’t cost much to start up. All you’ll need is:
3. a credit card processing system, which can be acquired for cheap nowadays
As a potential offshoot of this, you could also start a service where you handle people’s everyday
errands. This could include going to the Post Office to drop off mail or buy stamps, dropping off
bill payments to cell phone companies, and anything else.
3. Online stores
People will have to stay in their homes because of coronavirus—and possibly even being asked
to work from home or having their work shut down for a while. Because of that, online shopping
will become even more popular than it already is. This may be a good time, then, for you to start
an online store.
It may be difficult for you to do if you don’t already have a product that you sell, though, since
it’ll take time for you to think about an idea, produce that idea, then get it ready to sell. But if
you already have a land-based store and just haven’t launched your online presence yet, now is
a great time to do it.
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You could use social media pages to market your product and announce the launch of your new
online store. You may even be able to attract additional people than you usually would, as more
people will be looking to buy stuff without going out.
If you have old furniture in your home, try a restoration project such as sanding and re-staining
or painting along with replacing the knobs. You could then list this restored furniture for sale on
third-party websites to make some money.
If you’re not crafty, you could also try cleaning out your attic, basement, and closets of things you
no longer want and listing them for sale online. While this may not seem like a long-term business
idea in and of itself, it could get you prepared for one.
If you do well doing this, for example, you could get into the furniture restoration business, or
you could even sell your re-sale services to other people who want to make a profit off their
unwanted stuff but don’t know how to do it.
Conclusion
The coronavirus has caused a lot of panic in the country already, and people are already
dramatically changing their lives because of it. While the coronavirus is sure to hurt many small
businesses, there are also opportunities to start new small businesses that are desperately
needed and could thrive during this time.
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EVALUATION
desirable 3. _______________________________________.
4 -7. Choose between the two if the answer is, Unanticipated Mean or Deliberate
Search
v. ______________________ means all business ideas listed passed the adapted criteria.
B. Research: Famous Entrepreneurs and Innovators and how they started with their business,
background of their business and short biodata: (1) Local and (1) Overseas.
Attach your research in the module. (100 pts)
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SELF-ASSESSMENT
Instructions: Create a concept of a prospect business.
Open the link: https://applications.creativeengland.co.uk/assets/public/resource/146.pdf and follow
the Business Concept Template. Print and attach your business concept when you submit your
module. (100 pts)
Page 1
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Page 2
(Unique selling point, emotions, technology, target group, people, quality, design, market
approach…………)
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Page 3
The Market
Who are your customers and what are the needs you address?
Segments, target groups, sector, identity, values……
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Page 4
Competitive status
Where do you see the market going in the future and how will the competition change?
Customer behavior, technologies, new competition….
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REFERENCES
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RUBRICS
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Market Research
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Business Financials
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MOTIVATION
Watch “MANG INASAL SUCCESS STORY BY Rated K” (duration: 06:03minutes).
Youtube video: https://www.youtube.com/watch?v=hSla0wngyTA
The primary reason for Mang Inasal's success is its wide array of Filipino comfort food,
especially Chicken Inasal - with its distinct taste that Pinoys have grown and continue to love.
By 2009, only six years after the first branch opened, Mang Inasal had a store network of one
hundred stores.
1. How did Mang Inasal capture the hearts of Metro Manila consumer amidst numerous
competitors?What is their famous slogan that captured the customers?
2. What is the business concept of Mang Inasal compared to other Fast Food Chains (Jollibee,
Chowking, Greenwich, Dunkin Donut etc) in the Philippines?
3. What is the business model or marketing concept of Mang Inasal that helped them expand
throughout the Philippines?
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DISCUSSION
“The term business plan means the development of a written document that spells out like a
roadmap where you are, where you want to be, and how you want to get there”. – Kaplan
A business plan is a written description of your business's future. That's all there is to it--a
document that describes what you plan to do and how you plan to do it. If you jot down a
paragraph on the back of an envelope describing your business strategy, you've written a plan,
or at least the germ of a plan.
Business plans can help perform a number of tasks for those who write and read them. They're
used by investment-seeking entrepreneurs to convey their vision to potential investors. They may
also be used by firms that are trying to attract key employees, prospect for new business, deal
with suppliers or simply to understand how to manage their companies better.
So what's included in a business plan, and how do you put one together? Simply stated, a business
plan conveys your business goals, the strategies you'll use to meet them, potential problems that
may confront your business and ways to solve them, the organizational structure of your business
(including titles and responsibilities), and finally, the amount of capital required to finance your
venture and keep it going until it breaks even.
Sound impressive? It can be, if put together properly. A good business plan follows generally
accepted guidelines for both form and content. There are three primary parts to a business plan:
The first is the business concept, where you discuss the industry, your business structure, your
particular product or service, and how you plan to make your business a success.
The second is the marketplace section, in which you describe and analyze potential customers:
who and where they are, what makes them buy and so on. Here, you also describe the
competition and how you'll position yourself to beat it.
Finally, the financial section contains your income and cash flow statement, balance sheet and
other financial ratios, such as break-even analyses. This part may require help from your
accountant and a good spreadsheet software program.
Breaking these three major sections down even further, a business plan consists of seven key
components:
Executive summary
Business description
Market strategies
Competitive analysis
Design and development plan
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Much will depend on the nature of your business. If you have a simple concept, you may be able
to express it in very few words. On the other hand, if you're proposing a new kind of business or
even a new industry, it may require quite a bit of explanation to get the message across. .
The purpose of your plan also determines its length. If you want to use your plan to seek millions
of dollars in seed capital to start a risky venture, you may have to do a lot of explaining and
convincing. If you're just going to use your plan for internal purposes to manage an ongoing
business, a much more abbreviated version should be fine.
Startups. The classic business plan writer is an entrepreneur seeking funds to help start a new
venture. Many, many great companies had their starts on paper, in the form of a plan that was
used to convince investors to put up the capital necessary to get them under way.
Most books on business planning seem to be aimed at these startup business owners. There's
one good reason for that: As the least experienced of the potential plan writers, they're probably
most appreciative of the guidance. However, it's a mistake to think that only cash-starved
startups need business plans. Business owners find plans useful at all stages of their companies'
existence, whether they're seeking financing or trying to figure out how to invest a surplus.
Established firms seeking help. Not all business plans are written by starry-eyed entrepreneurs.
Many are written by and for companies that are long past the startup stage.
WalkerGroup/Designs, for instance, was already well-established as a designer of stores for
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major retailers when founder Ken Walker got the idea of trademarking and licensing to apparel
makers and others the symbols 01-01-00 as a sort of numeric shorthand for the approaching
millennium. Before beginning the arduous and costly task of trademarking it worldwide, Walker
used a business plan complete with sales forecasts to convince big retailers it would be a good
idea to promise to carry the 01-01-00 goods. It helped make the new venture a winner long
before the big day arrived. "As a result of the retail support up front," Walker says, "we had over
45 licensees running the gamut of product lines almost from the beginning."
These middle-stage enterprises may draft plans to help them find funding for growth just as the
startups do, although the amounts they seek may be larger and the investors more willing. They
may feel the need for a written plan to help manage an already rapidly growing business. Or a
plan may be seen as a valuable tool to be used to convey the mission and prospects of the
business to customers, suppliers or others.
1. A new financial period is about to begin. You may update your plan annually, quarterly
or even monthly if your industry is a fast-changing one.
2. You need financing, or additional financing. Lenders and other financiers need an
updated plan to help them make financing decisions.
3. There's been a significant market change. Shifting client tastes, consolidation trends
among customers and altered regulatory climates can trigger a need for plan updates.
4. Your firm develops or is about to develop a new product, technology, service or skill. If
your business has changed a lot since you wrote your plan the first time around, it's
time for an update.
5. You have had a change in management. New managers should get fresh information
about your business and your goals.
6. Your company has crossed a threshold, such as moving out of your home office, crossing
the P1 million sales mark or employing your 100th employee.
7. Your old plan doesn't seem to reflect reality any more. Maybe you did a poor job last
time; maybe things have just changed faster than you expected. But if your plan seems
irrelevant, redo it.
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Business plans tend to have a lot of elements in common, like cash flow projections and
marketing plans. And many of them share certain objectives as well, such as raising money or
persuading a partner to join the firm. But business plans are not all the same any more than all
businesses are.
Depending on your business and what you intend to use your plan for, you may need a very
different type of business plan from another entrepreneur. Plans differ widely in their length,
their appearance, the detail of their contents, and the varying emphases they place on different
aspects of the business.
The reason that plan selection is so important is that it has a powerful effect on the overall impact
of your plan. You want your plan to present you and your business in the best, most accurate
light. That's true no matter what you intend to use your plan for, whether it's destined for
presentation at a venture capital conference, or will never leave your own office or be seen
outside internal strategy sessions.
When you select clothing for an important occasion, odds are you try to pick items that will play
up your best features. Think about your plan the same way. You want to reveal any positives that
your business may have and make sure they receive due consideration.
Types of Plans
Business plans can be divided roughly into four separate types. There are very short plans, or
miniplans. There are working plans, presentation plans and even electronic plans. They require
very different amounts of labor and not always with proportionately different results. That is to
say, a more elaborate plan is not guaranteed to be superior to an abbreviated one, depending on
what you want to use it for.
The Miniplan. A miniplan may consist of one to 10 pages and should include at least cursory
attention to such key matters as business concept, financing needs, marketing plan and financial
statements, especially cash flow, income projection and balance sheet. It's a great way to quickly
test a business concept or measure the interest of a potential partner or minor investor. It can
also serve as a valuable prelude to a full-length plan later on.
Be careful about misusing a miniplan. It's not intended to substitute for a full-length plan. If you
send a miniplan to an investor who's looking for a comprehensive one, you're only going to look
foolish.
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The Working Plan. A working plan is a tool to be used to operate your business. It has to be long
on detail but may be short on presentation. As with a miniplan, you can probably afford a
somewhat higher degree of candor and informality when preparing a working plan.
A plan intended strictly for internal use may also omit some elements that would be important
in one aimed at someone outside the firm. You probably don't need to include an appendix with
resumes of key executives, for example. Nor would a working plan especially benefit from, say,
product photos.
Fit and finish are liable to be quite different in a working plan. It's not essential that a working
plan be printed on high-quality paper and enclosed in a fancy binder. An old three-ring binder
with "Plan" scrawled across it with a felt-tip marker will serve quite well.
Internal consistency of facts and figures is just as crucial with a working plan as with one aimed
at outsiders. You don't have to be as careful, however, about such things as typos in the text,
perfectly conforming to business style, being consistent with date formats and so on. This
document is like an old pair of khakis you wear into the office on Saturdays or that one ancient
delivery truck that never seems to break down. It's there to be used, not admired.
The Presentation Plan. If you take a working plan, with its low stress on cosmetics and
impression, and twist the knob to boost the amount of attention paid to its looks, you'll wind up
with a presentation plan. This plan is suitable for showing to bankers, investors and others
outside the company.
Almost all the information in a presentation plan is going to be the same as your working plan,
although it may be styled somewhat differently. For instance, you should use standard business
vocabulary, omitting the informal jargon, slang and shorthand that's so useful in the workplace
and is appropriate in a working plan. Remember, these readers won't be familiar with your
operation. Unlike the working plan, this plan isn't being used as a reminder but as an introduction.
You'll also have to include some added elements. Among investors' requirements for due
diligence is information on all competitive threats and risks. Even if you consider some of only
peripheral significance, you need to address these concerns by providing the information.
The big difference between the presentation and working plans is in the details of appearance
and polish. A working plan may be run off on the office printer and stapled together at one
corner. A presentation plan should be printed by a high-quality printer, probably using color. It
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must be bound expertly into a booklet that is durable and easy to read. It should include graphics
such as charts, graphs, tables and illustrations.
It's essential that a presentation plan be accurate and internally consistent. A mistake here could
be construed as a misrepresentation by an unsympathetic outsider. At best, it will make you look
less than careful. If the plan's summary describes a need for P40,000 in financing, but the cash
flow projection shows P50,000 in financing coming in during the first year, you might think,
"Oops! Forgot to update that summary to show the new numbers." The investor you're asking to
pony up the cash, however, is unlikely to be so charitable.
The Electronic Plan. The majority of business plans are composed on a computer of some kind,
then printed out and presented in hard copy. But more and more business information that once
was transferred between parties only on paper is now sent electronically. So you may find it
appropriate to have an electronic version of your plan available. An electronic plan can be handy
for presentations to a group using a computer-driven overhead projector, for example, or for
satisfying the demands of a discriminating investor who wants to be able to delve deeply into the
underpinnings of complex spreadsheets.
Summary
Concept of Business Plan
A business plan is a proposed or intended course of action. It is a document about the future of
business. It integrates functional plans such as production, finance, human resource and
marketing.
The scope of the business plan refers to the target reader of the plan. The readers may be
employees, investors, advisors, and consultants, etc. Each of these group read the plan for
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different purpose. Hence, the entrepreneur should attempt to satisfy all of their concerns. The
employees are the internal parties and the investors and other stakeholders are external parties.
Employees- Business plan is important for both managerial and administrative employees. It
articulates the vision and mission of your firm. It guides the employees to move ahead in a
consistent and purposeful manner.
Investors and other stakeholders: Business should be realistic. It should ensure a high return to
the investors with minimum risk. It also requires a sound financial projection. It should also
ensure the validation of ideas.
Executive Summary – It is the first element of a business plan. It should be kept short probably
no more than one page. Its main objective is to provide a synopsis of the business to convince
the readers that the new business is with investing. Though it appear in the beginning of the
business plan, it is written after preparing the plan.
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Industry Analysis – This selection should illustrate your knowledge about the particular industry
your business is in. It should also present general highlights and conclusions of any marketing
research data you have collected; however, the specific details of your marketing research
studies should be moved to the appendix section of your business plan.
It determines the strength and weaknesses of a particular industry, competitor, strategies that
provide a distinct advantage for the business organization.
Environmental and business trends analysis.
Competitive analysis
Regulatory Restrictions
Company Description
Organization & Management
Vision (where) and mission (why) statement
Driving force behind the inception
Management Profiles
Explanation about products and services
Market Analysis
– Unlike the industry analysis, market analysis breaks the industry into target market which the
company tends to serve. This is called market segmentation.
-Market may be segmented in a number of ways like geographic segmentation, demographic
segmentation etc.
Competitor analysis (firm’s competitor analysis)
Projected annual sales and market share of the company
Marketing Plan
– It focuses on marketing and selling products and services.
- It deals with price, promotion, distribution and sales. (4ps)
- It involves firm’s marketing strategy which indicates how a company position itself in the market
differing itself from the competitors.
Financial Analysis
– It includes the sources and usage of funds which explains where the fund will come from and
how it will be used.
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Assessment of Risk
Evaluate weakness of the business
New technology
Contingency Plan
Months
Tasks 1 2 3 4 5 6 7 8
1. Project Report
Formulation
2. Sanction of Bank
Loan
3. Land purchase
and building
construction
4. Machinery
instillations
5. Trail production
6. Commercialization
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Information Needs:
A. Market Information Needs:
Market potential for the product (target market)
Size of the market (bigger, smaller, growth prospect)
PEST Analysis should be conducted
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EVALUATION
Instructions: Choose the letter of your answer. Write the capital letter of your answer on the
space provided before the number.
_____1. A business plan is important for all of the following reasons EXCEPT:
a. a business plan forces a firm's founders to systematically think through each aspect
of their new venture.
b. a business plan provides lenders and investors assurance that they will earn a
decent return.
c. a business plan provides an investor with something to react to.
d. a business plan is a selling document that enables a company to present itself to
potential suppliers and business partners.
______2. Which type of business plan is meant primarily for an internal audience?
a. summary plan
b. full business plan
c. executive summary
d. operational business plan
______3. Why is the executive summary perhaps the most important section of the
business plan?
a. This section of the plan provides in-depth discussion of the major trends in the
industry in which the firm intends to compete.
b. This section of the plan summarizes the firm's key executives.
c. If this section of the plan fails to attract an investor's interest, he or she is unlikely
to read the remainder of the plan.
d. This section of the plan deals with the day-to-day operations of the company.
______4. What does the business plan call noteworthy or significant events?
a. a landmark
b. a milestone
c. a benchmark
d. a hurdle
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______5. In which section of a business plan should the results of the feasibility analysis
typically be presented?
a. Financial Plan
b. Industry Analysis
c. Company Description
d. Operations Plan
______6. In which section of a business plan should issues like facilities and equipment be
discussed?
a. Financial Plan
b. Industry Analysis
c. Marketing Plan
d. Operations Plan
______7. What are pro forma financial statements?
a. forward-looking financial projections
b. historical financial statements
c. financial assumptions
d. ratio analyses
______8. Most business plan writers interpret a firm's pro forma financial statements through
________.
a. historical analysis
b. present value calculations
c. assumption reviews
d. ratio analysis
______9. All of the following are commonly found in the appendix of a business plan EXCEPT:
a. resumes of top management
b. discussion of the business model
c. photos
d. product prototype diagrams
______10. Which of the following BEST characterizes the first meeting to present the business
plan to investors?
a. The meeting is typically a two-day workshop including bankers, angel investors and
the entrepreneur's attorney.
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a. True b. False
______14. As it is good to ensure that a business plan looks as professional as possible, a
consultant or outside advisor should be the primary author of the plan.
a. True b. False
______15. Because the executive summary appears at the beginning of the business plan, it
should be created before the rest of the plan is created.
a. True b. False
______16. A Board of Advisers has legal responsibility for the firm and gives binding advice.
a. True b. False
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Instructions: Read and study the sample Business Plan on the link given:
https://www.uvm.edu/vtvegandberry/Pubs/SampleFoodBusinessPlanOklahomaState.pdf
Make your own Business Plan following the given format on this worksheet. Finished output
should be printed out / computerized and should be attached in this Module. Feel free to be
creative on your Business Plan Ideas.
Page 1
BUSINESS PLAN WORKSHEET
Executive Summary
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Page 4
Marketing Analysis
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REFERENCES
https://openpress.usask.ca/entrepreneurshipandinnovationtoolkit/chapter/chapter-1-introduction-
to-entrepreneurship/
https://www.uvm.edu/vtvegandberry/Pubs/SampleFoodBusinessPlanOklahomaState.pdf
https://www.entrepreneur.com/encyclopedia/business-plan
https://www.smartsheet.com/sites/default/files/2020-05/IC-Business-Plan-Rubric-10809_PDF.pdf
https://www.entrepreneur.com/article/38290
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CHAPTER 7
Strategic Planning
MOTIVATION
McDonald's had a 23-year head start, and over 5,000 locations when it entered the Philippines.
Its competitor was the 3-year old Jollibee. Tony Tan Caktiong had big plans for Jollibee, but he
had two options: stand down or go head-to-head with McDonald's. He chose war. Learn about
The Rise of Jollibee and how it beat McDonald's in the Philippines.
Questions:
1. How did Tony Tan Caktiong started with his entrepreneurial journey?
2. What was his Tony’s Mantra in running a business that he learned from his dad?
3. How did Tony be able to compete with his competitors in his ice cream business?
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4. What was Tony’s strategy on getting feedback and knowing what to improve in his
business that paved a way into expanding his ice cream shop?
5. What was Tony’s strategic plans in competing with Mcdonalds in the Filipino market and
further expanding his Fast Food chain?
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DISCUSSION
Despite the benefits of having a strategic plan in place, a growing number of small business
owners aren’t focusing on the long-term strategies of their businesses. In a 2018 Constant
Contact survey of 1,005 small business owners, 63% said they plan only a year (or less) in
advance.
If you’re one of these small business owners, it’s not too late to think differently. Your future
success depends on effective strategic planning. It’s a process of looking ahead that should
involve your entire business, and the discussions can lead to meaningful changes in your business.
Strategic planning consists of analyzing the business and setting realistic goals and objectives.
This leads to the creation of a formal document that lays out the company’s views and goals for
the future.
The strategic planning process can take some time, but it’s beneficial for everyone involved. As
the small business owner, you’ll have a better idea of the goals and objectives you want to
accomplish and a path to do that. For your employees, the process can foster an increase in
productivity—contributing to the success of the business.
The strategic planning process should involve your employees. Your employees are involved in
the day-to-day operations and can provide you with a unique view of the company. Employees
can share with you what they think is and isn’t working with the business today, which can inform
your planning for the future.
In addition to your employees, it’s beneficial to reach out to people outside of your company to
get their opinions. Like your employees, vendors have a unique perspective on your industry. Talk
to them about the business, and get their thoughts on how they think the business landscape can
change in the future.
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The U.S. Small Business Administration recommends that the strategic planning process be a
flexible one. When you meet with your employees and any people outside of the company,
remember that the discussions should encourage new ideas and thoughts.
Increase Productivity
Involving your employees in the strategic planning process also means they receive a sense of
accountability that can increase productivity. Whether they contributed in the process or were
informed of the business’s goals and objectives after the strategic plan was created, they’ll be
more likely to want to help you achieve those targets.
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But how do you know if you’re steering the company in the right direction? The beginning phases
of strategic planning focus on research and discussions. The decisions you make during strategic
planning aren’t based on assumptions; they’re based on research and information you’ve
gathered while talking with your employees and people outside of your company.
The strategic planning process may seem daunting at first, but when you understand what’s
involved and how to do it, it’s not that complicated. It takes time, but the amount you invest in
the process pays off when everyone in your company works toward accomplishing the goals and
objectives you’ve laid out.
The process doesn’t stymie creativity either. When you meet with your employees for strategic
planning, you’re asking everyone to have a discussion and brainstorm ideas. The strategic
planning process puts everyone’s minds together to think of creative ideas.
If you go through the strategic planning process once, don’t think you won’t have to do it again.
The strategic plan is a living document; it should change over time. It’s not uncommon for
business owners to create a strategic plan with their employees and rarely—or never—revisit the
document. Reviewing and evaluating your strategic plan regularly will help keep you accountable
and on track to achieve your goals and objectives.
Successful strategic planning involves a team effort among you and your employees, as well as
among you and your vendors and other outside people. The more you engage your employees
with strategic planning, the better they’ll understand the strategy you want to have for your
business.
Strategic planning also needs to be flexible. While it’s necessary to have goals and objectives for
your business, you also have to be able to adapt to changes. It may take you longer than expected
to achieve a particular goal; recognize that this isn’t an issue and that you can incorporate
changes to your plan to put you in a better position to succeed.
When strategic planning is successful, everyone in your business is on the same page with the
business’s direction and goals. Each individual understands what makes the business stronger
and what needs to be worked on. And it’s more likely that each person wants to contribute to
the business’s growth and success.
When it comes to strategic planning, you want to start it sooner rather than later. It doesn’t
necessarily have to be done in the first few days or weeks of the company’s life—you may want
to be in business for a few months to give yourself a better idea of what is and isn’t working.
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But even if you’ve owned your business for a long time, it’s not too late to get started on strategic
planning. It’s never a bad time to sit down and think about the current status of your company
and where you want to be in the next five to 10 years. When you’re ready, gather your team
together and schedule regular meetings dedicated to strategic planning.
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of it as you are. Give them a summary of where the business currently stands. Talk with them to
see if things have improved or if they still have concerns with the business—or if any of their
initial concerns have changed.
After you review the strategic plan, share any changes with your team. Even if you didn’t make
any changes, it’s a good opportunity to give the rest of your company your thoughts on the
business’s status and confirm that things are on the right track. You also can encourage your
employees to continue working hard to achieve the goals and objectives in the strategic plan.
Discussion Phase
The discussion phase is meant to gather as much information, opinions, and input as possible.
Set up a regularly scheduled meeting with the employees and any other staff in your business
who will be involved with strategic planning. Make sure you have an agenda and clear
expectations of what you want to accomplish in each meeting. This will keep discussions on track
and help prevent distractions. In the first few meetings, try to answer questions that will help
you define the business’s current status, such as, “Where are we now?” and “Where are our
competitors?” Once you have a good idea of where the business is, you can focus in on specific
details in future meetings.
In addition to regular meetings with your employees at your business, you can also reach out to
vendors, investors, analysts, and other people outside of your company to gather information.
External people will have a unique perspective on not only your business, but also the industry
you’re operating in. Getting their opinions on where they think the industry is going and what
they think will change in the future can help you put together your strategic plan and determine
where you want your business to be down the road.
You can also conduct a SWOT analysis. SWOT stands for Strengths, Weaknesses, Opportunities,
and Threats. When you’re conducting a SWOT analysis, you and your employees will examine
what your business does well, where it can improve, any future opportunities to pursue that
could help facilitate growth and success, and any competitors or external factors that could
prevent the business from succeeding.
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Your strengths should be pretty easy to identify. When you’re discussing your business’s
weaknesses, don’t be afraid to be candid. Every business has weaknesses and things to work on.
Any weakness you and your employees note means it’s something you’ll aim to improve on in
the future with a detailed initiative outlined in the strategic plan.
Opportunities available to your business may be pretty clear, while identifying threats to your
business can be more difficult. Speaking with people outside of the company should give you a
good idea of where the industry could be heading and if there are any major competitors or
challenges coming. If you can identify a number of threats and challenges to your business early
on, it puts you in a better position to address them if and when you encounter them down the
road.
Development Phase
After you’ve collected all of the information, it’s time for the development phase. This is when
you’ll start putting together your business’s strategic plan. A strategic plan consists of five key
components: a vision statement, a mission statement, goals and objectives, an action plan, and
details on how often the strategic plan will be reviewed and updated.
Decide with your employees what you will use to create the strategic plan. Are you going to
purchase software to help you create and house the plan? Or are you going to create the plan
yourself and save it in the cloud for easier access?
When you’re creating goals and objectives for your business, make sure they’re realistic and
measurable. Work with your employees to create goals and objectives for at least the next one
to three years. And discuss how these goals and objectives will be measured and tracked.
For example, if you have a goal of increasing sales by 10% in the next year, you can track this by
measuring sale numbers. Equally important is having an action plan to achieve these goals and
objectives. If you’re trying to increase your sales by 10% in a year, you can pursue more marketing
and social media outreach as part of your action plan. If an action plan doesn’t help your business
achieve its goals, the plan needs to be rewritten.
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The strategic plan is meant to be a fluid document; don’t fall into the trap of creating the
document and letting it sit on a shelf for years. If you developed meaningful objectives and
action plans, they should help with regularly checking the strategic plan. For example, if your
action plan requires you to put in sales numbers every quarter to track revenue, you could take
that time to review the rest of the plan.
You can also set an alert to check the strategic plan on a regular basis. Whether it’s every few
months, every quarter, or every year, a recurring alert can help you review and update the
document.
When you’re reviewing your strategic plan, you may find that you’re not on track to meet an
objective or goal that you previously set up. Don’t panic. Reassess the situation and, if you need
to, discuss the issues with your employees. Figure out what went wrong and why your business
isn’t on pace; maybe the goal was too ambitious or not realistic. Change the goal or objective
and update the action plan to help you get back on track.
You also may find that your small business has met a goal or objective earlier than you thought
you would. If so, you can create a new goal or objective to work toward, or try to maintain the
progress you’ve already made. Discuss the ideas with your employees to see what they think is
possible.
At the top of your template, label it “Executive Summary” and provide an overview of
your business. Include the time period you’re looking at for your business’s strategic plan;
for example, if the strategic plan provides a three- to five-year outlook.
Underneath this section would be information on “Your Company.” This is where you’ll
put in your mission statement, vision, values, and information on leadership.
A section on “Research” will include information on your clients and customers,
competitors, and the industry.
You can also create a section on “Products and Services,” which will detail any products
you sell, pricing strategy, delivery systems and capabilities, and suppliers.
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A section of your template should focus on “Measurable Goals.” These should be realistic
goals or objectives that you want your business to achieve within the time period you set.
Don’t forget to include details on how the progress of each goal or objective will be
measured.
Whether you include it within the Measurable Goals section or as a stand-alone group in
the template, don’t forget about your “Action Plans.” This provides an overview of how
you and your employees are going to achieve your business goals and plans.
You also can put your SWOT analysis into the template. List the identified strengths,
weaknesses, opportunities, and threats with your business. Remember to be honest and
candid. When you are reviewing your strategic plan in the future, you can reference the
initial SWOT analysis and check to see what has changed.
The last section should detail “Reviews and Updating.” Explain how often the plan should
be checked (every few months, quarterly, annually, etc.). Provide a list of people who
should be responsible for reviewing and updating the strategic plan, as well as
communicating any changes with the broader business.
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The strategic plan is different from a business plan. The business plan is typically used to help
start the business and acquire the necessary funds to open the doors. A strategic plan outlines
the strategy for growth and success in the future by using existing resources.
The Canadian Soccer Association’s strategic plan for 2014 to 2018 is full of information and
details. It includes an examination of the organization’s current status and what the focus in the
future will be. It includes the goals and objectives of the Canadian Soccer Association, as well as
the strategies it’ll use to achieve them.
A strategic plan for a nonprofit organization will include the same key components. A nonprofit
strategic plan may focus more on the internal and external factors that can pose any threats or
challenges to the organization. Because the structure of a nonprofit organization can change
rapidly due to different factors, the strategic plan takes this into account and aims to address
possible changes ahead of time.
The Minnesota Council of Nonprofits’ strategic plan for 2010 through 2014 outlines the
organization’s vision, mission, the community it serves, as well as its goals for the four-year
period. Each goal includes an in-depth description of why it’s important to the Minnesota Council
of Nonprofits, as well as the strategies involved to achieve those goals. The plan also lists the
people responsible for working on the strategic plan.
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IT Strategic Plans
The IT industry is constantly changing. This means a strategic plan for an IT business should
identify and address the changes in the future as well as possible. While other business strategic
plans may focus on the next three to four years, it’s not uncommon for an IT strategic plan to
look at the next year to year-and-a-half.
When it comes to developing, reviewing, and updating your IT strategic plan, it’s important to
involve your business’s Chief Information Officer. This person’s knowledge and skill set is useful
in putting together a strategic plan for your tech business. In addition to the Chief Information
Officer, you and your employees can look at whether you need to upgrade any part of your
infrastructure to meet the goals and objectives you’ve outlined in your strategic plan.
Because of the rapidly changing circumstances, you may be reviewing your IT strategic plan more
frequently than with other businesses. Adjust your plan as necessary to put your business on the
best path to success. The plan also should include details on how to make a decision when it
comes to investing in new equipment or technology.
A marketing strategic plan can include marketing technology, software, or web-based platforms
to help track your business’s progress toward its goals. The plan also could address the specific
types of marketing the business will pursue—for example, whether your business will pursue
traditional print advertising or digital ads.
Because a marketing strategic plan aims to increase your business’s exposure and numbers
through different techniques and methods, it’s a good idea to include the budget in the
document. This way, you and your employees will work toward the marketing goals and
objectives you want to achieve without spending too much money.
Focusing on the long-term strategy of your business is essential. Strategic planning is as important
as having a business plan and can lead to the success of your business. You and your employees
will understand the current status of the company, productivity will increase as everyone works
toward achieving the business goals, and you’ll put yourself in a better position to address any
potential issues that may come up in the future.
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Summary
Growing a business means taking many decisions about the way you want to expand your
operations. Creating a strategic plan is a key component of planning for growth. It will help you
prepare a realistic vision for the future of your business and in doing so can maximize your
business' potential for growth.
A strategic plan should not be confused with a business plan. A business plan is about setting
short- or mid-term goals and defining the steps necessary to achieve them. A strategic plan is
typically focused on a business' mid- to long-term goals and explains the basic strategies for
achieving them.
Taking the decision actively to grow a business means embracing the risks that come with growth.
Spending time on identifying exactly where you want to take your business - and how you will
get there - should help you reduce and manage those risks.
As your business becomes larger and more complex, so strategy formulation will need to become
more sophisticated, both to sustain growth and to help you muster the leadership and resources
you need to keep your business developing.
To do this, you will also need to start collecting and analyzing a wider range of information about
your business - both about how it operates internally and about how conditions are developing
in your current and potential markets.
The process of strategic planning is about determining the direction in which you want to take
your business. It involves setting out your overall goals for your business. By contrast, the purpose
of the business plan is to provide the detailed roadmap that will take you in your desired
direction.
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You’re strategic planning and your business planning should be complementary, but effective
strategy development requires you to shift your focus from the day-to-day concerns of your
business and to consider your broader and longer-term options.
What do you need to do to get there? What changes will you need to make in order to deliver
on your strategic objectives? What is the best way of implementing those changes - what changes
to the structure and financing of your business will be required and what goals and deadlines will
you need to set for yourself and others in the business? Think about the business
as a whole, for example consider diversification, existing growth, acquisition plans, as well as
functional matters in key areas.
You should balance your vision for the business against the practical realities of your current
position and changes, such as increased investment in capital and other resources that would be
required to implement your vision. A strategic plan needs to be realistically achievable.
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Who to involve
Try to find people who show the kind of analytical skills that successful strategic planning
depends upon. Try to find a mix of creative thinkers and those with a solid grasp of operational
detail.
A good rule of thumb is that you shouldn't try to do it all yourself. Take on board the opinions of
other staff - key employees, accountants, department heads, board members - and those of
external stakeholders, including customers, clients, advisors and consultants.
There is no right or wrong way to plan the process of strategic planning, but be clear in advance
about how you intend to proceed. Everyone involved should know what is expected of them and
when.
For example, you may decide to hold a series of weekly meetings with a strategy team before
delegating the drafting of a strategy document to one of its members. Or you might decide to
block off a day or two for strategy brainstorming sessions - part of which might involve seeking
contributions from a broader range of employees and even key customers.
The priority with strategic planning is to get the process right. But don't neglect the outcome -
it's also important to make sure you capture the results in a strategic planning document that
communicates clearly to everyone in your business what your top-level objectives are. Such a
document should:
There is a range of strategic models that you can use to help you structure your analysis here.
These models provide a simplified and abstract picture of the business environment. SWOT
(strengths, weaknesses, opportunities and threats) analysis is probably the best-known model
and is used by both smaller and bigger businesses in the for-profit and not-for-profit sectors alike.
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STEEPLE (social, technological, economic, environmental, political, legal, and ethical) and Five
Forces analysis are two other widely used models.
SWOT
A SWOT analysis involves identifying an objective of a business or project and then identifying
the internal and external factors that are favorable and unfavorable to achieving that goal.
Strengths - attributes of the business that can help in achieving the objective
Weaknesses - attributes of the business that could be obstacles to achieving the objective
Opportunities - external factors that could be helpful to achieving the objective
Threats - external factors that could be obstacles to achieving the objective STEEPLE
There are other models you can use to assess your strategic position. STEEPLE analysis, for
example breaks the business environment down into the following components:
Political – e.g. changes to taxation, trading relationships or grant support for Businesses
Legal – e.g. changes to employment law, or to the way your sector is regulated
Ethical – e.g. ethical and moral standards governing policies and practices
STEEPLE analysis is often used alongside SWOT analysis to help identify opportunities and
threats.
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Five Forces
The Five Forces model aims to help businesses understand the drivers of competition in their
markets. It identifies five key determinants of how operating in a given market is likely to be for
a business:
Customers' bargaining power - the higher it is (perhaps because there is a small number of
major buyers for your product or service) the more downward pressure on prices and thus
revenue they will be able to exert
Suppliers' bargaining power - the ability of suppliers to push prices up (for instance if you rely
on a single firm) can impact significantly on costs and profitability
The threat of new competitors entering your market or industry - more businesses competing
makes it more difficult to retain market share and maintain price levels.
The threat of customers switching to substitute products and services - an example would be
the threat to fax machine manufacturers posed by the wide availability of email.
The level of competition between businesses in the market - this depends on a wide range of
factors, including the number and relative strength of the businesses and the cost to
customers of switching between them.
Analysis of internal drivers - corresponding, for example, to the strengths and weaknesses of
a SWOT (strengths, weaknesses, opportunities and threats) analysis.
Analysis of external drivers - this should cover factors such as market structure, demand levels
and cost pressures, all of which correspond to the opportunities and threats elements of a
SWOT analysis.
Vision statement - a concise summary of where you see your business in five to ten years'
time.
Top-level objectives - these are the major goals that need to be achieved in order for your
vision for the business to be realized. These might include attracting a new type of customer,
developing new products and services, or securing new sources of finance.
Implementation - this involves setting out the key actions (with desired outcomes and
deadlines) that will need to be completed to attain your top level objectives.
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Resourcing - a summary of the implications your proposed strategy will have for the resources
your business needs. This will reflect financing requirements, as well as factors such as staffing
levels, premises and equipment.
Effective strategic planning involves considering options that challenge the way that business has
been done up to this point. It may be that decision-making in some areas will be handed to others,
or that processes which have worked well in the past will no longer fit with future plans.
Examples of the kind of issues that tend to get overlooked by growing businesses include:
The future role of the owner - for example, it may be in the best interests of the business for
the owner to focus on a smaller number of responsibilities, or to hand over all day-to-day
control to someone with greater experience.
The location of the business - most small businesses are located close to where the owner
lives. But as a business grows it may make sense to relocate the business -for example, to be
closer to greater numbers of customers or employees with certain skills.
Ownership structure - growing businesses in particular should ensure that they get this right.
The more a business grows, the more sophisticated it needs to be about meeting its financing
needs. In many cases, the best option is for the owner to give up a share of the business in
return for equity finance - but this can be emotionally difficult to do.
Monitoring implementation is the key. Using key performance indicators (KPIs) and setting
targets and deadlines is a good way of controlling the process of introducing strategic change.
Remember that strategic planning can involve making both organizational and cultural
changes to the way your business operates.
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EVALUATION
Instructions: Choose the letter of your answer. Write the capital letter of your answer on the
space provided before the number
_____1. The term _________ is used to refer to strategy formulation, implementation, and
Evaluation, with _________referring only to strategy formulation.
a. strategic planning; strategic management
b. assessment; planning
c. strategic management; strategic planning
d. management cycle; brainstorming
_____2. Which of these requires a firm to establish annual objectives, devise policies,
and allocate resources?
a. Strategy formulation
b. Strategy implementation
c. Strategy manipulation
d. Strategy evaluation
_____3. The rationale for periodically conducting strategic- management meetings away
from the work site is to encourage more ________ and ________ among participants.
a. Feedback; rigidity
b. Creativity; candor
c. Confidence; self-interest
d. Strategy evaluation; candor
_____4. Anything that a firm does especially well compared to rival firms is referred to as:
a. Competitive advantage
b. Comparative advantage
c. An external opportunity
d. Opportunity cost
_____5. Both military and business organizations do all of the following except:
a. uses of the element of surprise
b. Aim “to gain competitive advantage”
c. Use the assumption of conflict to develop strategies.
d. Use their own strengths to exploit competitor’s weaknesses.
_____6. __________are the individuals who are most responsible for the success of failure of
an organization.
a. Ethics officers
b. Operatives
c. Consultants
d. Strategists
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11.-15. Identify and describe the three stages of the strategic – management process. Give
reasons within your answer to describe why each of these stages is important in strategic
management.
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16 -20. What is sustained competitive advantage? Define this concept and explain how a
firm can achieve it. Why is it important in strategic management?
21 – 30. What is strategic – management model? What does it represent? Describe several
characteristics of the strategic management process based on what you understand
about the strategic – management model.
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Instructions: Fill out the fields below and review with a mentor. This information can help you
outline goals and strategies for your business and marketing efforts.
https://www.dummies.com/business/start-a-business/business-plans/how-to-conduct-a-swot-analysis-
for-your-business-plan/
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Product/
Service
Offering
Brand/
Marketing
Staff/ HR
Finance
Operations/
Management
Market
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Planning
Can any of your strengths help with improving your weaknesses or combating your
threats? If so, please describe how below.
Based on the information above, what are your immediate goals/next steps?
Based on the information above, what are your long-term goals/next steps?
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REFERENCES
https://www.scribd.com/doc/150087966/Entrepreneurship-Chapter-7-The-Business-Plan-Creating-
and-Starting-the-Venture
https://openpress.usask.ca/entrepreneurshipandinnovationtoolkit/chapter/chapter-1-introduction-
to-entrepreneurship/
https://www.uvm.edu/vtvegandberry/Pubs/SampleFoodBusinessPlanOklahomaState.pdf
https://www.entrepreneur.com/encyclopedia/business-plan
https://www.smartsheet.com/sites/default/files/2020-05/IC-Business-Plan-Rubric-10809_PDF.pdf
https://sba.thehartford.com/business-management/what-is-strategic-
planning/#:~:text=Strategic%20planning%20is%20the%20process,ll%20use%20to%20reach%20the
m.
https://www.wordstream.com/blog/ws/2017/12/20/swot-analysis
Sample: https://library.xtensio.com/restaurant-swot-analysis-example
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MOTIVATION
Questions:
1. How Information technology did changed the way of doing business these days?
2. Based on the interview how Chris Tan did became the youngest senior high student to
earn his first millions?
3. What are your realizations about setting-up a business after watching the video?
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DISCUSSION
One of the first decisions that you will have to make as a business owner is how the business
should be structured. All businesses must adopt some legal configuration that defines the rights
and liabilities of participants in the business’s ownership, control, personal liability, life span, and
financial structure. This decision will have long-term implications, so you may want to consult
with an accountant and attorney to help you select the form of ownership that is right for you.
In making a choice, you will want to take into account the following:
Your vision regarding the size and nature of your business.
The level of control you wish to have.
The level of “structure” you are willing to deal with.
The business’s vulnerability to lawsuits.
Tax implications of the different organizational structures.
Expected profit (or loss) of the business.
Whether or not you need to re-invest earnings into the business.
Your need for access to cash out of the business for yourself.
These organizations are based on some form of ownership. This choice affects a number of
managerial and financial issues, including the amount of taxes the entrepreneur would have to
pay, whether the entrepreneur may be personally sued for unpaid business bills, and whether the
venture will die automatically with the demise of the entrepreneur.
The forms of business organization are:
1. Sole Proprietorship
2. Partnership Firm
3. Limited Liability Partnership (LLP)
4. Joint Stock Company
5. One Person Company (OPC)
6. Private Company
7. Public Limited Company 8. Company Form of Organization
9. Co-Operatives
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Additionally, learn about the advantages and disadvantages of each form of business
organization.
i. Single ownership
ii. One man control
iii. Undivided risk
iv. Unlimited liability
v. No separate entity of the business
vi. No Government regulations.
Advantages:
(a) Simplicity – It is very easy to establish and dissolve a sole proprietorship. No documents are
required and no legal, formalities are involved. Any person competent to enter into a contract
can start it. However, in some cases, i.e., of a chemist shop, a municipal license has to be
obtained. You can start business from your own home.
(b) Quick Decisions – The entrepreneur need not consult anybody in deciding his business affairs.
Therefore, he can take on the spot decisions to exploit opportunities from time to time. He is his
own boss.
(c) High Secrecy – The proprietor has not to publish his accounts and the business secrets are
known to him alone. Maintenance of secrets guards him from competitors.
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(d) Direct Motivation – There is a direct relationship between efforts and rewards. Nobody shares
the profits of business. Therefore, the entrepreneur has sufficient incentive to work hard.
(e) Personal Touch – The proprietor can maintain personal contacts with his employees and
clients. Such contacts help in the growth of the enterprise.
(f) Flexibility – In the absence of Government control, there is complete freedom of action. There
is no scope for difference of opinion and no problem of co-ordination.
Disadvantages:
(a) Limited Funds – A proprietor can raise limited financial resources. As a result the size of
business remains small. There is limited scope for growth and expansion. Economies of scale are
not available.
(b) Limited Skills – Proprietorship is a one man show and one man cannot be an expert in all areas
(production, marketing, financing, personnel etc.) of business. There is no scope for specialization
and the decisions may not be balanced.
(c) Unlimited Liability – The liability of the proprietor is unlimited. In case of loss his private assets
can also be used to pay off creditors. This discourages expansion of the enterprise.
(d) Uncertain Life – The life of proprietorship depends upon the life of the owner. The enterprise
may die premature death due to the incapacity or death of the proprietor. The proprietor has a
low status and can be lonely.
Expansion of Business:
When the business of a proprietor expands, he has either to employ a manager or take a partner
to handle the problems of capital and management.
The merits and demerits of each alternative are given below:
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8. No sharing of profits.
9. Easy to dismiss.
Disadvantages:
1. No incentive to work hard may be careless and inefficient.
2. Increases risk and liability of the sole proprietor.
8. Increased expense.
9. May leave the business and set up competition.
Admission of a partner:
Advantages:
1. Investment of capital.
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6. Sharing of profits.
7. Blocking of individual capital.
8. Difficulty in removing the partner.
9. Lack of stability.
Conclusion:
The choice between paid assistant and partner depends upon requirements of business and
preference of the proprietor. In case the proprietor wants to retain complete control of business
and he can raise the additional capital himself, he should employ a qualified and experienced
assistant to share his managerial responsibilities. But if he wants additional funds as well as
managerial assistance, admission of a partner may be better.
Suitability:
The foregoing description reveals that sole proprietorship or one-man control is the best in the
world if that man is big enough to manage everything. But such a person does not exist.
Therefore, sole proprietorship is suitable in the following cases:
i. Where small amount of capital is required e.g., sweet shops, bakery, newsstand, etc.
ii. Where quick decisions are very important, e.g., share brokers, bullion dealers, etc.
iii. Where limited risk is involved, e.g., automobile repair shop, confectionery, small retail store,
etc.
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iv. Where personal attention to individual tastes and fashions of customers is required, e.g.,
beauty parlor, tailoring shops, lawyers, painters, etc.
v. Where the demand is local, seasonal or temporary, e.g., retail trade, laundry, fruit sellers, etc.
vi. Where fashions change quickly, e.g., artistic furniture, etc.
vii. Where the operation is simple and does not require skilled management.
Thus, sole proprietorship is a common form of organization in retail trade, professional firms,
household and personal services. This form of organization is quite popular in our country. It
accounts for the largest number of business establishments in India, in spite of its limitations.
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Merits of Partnership:
The partnership form of business ownership enjoys the following advantages:
1. Ease of Formation:
A partnership is easy to form as no cumbersome legal formalities are involved. An agreement is
necessary and the procedure for registration is very simple. Similarly, a partnership can be
dissolved easily at any time without undergoing legal formalities. Registration of the firm is not
essential and the partnership agreement need not essentially be in writing.
2. Larger Financial Resources:
As a number of persons or partners contribute to the capital of the firm, it is possible to collect
larger financial resources than is possible in sole proprietorship. Creditworthiness of the firm is
also higher because every partner is personally and jointly liable for the debts of the business.
There is greater scope for expansion or growth of business.
3. Specialization and Balanced Approach:
The partnership form enables the pooling of abilities and judgment of several persons. Combined
abilities and judgment result in more efficient management of the business. Partners with
complementary skills may be chosen to avail of the benefits of specialization. Judicious choice of
partners with diversified skills ensures balanced decisions. Partners meet and discuss the
problems of business frequently so that decisions can be taken quickly.
4. Flexibility of Operations:
Though not as versatile as proprietorship, a partnership firm enjoys sufficient flexibility in its day-
to-day operations. The nature and place of business can be changed whenever the partners
desire. The agreement can be altered and new partners can be admitted whenever necessary.
Partnership is free from statutory control by the Government except the general law of the land.
5. Protection of Minority Interest:
No basic changes in the rights and obligations of partners can be made without the unanimous
consent of all the partners. In case a partner feels dissatisfied, he can easily retire from or he may
apply for the dissolution of partnership.
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Features:
(i) An LLP must be registered under the LLP Act 2008.
(ii) It is a body corporate having a separate entity of its own.
(iii) It has perpetual succession. Any change in its members does not affect its existence, rights
and liabilities,
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3. Continuity:
A company enjoys uninterrupted business life. As a body corporate, it continues to exist even if
all its members die or desert it. On account of its stable nature, a company is best suited for such
types of business which require long periods of time to mature and develop.
4. Transferability of Shares:
A member of a public limited company can freely transfer his shares without the consent of other
members. Shares of public companies are generally listed on a stock exchange so that people can
easily buy and sell them. Facility of transfer of shares makes investment in company liquid and
encourages investment of public savings into the corporate sector.
5. Professional Management:
Due to its large financial resources and continuity, a company can avail of the services of expert
professional managers. Employment of professional managers having managerial skills and little
financial stake results in higher efficiency and more adventurous management. Benefits of
specialization and bold management can be secured.
6. Scope for Growth and Expansion:
There is considerable scope for the expansion of business in a company. On account of its vast
financial and managerial resources and limited liability, company form has immense potential for
growth. With continuous expansion and growth, a company can reap various economies of large
scale operations, which help to improve efficiency and reduce costs.
7. Public Confidence:
A public company enjoys the confidence of public because its activities are regulated by the
government under the Companies Act. Its affairs are known to public through publication of
accounts and reports. It can always keep itself in tune with the needs and aspirations of people
through continuous research and development.
8. Diffused Risk:
The risk of loss in a company is spread over a large number of members. Therefore, the risk of an
individual investor is reduced.
9. Social Benefits:
The company organization helps to mobilize savings of the community and invest them in
industry. It facilitates the growth of financial institutions and provides employment to a large
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number of persons. It provides huge revenues to the Government through direct and indirect
taxes.
Demerits of Company:
A company suffers from the following limitations:
1. Difficulty of Formation:
It is very difficult and expensive to form a company. A number of documents have to be prepared
and filed with the Registrar of Companies. Services of experts are required to prepare these
documents. It is very time-consuming and inconvenient to obtain approvals and sanctions from
different authorities for the establishment of a company. The time and cost involved in fulfilling
legal formalities discourage many people from adopting the company form of ownership. It is
also difficult to wind up a company.
2. Excessive Government Control:
A company is subject to elaborate statutory regulations in its day-to-day operations. It has to
submit periodical reports. Audit and publication of accounts is obligatory. The objects and capital
of the company can be changed only after fulfilling the prescribed legal formalities. These rules
and regulations reduce the efficiency and flexibility of operations. A lot of precious time, effort
and money have to be spent in complying with the innumerable legal formalities and irksome
statutory regulations.
3. Lack of Motivation and Personal Touch:
There is divorce between ownership and management in a large public company. The affairs of
the company are managed by the professional and salaried managers who do not have personal
involvement and stake in the company. Absentee ownership and impersonal management result
in lack of initiative and responsibility. Incentive for hard work and efficiency is low. Personal
contact with employees and customers is not possible.
4. Oligarchic Management:
In theory the management of a company is supposed to be democratic but in actual practice
company becomes an oligarchy (rule by a few). A company is managed by a small number of
people who are able to perpetuate their reign year after year due to lack of interest, information
and unity on the part of shareholders. The interests of small and minority shareholders are not
well protected. They never get representation on the Board of Directors and feel oppressed.
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5. Delay in Decisions:
Too many levels of management in a company result in red-tape and bureaucracy. A lot of time
is wasted in calling and holding meetings and in passing resolutions. It becomes difficult to take
quick decisions and prompt action with the consequence that business opportunities may be lost.
6. Conflict of Interests:
Company is the only form of business where in a permanent conflict of interests may exist. In
proprietorship there is no scope for conflict and in a partnership continuous conflict results in
dissolution of the firm. But in a company conflict may continue between shareholders and board
of directors or between shareholders and creditors or between management and workers.
7. Frauds in Promotion and Management:
There is a possibility that unscrupulous promoters may float a company to dupe innocent and
ignorant investors. They may collect huge sums of money and, later on, misappropriate the
money for their personal benefit. The case of South Sea Bubble Company is the leading example
of such malpractices by promoters.
Moreover, the directors of a company may manipulate the prices of the company’s shares and
debentures on the stock exchange on the basis of inside information and accounting
manipulations. This may result in reckless speculation in shares and even a sound company may
be put into financial difficulties.
8. Lack of Secrecy:
Under the Companies Act, a company is required to disclose and publish a variety of information
on its working. Widespread publicity of affairs makes it almost impossible for the company to
retain its business secrets. The accounts of a public company are open for inspection to public.
9. Social Evils:
Giant companies may give rise to monopolies, concentration of economic power in a few hands,
interference in the political system, lack of industrial peace, etc.
Suitability:
Despite its drawbacks, the company form of organization has become very popular, particularly
for large business concerns. This is because its merits far outweigh the demerits. Many of the
drawbacks of a company are mainly due to the weaknesses of the people who promote and
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manage companies and not because of the company system as such. The company organization
has made it possible to accumulate large amounts of capital required for large scale operations.
Due to its unique characteristics, the company form of ownership is ideally suited to the
following types of business:
(i) Heavy or basic industries like ship-building, coach-making factory, engineering firms, etc.,
requiring huge investment of capital.
(ii) Large scale operations are very crucial because of economies of scale, departmental stores,
chain stores and enterprises engaged in the construction of bridges, dams, multistoried buildings,
etc.
(iii) The line of business involves great uncertainty or heavy risk, e.g., shipping and airline
concerns.
(iv) The law makes the company organization obligatory, e.g., banking business can be run only
in the form of company.
(v) The owners of the business want to enjoy limited liability.
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(vi) An OPC will get its annual accounts audited and file a copy of the same with the Registrar of
Companies.
(vii) A minimum share capital may be prescribed for an OPC.
(viii) Every OPC shall have at least one director.
(ix) The one person shall have to indicate the name of the person who in the event of the
subscriber’s death, disability, etc. becomes the members of the company.
Merits:
(i) OPC will enable small entrepreneurs and professionals, e.g., chartered accountants, lawyers,
doctors, etc. to avail the benefits of companies,
(ii) The procedure for forming the OPC is very simple.
(iii) Running an OPC is easy as it does not require compliance with many legal formalities.
(iv) As the risk is limited to the value of shares held by one person, small entrepreneurs have not
to fear litigation and attachment of personal assets.
(v) There is no need to share business information with any other person, therefore, business
secrecy is ensured.
(vi) The motivation and commitment of the owner are high due to absence of profit sharing.
(vii) Quick decisions can be taken due to complete control by the owner. There is freedom of
action.
(viii) OPC would provide the start-up entrepreneurs and professionals the much needed flexibility
in setting up business without losing control.
Demerits:
(i) The life of OPC is uncertain and instable.
(ii) The concept of OPC makes mockery of the corporate concept because company means more
than one person.
(iii) A company should operate as a democratic institution with discussion and decision by voting.
But in an OPC there is no democracy.
(iv) An OPC has to be incorporated. It has also to comply with some legal formalities.
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The concept of OPC has been introduced in a half-hearted and incomplete manner. How would
OPC work and what would be the regulatory provisions concerning their formation and
functioning has not been made clear. Hence, the provisions concerning OPC require a re-look and
redrafting.
Forms of Business Organization – Sole Proprietorship, Partnership Firm, Limited Liability
Partnership, Private Company and Public Limited Company
Form # 1. Sole Proprietorship:
‘Sole Proprietorship’ form of business organization refers to a business enterprise exclusively
owned, managed and controlled by a single person with all authority, responsibility and risk.
Definition of Sole Proprietorship:
According to J. L. Hanson – “A type of business unit where one person is solely responsible for
providing the capital and bearing the risk of the enterprise, and for the management of the
business.”
Characteristics of Sole Proprietorship:
i. Single Ownership – The sole proprietorship form of business organization has a single owner
who himself/herself starts the business by bringing together all the resources.
ii. No Separation of Ownership and Management – The owner himself/herself manages the
business as per his/her own skill and intelligence.
iii. Less Legal Formalities – The formation and operation of a sole proprietorship form of business
organization does not involve any legal formalities.
iv. No Separate Entity – The businessman and the business enterprise are one and the same, and
the businessman is responsible for everything that happens in his business unit.
v. No Sharing of Profit and Loss – The sole proprietor enjoys the profits and losses alone.
vi. Unlimited Liability – The liability of sole proprietor is unlimited.
vii. One-man control- The owner has complete control of operations.
Advantages of Sole Proprietorship:
i. Easy to form and wind up – It is very easy and simple to form a sole proprietorship form of
business organization. No legal formalities are required to be observed. Similarly, the business
can be wound up any time if the proprietor so decides.
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ii. Quick Decision and Prompt Action – Nobody interferes in the affairs of the sole proprietary
organization. So he/she can take quick decisions on the various issues relating to business and
accordingly prompt action can be taken.
iii. Direct Motivation – In sole proprietorship form of business organizations entire profit of the
business goes to the owner. This motivates the proprietor to work hard and run the business
efficiently.
iv. Flexibility in Operations – It is very easy to effect changes as per the requirements of the
business. The expansion or curtailment of business activities does not require many formalities
as in the case of other forms of business organization.
v. Maintenance of Business Secrets – The business secrets are known only to the proprietor. He
is not required to disclose any information to others unless and until he himself so decides. He is
also not bound to publish his business accounts.
vi. Personal Touch – Since the proprietor himself handles everything relating to business, it is
easy to maintain a good personal contact with customers and employees.
Limitations of Sole Proprietorship:
i. Limited Resources – The resources of a sole proprietor are always limited. It is not always
possible to arrange sufficient funds from personal sources.
ii. Lack of Continuity – The continuity of the business is linked with the life of the proprietor.
Illness, death or insolvency of the proprietor can lead to closure of the business. Thus, the
continuity of business is uncertain.
iii. Unlimited Liability – In the eyes of law, the proprietor and the business are one and the same.
So personal properties of the owner can also be used to meet the business obligations and debts.
iv. Unsuitable for Large Scale Operations – As the resources and the managerial ability are limited,
sole proprietorship form of business organization is not suitable for large- scale business.
v. Limited Managerial Expertise – A sole proprietorship form of business organization always
suffers from lack of managerial expertise. A single person may not be an expert in all fields like,
purchasing, selling, financing etc.
Suitability of Sole Proprietorship:
In short, this is a simple one person firm where, one can use his brand name, apply for payment
gateways and be able to issue invoice on his brand name to customers. It is best form for the
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testing of ideas in the starting stage whether it’s an e-commerce or tech startup, on later stage,
one can easily set up another elaborate forms like private limited company or public limited
company.
Form # 2. Partnership Firm:
‘Partnership’ is an association of two or more persons who pool their financial and managerial
resources and agree to carry on a business, and share its profit. The persons who form a
partnership are individually known as partners and collectively a firm or partnership.
Definition of Partnership:
Indian Partnership Act, 1932 defines partnership as “the relation between persons who have
agreed to share the profits of the business carried on by all or any of them acting for all”.
Partnership form of business organization in India is governed by the Indian Partnership Act 1932.
The agreement between the partners may be in oral, written or implied. When the agreement is
in writing, it is termed as partnership deed.
However, in the absence of an agreement, the provisions of the Indian Partnership Act 1932 shall
apply. Partnership Deed contains the terms and conditions for starting and continuing the
partnership firm. It is always better to insist on a written agreement in order to avoid future legal
hurdles.
Characteristics of Partnership:
i. Two or More Persons – To form a partnership firm at least two persons are required.
ii. Contractual Relationship – Minors, lunatics and insolvent persons are not eligible to become
the partners. However, a minor can be admitted to the benefits of partnership firm i.e., he can
have share in the profits without any obligation for losses.
iii. Sharing Profits and Business – There must be an agreement among the partners to share the
profits and losses of the business of the partnership firm. If two or more persons share the
income of jointly owned property, it is not regarded as partnership.
iv. Existence of Lawful Business – The business of to be carried on by partners, must be lawful.
Any agreement to indulge in smuggling, black marketing or any other lawful activity cannot be
called a partnership firm in the eyes of law.
v. Principal Agent Relationship – There must be an agency relationship between the partners.
Every partner is the principal as well as the agent of the firm. When a partner deals with other
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parties he/she acts as an agent of other partners, and at the same time the other partners
become the principal.
vi. Unlimited Liability – The partners of the firm have unlimited liability. They are jointly as well
as individually liable for the debts and obligations of the firms. If the assets of the firm are
insufficient to meet the firm’s liabilities, the personal properties of the partners can also be
utilized for this purpose.
vii. Voluntary Registration – The registration of partnership firm is not compulsory. But an
unregistered firm suffers from some limitations which make it virtually compulsory to be
registered.
Merits of Partnership:
i. Easy to Form
ii. Availability of Larger Resources
iii. Better Decisions
iv. Flexibility
v. Sharing of Risks – The losses of the firm are shared by all the partners equally or as per the
agreed ratio as decided in the partnership agreement.
vi. Keen Interest – Since partners share the profit and bear the losses, they take keen interest in
the affairs of the business.
vii. Benefits of Specialization – Partnership firm enjoys benefits of individual partners,
specialization, for instance, in a partnership firm, providing legal consultancy to people, one
partner may deal with civil cases, one in criminal cases, and another in labor cases and so on as
per their area of specialization.
viii. Protection of Interest – In partnership form of business organization, the rights of each
partner and his/her interests are fully protected. If a partner is dissatisfied with any decision, he
can ask for dissolution of the firm or can withdraw from the partnership.
ix. Secrecy – Business secrets of the firm are only known to the partners.
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Limitations of Partnership:
A partnership firm also suffers from certain limitations:
i. Unlimited Liability – Partners in partnership firm suffer from the problem of unlimited liability.
Resultantly, members may end up using personal assets to meet the liabilities of business.
ii. Instability – Every partnership firm has uncertain life. The death, insolvency, incapacity or the
retirement of any partner bring the firm to an end. Not only that any dissenting partner can give
notice at any time for dissolution of partnership.
iii. Limited Capital – A partnership firm suffers due to limited personal capacity of partners.
iv. Non-transferability of share – The share of interest of any partner cannot be transferred to
other partners or to the outsiders.
v. Possibility of Conflicts – At times there is a strong possibility of conflict among partners due to
divergent views and interest.
Suitability of Partnership:
Usually persons having different abilities, skill or expertise can join hands to form a partnership
firm to carry on the business. Business activities like construction, providing legal services,
accounting and financial services etc. can successfully run under this form of business
organization.
It is also considered suitable where capital requirement is of a medium size. Thus, businesses like
a wholesale trade, professional services, mercantile houses and small manufacturing units can
be successfully organized as partnership firms.
Form # 3. Limited Liability Partnership (LLP):
Keeping in view the incapacity of sole proprietor and partnership firms to raise money while
facing unlimited liability, a new form of business was introduced through the Limited Liability
Partnership Act 2008. This form was primarily created to give flip to small and medium
entrepreneurs and professionals who can enjoy the benefits of body corporate while also
retaining control over their businesses.
Meaning of LLP:
A Limited Liability Partnership (LLP) means a body corporate registered under the LLP Act 2008,
in which some or all partners (depending on the respective jurisdiction of state) have limited
liability. It therefore exhibits elements of partnerships and corporations. In an LLP, one partner
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is not responsible or liable for another partner’s misconduct or negligence, as it was the case in
case of original form of partnership firms.
This form was introduced in the world by U.S in 1990s in the wake up of fall of real estate and
energy prices in Texas. After that, other countries like Poland, Singapore, Canada, China,
Germany, Greece and Japan have also felt the need to establish LLPs in their respective countries.
Definition of LLP:
According to Limited liability partnership Act 2008, limited liability partnership means, “a
partnership formed and registered under this act”.
LLP agreement means any written agreement between the partners of the LLP or between LLP
and its partners which determines the mutual rights and duties of the partners and their rights
and duties in relation to that LLP.
Any two or more persons can form an LLP. Even a limited Company, a foreign Company, a LLP, a
foreign LLP or a non-resident can be a partner in LLP. Although, there is no specific mention, a
HUF represented by its Karta and a Minor can also be partner in LLP. An Incorporation document
(similar to memorandum) and LLP agreement (similar to articles of association) is required to be
filed electronically. The Registrar of Companies (ROC) shall register and control LLPs
Advantages of a LLP:
i. An LLP is a body corporate and legal entity separate from its partners.
ii. It has perpetual succession.
iii. Being the separate legislation (i.e. LLP Act, 2008), the provisions of Indian Partnership Act,
1932 are not applicable to an LLP and it is regulated by the contractual agreement between the
partners.
iv. Liability of partners is limited to their agreed contribution in the LLP and no partner is liable
on account of the independent or un-authorized actions of other partners, thus individual
partners are protected from joint liability created by another partner’s wrongful business
decisions or misconduct.
v. LLP has more flexibility and lesser compliance requirements as compared to a company.
vi. Simple registration procedure, no requirement of minimum capital, no restrictions on
maximum limit of partners.
vii. It is easy to become a partner or leave the LLP.
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viii. It is easier to transfer the ownership in accordance with the terms of the LLP Agreement.
ix. As a juristic legal person, an LLP can sue in its name and be sued by others. The partners are
not liable to be sued for dues against the LLP.
x. No restriction on the limit of the remuneration to be paid to the partners unlike in case of
companies. However, the remuneration to partners must be authorized by the LLP agreement
and it cannot exceed the limit prescribed under the agreement.
xi. The Act also provides for conversion of existing partnership firm, private limited Company and
unlisted public Company into an LLP by registering the entity with the Registrar of Companies
(ROC).
xii. No exposure to personal assets of the partners except in case of fraud.
Disadvantages of an LLP:
i. Any act of the partner without the consent of other partners, can bind the LLP.
ii. Under some cases, liability may extend to personal assets of the partners also.
iii. A LLP is not allowed to raise money from Public.
iv. Due to the hybrid form of the business, it is required to comply with various rules and
regulations and legal formalities.
v. It is very difficult to wind up the business in case of exigency as there are lots of legal
compliances under Limited Liability Partnership (Winding Up and Dissolution) Rules and it is very
lengthy and expensive procedure also.
Suitability of LLPs:
Limited Liability Partnership has proved to be a boon for small manufacturing sector as well as
for service sector firms. Especially for professionals like chartered accountants/ company
secretaries and advocates, it has become much easier to be formed as an LLP. Foreign Direct
Investment is permitted under the automatic route in LLPs, operating in sectors/ activities where
100% FDI is allowed through the automatic route and there are no FDI-linked performance
conditions.
Form # 4. Private Company:
Section 2 (68) of Companies Amendment Act, 2013 defines a Private Company as follows:
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“private company” means a company having a minimum paid-up share capital of one lakh rupees
or such higher paid-up share capital as may be prescribed, and which by its articles—
i. Restricts the right to transfer its shares;
ii. Except in case of One Person Company, limits the number of its members to two hundred-
Provided that where two or more persons hold one or more shares in a company jointly, they
shall, for the purposes of this clause, be treated as a single member-
Provided further that:
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vi. In order to protect the interest of investors, a public company is required to follow many
controls and regulations.
vii. There is a possibility that the original owners can lose control of the public limited company
in the issue of a dispute or violation.
viii. Some public limited companies can grow very large. As a result, many can suffer from
mismanagement and slow decision making.
ix. Owing to higher degree of transparency and accountability, public companies suffer from slow
decision making woes.
Finally it can be concluded that no particular form of business is perfect for organizing a startup.
The specific choice of business form inter-alia depends upon combination of various factors like
control over the business, ease of doing the business, legal compliances, flexibility, taxation as
well as the nature of the business. An entrepreneur should cautiously choose a form of business
after considering all the relevant factors.
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This initiative opens up plethora of spectacular possibilities for sole proprietors and
entrepreneur, who while taking the benefit of Limited liability and corporatization, can run their
small businesses without having the need to find a second director or second shareholder.
Characteristics of One Person Company:
i. One Shareholder:
As per the companies Amendment Act 2013, only a natural person who is a resident of India and
also a citizen of India can form a one person company. It means that other legal entities like
companies or societies or other corporate entities and even Nonresident Indians or Foreign
citizens cannot form an OPC. Further the rules also specify that a person can be a shareholder in
only one person company at any given time. It simply means an individual cannot have two
different one person companies in his name.
ii. Uninterrupted Existence:
A OPC has ‘perpetual succession’, meaning uninterrupted existence until it is legally dissolved.
Being a separate legal entity, it is unaffected by the death or any other form of departure of any
member and continues to be in existence irrespective of the changes in ownership.
iii. Borrowing Capacity:
Banks and Financial Institutions prefer to provide funding to a company rather than partnership
firms or proprietary concerns. However, a one person company cannot issue different types of
equity shares, as it can only be owned by one person at all times.
iv. Ease of Transferability:
Ownership of a business can be easily transferred in an OPC by transferring shares. In an OPC,
the ownership can be transferred by altering the provision w.r.t. shareholding, directorship and
nominee director.
v. Owning Property:
A company being an artificial person, can acquire, own, enjoy and alienate property in its name.
The property owned by a company could be machinery, building, intangible assets, land,
residential property, factory, etc. Further, the nominee director cannot claim any ownership of
the company while serving as a nominee director.
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1. Sole Proprietorship:
The simplest way to start up a business on one’s own is to become a sole trader (sometimes
known as a sole proprietor). The sole proprietorship, as its name implies, is a business owned and
managed by a single individual. The general perception of sole proprietorships is that they are a
small and insignificant part of the national as well as global economy.
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Advantages:
The following are the advantages of a sole proprietorship business:
i. Freedom:
As the sole proprietor is in total control of operations, he/she can respond quickly to changes,
which is an asset in a rapidly changing market situation. The freedom to set the company’s course
of action is a major motivational force. Many sole proprietors simply thrive on the feeling of
control they have over their personal future and recognition they earn as the owner of the
business.
ii. Ease of Formation:
One of the most attractive features of a sole proprietorship is that it is fast and simple to begin.
If an entrepreneur wants to operate a business under his/her own name, they simply have to
obtain the necessary licences from the Government and begin operations.
iii. Low Start-Up Cost:
In addition to being easy to begin, the sole proprietorship is generally the least expensive form
of ownership to establish.
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v. Feeling of Isolation:
Running a business alone allows an entrepreneur maximum flexibility, but it also generates
feeling of isolation that there is no one to turn to for help in solving problems or getting feedback
on a new idea. Most sole proprietors admit that there are times when they feel the pressure of
being alone and being fully and completely responsible for every major business decision.
vi. Suitability:
Sole proprietorship form of organization is suitable when the size of the concern is very small,
requires little capital, prefers to control by one person, where risk is more and personal attention
is required.
2. General Partnerships:
As defined by the uniform Partnership Act, a partnership is a ‘voluntary association of two or
more persons to carry on as co-owners a business for profit’. An association of individuals
competent to contract who agree to carry on a lawful business in common with the object of
sharing profit is a partnership.
Advantages:
i. Larger Pool of Talent:
In a partnership, more co-owners and their skills contribute to the business and play
complementary role to each other in the organization which is missing in the sole trade form of
organization.
ii. Larger Pool of Money:
The partnership form of ownership can significantly increase the pool of capital available to a
business. Each partner’s assets cumulatively lead to a large pool of capital available for the
business, which in turn helps to carry out the business on a large scale compared to sole
proprietorship.
iii. Ease of Formation:
Like sole proprietorship form of organization, partnership firms can also easily get established
without much legal formalities. However, more formal system prevails on it compared to
proprietor concerns.
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financial resources to buy the seller’s interest. All these things generally result in difficulties in
transferring the ownership from one person to another.
iv. Possibility of Forced Liquidation:
Since conflicts among partners are often difficult to resolve due to differences among them, many
partnership firms are forced to dissolve. This is again due to personality clashes and authority
differences among the partners.
v. Suitability:
Partnership form of organization is suitable where there is more scope for long duration of the
project, not possible for one person to carry out the activities, where more funds and more skills
are needed.
3. Company Form of Organization:
A corporation is ‘an artificial being, invisible, intangible, and existing only in contemplation of the
law’.
Advantages:
i. Limited Liability:
Because the company is a separate legal entity, it allows investors to limit their liability to the
total amount of their investment in the business. This legal protection of personal assets beyond
the business is of critical concern to many potential investors. In other words, corporate form of
ownership does not protect its owners from being held personally liable for fraudulent or illegal
acts.
ii. Continuity:
The corporate form of organization is basically continued indefinitely. The corporation’s
existence does not depend on the fate of any single individual. Unlike a proprietorship or
partnership in which the death of a member ends the business, a corporation lives beyond the
lives of those who gave life to the organization.
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v. Speculation Encouraged:
The Company form of organization generally encourages reckless speculation on the stock
exchange. This is an evil of great magnitude in our country.
vi. Bureaucratic Approach:
The bureaucratic habit of the company officials is to shirk troublesome initiatives because they
get no direct benefit from it and often retards growth.
vii. Excessive Regulation by Law:
The state in which a company is located regulates its activities much more closely than those of
non-corporate associations. A company and its management have to function well within the
law.
viii. Suitability:
Company form of organization is suitable where the organization has to exist for a long period,
huge capital is required, professionalism is needed, legal protection is needed, etc.
4. Co-Operatives (Common Ownership):
Co-operatives provide a structure for starting up business in which all the members of the
cooperative jointly own, control, and work for the business. They share responsibility equally,
make collective decisions on the basis of one person one vote and, in most co-operatives receive
equal pay.
The concept of a co-operative enterprise is not a political concept but the idea of co-operative
working is supported by the Government. Co-operative or common ownership enterprise can be
divided basically into a society or a company.
Summary
Forms of business ownership and type of business help describe how the business is organized
and run.
4 Business Types:
1. Sole Proprietorship
2. Partnership
3. Corporation
4. Cooperative
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Sole Proprietorship - Oldest and simplest form of business organization owned and managed by
a single individual or family.
- Owned by one person, who performs most roles and owns everything.
- Owner gets all profits, takes all the losses --- called unlimited liability
- Easiest and least expensive to set up
- Easiest for tax purposes -> income recorded under personal income.
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- “silent” partners- partners that usually will front a lot of capital, but do not want to
participate in business decisions – receive profits in return.
- Two types of Partnerships can exist in a business:
General Partnership
- All partners have unlimited liability (can be held responsible for the other partner’s
business related debts)
Limited Partnership
- Partners have limited liability (only responsible for their share)
Partnership Advantages
- Ability to raise more money
- More potential for ideas and innovation
- Ability to divide the losses among all of the partners
- Two or more people share decision making process
- One person may be better at one task than the other partner.
- Sometimes easier to borrow money if two people are involved
- The ability to share workload among all of the partners.
Partnership Disadvantages
- Share profits
- The need to obtain the agreement of many if not all partner for the obligations of the
Company
- Limited liability of the partners for the obligation of the company
- Partners could disagree
- Friendships can be lost over time as a result
- It may lead to dissolution
a. Death of a partner
b. Bankrupt
c. Insanity, therefore, partnership lacks stability. To continue its operation, a complete
reorganization is needed.
2. Corporation
- Is a firm it has a legal status of a fictional individual is owned by a number if person, called
the stockholder
- it’s run by a set of elected officers and a board of directors, whose chairman is often
also in a powerful position.
-it’s a business with a legal status
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4. Cooperative
- Autonomous association of persons who voluntarily cooperate for their mutual social,
economic, and cultural benefit.
- Is a voluntary association of individuals with a common objective and bond of interest
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EVALUATION
Advantages Disadvantages
Sole Proprietorship
Partnerships
Corporations
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7. Limited liability.
8. Ownership easily can be transferred through the transfer of stocks.
9. Often requires a lawyer to formally set –up the business.
10. Unlimited liability.
11. People can buy and sell their shares of ownership without the business ending.
12. Business profits are made by the individual owner(s).
13. The death of the owners can result in the termination of the business.
14. Double taxation.
15. Can grow to very large.
16. Owner(s) can react quickly to business problems.
17. Must pay a special tax on the profits.
18. Management often is separate from ownership.
19. Does not have to pay corporate income tax.
20. Combine funds of more than one person for start-up or expansion.
SELF-ASSESSMENT
2. What is the difference between limited and unlimited liability. How can someone go
about limiting their ability in their business?
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REFERENCES
Entrepreneurship, 8th edition by R.H Hisrich, M.P. Peters and D.A. Shepherd, Mc Graw Hill
https://opentextbc.ca/businessopenstax/chapter/mergers-and-acquisitions/
https://vtechworks.lib.vt.edu/bitstream/handle/10919/70961/Chapter%205%20Forms%20
of%20Business%20Ownership.pdf?sequence=10&isAllowed=y
https://www.economicsdiscussion.net/organisation/forms-of-business-organisation/31599
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MOTIVATION
Watch “Marketing Strategies For Small Business - 5 Growth Hacks (Ep. #32) ”
(Duration: 06:09 minutes). Youtube video: https://www.youtube.com/watch?v=hfReofDo2TI
Questions:
1. Based on the video, what are the new ways of marketing a businesses?
3. Give 1 – 2 tip/s from Fibo Lim that struck you the most. Please explain.
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DISCUSSION
Definition of marketing
There are various standard definitions of marketing. While the words used may be different, it is
obvious that all marketing activity is about the customer, focused at acquiring them and retaining
them.
Marketing is a business function and set of processes involved in creating, delivering and
communicating value to customers, followed by managing customer relationships, resulting in
mutual benefit for the business and its stakeholders.
Marketing is also the science of selecting target markets via market analysis and segmentation,
with a comprehensive knowledge of buying behavior, aiming to provide the best customer value.
However, marketing is successful only when an organization’s mission, vision, tasks and ability to
leverage technology align with and complement each other, and the business as a whole.
Businesses achieve this by convincing potential customers that their product is the nearest thing
that satisfies their needs and wants and do it consistently, with the result that the loyal customer
starts buying from them without looking at the competition.
This is what all businesses dream of and achieving this is possible only with a solid marketing plan
in place.
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With the advent of the internet, there are several marketing channels available to businesses,
besides traditional marketing. All of them focus on engaging the customer.
Types of Marketing
Digital marketing uses the internet to reach its markets via websites, social media, video sites,
emails, mobile phones and apps and forums.
Social media marketing is a popular medium for businesses to connect with and engage their
audiences and is an effective brand builder and market research tool. This works best when used
in conjunction with other marketing strategies.
Mobile marketing. Considered the third screen, mobile is one of the main marketing channels
today, with consumers getting their information on the go.
No matter what route the marketer decides to take, two or more of the above will inevitably
overlap to offer customers the best marketing experience since the goal is to reach customers
where they are rather than wait for them to approach the business.
The first step in this process is establishing a marketing philosophy in place, where the business
must perform a customer needs analysis to find ways to meet these needs.
It is important to remember that markets are dynamic, and keep changing. The concept of
marketing has also evolved to keep pace with the needs of the market.
Production concept – an operations-based concept where the consumer expects products that
are easily available and affordable. Here the business focuses on production efficiency, lowering
costs and mass distribution. This concept works in developing economies where the need is more
for the product than the features it offers.
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Product concept – a consumer oriented concept where consumers expect products that are
superior, high-performance and with unique features. This concept assumes that customers are
likelier to be loyal when the product meets all their expectations and so, the business strives to
offer innovative products consistently.
Selling concept– where the business believes that its products will sell only through active
promotion and selling and the customer will not respond until pushed. In short, it is a matter of
the business trying to sell what it makes rather than make products to meet the market’s needs.
Marketing concept – This concept is radical, compared to the above and focuses on the target
market, its needs and wants and a desire to be better than the competition while delivering value
to its market. Unlike the earlier concepts that rely on push marketing, it believes in pull marketing
by creating brand loyalty.
Marketing vs selling
We often use the terms marketing and selling synonymously. However, it is important to
understand the differences between marketing and selling, for any marketing plan to be
successful.
Simply stated, selling is product/seller-oriented and aims at market share and profit
maximization. The business assumes that consumers are waiting for its products and once
production is over, the sales force must sell everything using aggressive sales methods.
In contrast, the marketing approach is buyer-oriented. It encompasses a broader range of
activities that include the entire process of:
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In short, although the aim of marketing and sales is to increase revenue, marketing aims at
creating value for the customer and sees the customer as the reason for its existence. This calls
for a marketing plan based on the specific needs of the business.
Of course, marketing plans are far more detailed than this bare outline and are structured taking
into account their impact on the business, the risks involved and other specific aspects of the
business.
Marketing is much more than just promoting and selling products to a target market. It focuses
on expanding the customer base. The more information a business has, the more successful its
marketing and its business is likely to be.
Consumer Behavior
Consumer behavior refers to the psychological process that leads to a consumer’s decision to
buy a product or service offering.
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This process involves decisions in terms of what, when, where, how and from which vendor to
make the purchase. This is influenced by:
Psychological factors such as the personal thinking process that includes motivation,
personality, perception and the consumer’s attitude, the process of making the decision
in marketing, consumer’s interaction with friends, family and peers and making the choice
of where to buy from, based on cost, features and product appeal
Internal factors such as demographics, lifestyle, personality, motivation, information,
beliefs and attitude
External factors such as reference groups, culture, family, race, social status, marketing
mix
Studying consumers enables businesses to create the most appropriate marketing strategies for
their target audience.
It allows them to understand issues including how consumers think and rationalize before they
select a product from the choices available, what influences them, their behavior when they shop
and gaps that exist in information available with consumer.
This presents them with the knowledge required to create marketing campaigns that elicit the
desired response from the consumer.
Consumer behavior, besides its application in marketing strategy, is also used in social marketing
to connect with the customer.
There are several classical theories that view consumer behavior from various points of views.
This helps to understand different market segments based on which marketing strategies are
created to capture those markets.
Economic Theories
Consumer behavior seeks to explain how a consumer distributes her income across various
purchases and how pricing is a deciding factor. There are two theories here:
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Utility theory of Demand that deals with consumer satisfaction with the acquisition of a
product. Introduced by British Economist William Stanley Jevons in 1870, it describes
utility as the satisfaction or benefit that comes from consumption and assumed that this
can be quantified and measured in “utils”. Utility theory of demand gives rise to the Law
of Diminishing Marginal Utility which states that as the consumption of a product
increases, the satisfaction declines.
This theory focuses on the fact that consumption relies on income and that there is a tendency
to spend less on goods than the increment in income.
This theory is criticized on the grounds that there are many factors influencing consumer
behavior, that do not relate to income
Psychological theories
This believes that people learn from their experience and this will determine how they act in
future. This makes sense when seen in conjunction with brand loyalty and repetitive buying.
Psychological theories consist of stimulus response theories and cognitive theories.
Stimulus response theory assumes that learning is a result of a person’s response to a stimulus,
which is then rewarded with satisfaction for the right response. People tend to remember the
most frequent and recently experienced stimuli and respond to it. Advertisements take
advantage of this.
The cognitive theory deals with post-buying behavior and states that stimulation and want are
influenced by the consumer’s awareness, beliefs, perception and attitude.
It assumes that even after making an informed purchase decision, consumers face anxiety,
wondering whether they made the right choice as they compare other alternatives. These
buyers need to be reassured by the seller that they took the right decision.
Psycho-analytic theories
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Under this theory, Freud gives personality three aspects: the id, the ego and super ego and states
that consumer behavior is a result of the interaction between these three.
While the “id” triggers pleasure, the super ego sees the moral issues and the ego is the go-
between, helping the consumer decide whether to buy or not.
Cultural factors
These include culture, subculture and social class. Since the buyer is part of a society, her
decisions are affected by it. Global marketers must study the culture of various regions to
understand what influences buyers in these markets.
Subculture refers to religion, nationality, region, race, and similar factors that facilitate market
segmentation, so that products can be tailored to these segments. Social class or status, which is
identified by income levels, education and occupation also plays a role in consumer behavior.
Social factors that impact buying behavior are reference groups, family, role and status.
Reference groups, often including an opinion leader have a strong influence on buying decisions.
The decision maker in the family has an important role in the buying process. Buying decisions
also depend on the consumer’s role and status.
Personal factors
Among personal actors that determine buying behavior are economic level, lifestyle, age group,
personality, occupation and self-concept. Since each person is unique, personality varies and
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Psychological Factors
Four psychological factors, namely perception, motivation, learning, attitude and beliefs affect
buyer behavior.
Each individual is motivated by a different set of physiological, biological and social needs. While
some needs are urgent, some are not. When the need is urgent, it becomes a motive.
Beliefs and Attitudes surround a consumer’s view of a product and also build the brand image,
thereby affecting their buying behavior. This triggers a marketer’s interest in them.
Consumers wearing this present Nike and its partners with enough information to strategize their
marketing. As for Nike, it even knows exactly when a consumer needs a new pair of trainers.
Another example of perfectly targeted marketing based on consumer behavior is from fast food
chain Taco Bell, who leverages consumer data and has the reputation of not having a single
product launch failure in 15 years.
Voted Marketer of the Year, Taco Bell uses its social command center which receives 18+ million
online messages to forecast the success of its new product launches accurately.
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As consumers become savvier, they only respond to the right messages delivered in a timely
manner. For marketers to be customer-centric, they must collect and analyses the information
available to manage customer expectations.
Today, marketing has changed to the extent where it has moved from getting to know the
average consumer’s behavior to focusing on individual customers.
Market Research
Market research is the process of collecting information about the target market to study them
and tailor the company’s products and services to their needs.
By using analytical and statistical methods to collect and disseminate data, market research is
an important business activity. In today’s complex and dynamic business environment, no
business can afford to depend on instinct to drive its operations.
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Identifying likely issues through interaction with consumers, enabling the business fine
tune its products before it reaches the market.
Identifying and monitoring the competition and learn how customers compare
Market research can be complex or simple ranging from a basic questionnaire or survey to a
professionally conducted campaign depending on the business’s activities and budget.
Whatever methods are used, the goal is to help the business make better decisions. From the
many ways to conduct market research, most businesses use one or a combination of the
following:
These include surveys, questionnaires, in-person or phone interviews, direct mail, email,
observations and experiments.
Qualitative market research digs deep into consumer perception and behavior and the
factors that influence it. It considers the feelings and opinions of consumers for the
company’s products or services. Examples are focus groups and in depth interviews.
Quantitative market research has to do with facts and numbers and quantifies data. It is
useful in both primary and secondary market research. Examples are structured
questionnaires usually with closed questions where respondents choose from a set of
given responses, exit surveys, financial reports and research papers.
1. Surveys
These involve direct questionnaires targeted at a sample group in the business’s target audience
and include:
In person surveys, personal interviews where product samples are offered for feedback.
The response rate is good but the method is expensive.
Phone interviews. Here the response rate is lower although it method is less expensive
compared to personal interviews
Direct mail surveys, cost-effective for larger audiences, but low response rates
Online surveys, inexpensive though usually unpredictable
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2. Focus Groups
Groups of people are involved in a discussion with a moderator facilitating the sessions, usually
in a neutral location.
These sessions may be filmed. More than one group is required to get results. Participants are
from the same demographic profile and are often compensated for their time through coupons,
gifts or cash.
3. Personal Interviews
Similar to focus groups, these also involve discussions and produce subjective results from a small
segment of the market.
However, when respondents are carefully chosen, it can offer important insight into consumer
attitude and product related issues.
4. Observation
This is a quantitative method where actual consumer behavior is observed and filmed in stores,
at the workplace or residence for information about their shopping habits and product use.
5. Field Trials
This quantitative method is used mostly in product-testing after a new product is launched by
placing them in chosen outlets to test consumer reaction in a real-life setting.
The results are used to finalize packaging, pricing and product improvement.
The information is used to address a particular question or issue. It is less time consuming and
less targeted compared to primary market research; nevertheless, it offers important data.
The best time to conduct market research is during the planning stage for new start-ups when
the business must estimate the sales potential for its products or plan a new product launch.
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It is especially useful to assess the market for a new advertising campaign, expanding the business
to a new location or market segment and increase production capacity.
Market research should be undertaken with specific goals and a plan of action choosing
techniques that will bring the maximum results and return on investment. Some mistakes to
avoid are:
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2. A lack of time
The organization may not have enough time for decision making as a result of which market
research becomes a rushed activity and skips important steps.
3. Data accuracy
The success of any market research activity depends on reliable data. The results obtained can
be influenced by: the type of questions asked, selection of the wrong audience, the interviewers’
attitude could all influence the results.
Sometimes businesses try to cut costs by scrimping on these aspects.
Market research offers critical information to a business about its target market, its buying
habits, needs and preferences, besides uncovering valuable data about prospective markets.
Avoiding likely limitations and mistakes can make it a powerful tool for business growth.
Marketing Strategy
A marketing strategy helps a business identify various ways to communicate with its audience
and focus on the most effective methods to achieve its marketing goals.
For example, if the business aims to increase its customer base by 10%, its marketing strategy
would involve planning, market research and arriving at a marketing mix that helps to achieve
this goal. A marketing strategy helps a business determine what to say, whom to say it to, how
to say it and when.
The marketing mix is a good starting point for a marketing strategy and plan as it helps define
the marketing elements that go into positioning the product or service.
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The 4 Ps, along with target market selection, form the foundation of the marketing strategy and
can be leveraged in combination to cater to customer needs. Knowledge of the target market,
the needs of potential prospects and competition analysis enables a business to create its
marketing mix based on its own competitive advantage.
Clearly, a marketing strategy is a continuous process that creates consistent value and
comprises of the following elements:
Marketing segmentation
As the first step in creating a market strategy, market segmentation involves analyzing the market
and grouping it into smaller sections.
After segmenting the market the one that is most suitable for the company’s products in relation
to its strengths and competitive advantages is chosen.
Take the hotel industry, for example. A hotel chain would target its budget hotels in a tourist
location towards the leisure traveler while its business hotels would be aimed at the frequent
business traveler.
Its premium properties would be marketed to top level executives. Market segmentation makes
it possible to manage the market in a more focused manner and create an appropriate marketing
strategy for each segment. This enables the business to make better use of its funds.
Marketing strategy
Just as a construction project begins with a blueprint, building a profitable business requires a
strong marketing strategy based on a well thought out marketing plan.
This lets the business channel its activities in such a way that they are consistent with business
goals and maximize its return on investment.
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Market research is critical for a business to make informed decisions. Since marketing involves
directing resources and activities geared to satisfy customer needs, market research helps
identify those needs and find ways to create the ideal marketing message.
It also helps in modifying and keeping track of various elements in the marketing strategy. Thus,
market research helps understand the competition and leverage that knowledge to improve the
business.
Pricing
Selling a product at a specific price involves the creation of value, which is the customer’s
perception of the product’s ability to meet her needs.
Consumers are intelligent and select the product that satisfies them. Often pricing is the value a
customer places on a service or product.
There is a strong relationship between price and quality where a higher priced product is
perceived to be of higher quality. This usually happens with services.
Marketers frequently enter the market with a higher price and as demand decreases, lower the
price. This pricing strategy is generally used while introducing unique new products. When
competition heats up, prices begin to fall and stabilize at the market rates.
Some marketers use a price penetration strategy where they enter the market with a low price
to capture the market share.
In either case, pricing is a powerful marketing strategy that bears in mind the business’s
resources. Very low prices can result in losses while high pricing can kill the demand and sales.
Placement
For a customer to buy a product, it must be easily available. Placement or distribution facilitates
the buying process.
The business must have the logistics in place to connect the customer with its products and
services as accessibility determines the sales of the product.
Value chain
The marketing mix, segmentation, strategy, research and competition analysis, pricing and
placement together form a value chain that contributes to the marketing plan’s effectiveness.
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It encompasses a range of activities starting with the acquisition of raw materials, managing the
product creation process, distribution and logistics, marketing and sales, customer service and
human resource management.
While marketing goals reveal a business’s intentions, marketing strategy provides the roadmap
for achieving these goals.
With overall cost leadership, the business focuses on minimizing production and
distribution costs and sells at a price lower than the competition to increase its market
share. This strategy, however, has it flaws as another competitor might enter with an even
lower price. This can be detrimental to the business if its marketing strategy is based on
cost leadership.
Differentiation, where the business seeks to excel in a specific aspect such as superior
service or technology that directly benefits the customer.
Focus, where the business concentrates on a particular market segment or niche and
specializes in catering to their needs.
Go to market strategy
A go-to-market strategy (or GTM strategy, in short) is a plan of action that details how the
business will reach its customers and gain a competitive advantage.
The goal of this strategy is to create a blueprint to deliver its products and value proposition to
the customer, keeping in view various criteria such as pricing and distribution.
Usually used in product launches, GTM also explains the strategies required to steer customer
interactions for existing products.
GTM strategy starts with the target market definition for a specific product or service. For new
product launches, the business analyses its existing market to gauge whether it is prospective or
whether it must explore new markets.
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It also identifies its buyer profile and the benefits they receive from the new product or service.
Once this value proposition is determined, a pricing strategy is worked out followed by
marketing and promotional strategies to reach the target market.
GTM is used as a long-term strategy to reinforce a business’s position in the market, revenue
growth, cost reduction and enhance customer experience.
With the growth of the World Wide Web, more and more businesses are adopting online
marketing strategies to leverage the internet to reach wider markets, increase their ROI and
achieve measurable results.
Some of the most popular online marketing strategies used by businesses to build their brands
and attract newer markets are:
Affiliate marketing where businesses promote their products via affiliates and pay them
a commission on sales
Email marketing, similar to direct mailing where information and marketing messages are
sent via email
Display advertising where banners and advertisements are placed on other websites.
Inbound marketing using content marketing in the form of blogs, social media updates
and podcasts to gain customers
Pay per click advertising or search engine marketing where advertisements are placed on
search engines websites such as Google, Yahoo and Bing
Search Engine Optimization where the business attracts its target market by using the
same keywords and phrases used by them to appear at the top of the search engine
results.
Social Media Marketing where the business promotes itself via social media platforms
such as Facebook, Twitter, Google Plus and Pinterest. The business creates profiles on
each of these sites to attract followers and convert them into buyers.
An organization’s strategic goals are founded on knowledge, insight and in-depth analysis.
Without a strategic plan of action, it will end up directing its resources on activities that do not
generate revenue.
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To maximize its ROI, its marketing plan must be based on its understanding of its market and its
customer needs and merge with its strategic plan, creating a blueprint for the firm’s success,
leading to better decision making and sustainable growth.
Summary
According to American Marketing Association, Marketing is the process of planning and
executing the conception, pricing, promotion and distribution of ideas, goods and services to
create exchanges that satisfy individual and organizational goals.
Customer Relationship – the type / significance of the relationship they have with their
customer
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Product:
Defined as good, a service, an idea (“recycle”), or any combination of these.
Business products & consumer products.
Considerations – brand name, packaging, labeling, trademark, warranties.
Price:
Revenue (price times units sold) is what pays for every activity of the company:
production, finance, sales, distribution, etc.
Key: choose a price that will earn a fair profit, and that equates to the perceived value to
target customers.
Pricing Objectives:
Profit Oriented
-Profit Maximization: setting prices so that total revenue is as large as possible related
to total cost.
Satisfactory Profits: a “reasonable” level of profits (for stockholders & management).
- Target Return On Investment, ROI (also called “return on assets”): measures
management’s effectiveness in generating profits with available assets. Dupont and
GM use target ROI as their main pricing goal. ROI = Net profit after tax divided by total
assets.
Pricing Objectives:
Sales Oriented
- Market Share: a company’s product sales as a percentage of total sales for that
industry (reported in units or dollar). But some companies like P&G switched from
market share to ROI objectives when they saw that a large market share doesn’t
always equal to large profits.
- Sales Maximization: Firm ignores profits, competition and the environment as long
as sales are rising. Used when strapped for funds and need to generate maximum
cash in short run. Examples: selling excess inventory at discount (past holiday
season) or selling old model cars at year-end.
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Elasticity of Demand
-Elastic Demand is when consumer demand is very sensitive to changes in price.
- Inelastic Demand is when an increase or decrease in price will not significantly affect
demand.
-Factors affecting elasticity include: availability of substitutes, price relative to
purchasing power, product durability, a product’s other uses.
Cost Determinants of Price:
Markup pricing
-Popular with wholesalers and retailers. Considers the cost of buying the product from
the producer, plus amounts for profit and expenses not otherwise accounted for. The
difference between the retailers’s cost and the selling price is the gross margin.
- Advantage is its simplicity. Disadvantage is that it ignores demand and may result in
over –or under- pricing.
Profit Maximization Pricing
- Occurs when marginal revenue equals marginal cost.
Break- Even Pricing
-Determines what sales volume must be reached before the company breaks even (total
costs = total revenue).
- Advantage: tells the firm how much it must sell to break even and how much profit can
be earned if a higher sales volume is obtained.
- Limitations: some costs are hard to classify as fixed or variable & also, this method
ignores demand.
Choosing a Pricing Strategy:
Price Skimming
- Charging a high introductory price.
- Used when the product is perceived by the target market as having unique
advantages.
- Allows management to recover its product development costs.
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- But as a product moves through its lifecycle, the firm may lower its price to reach
larger market segments.
Penetration Pricing
- Charging a low price initially to reach the mass market.
- Goal is to capture a large share of a large market. Often seen when large market
share is the pricing objective. Effective in a price sensitive market.
- Disadvantage: lower profit per unit, so requires a higher volume of sales to reach
break-even.
Promotion:
Consists of 4 elements known as the Promotional Mix:
- Advertising (print, TV, radio, internet)
- Public Relations (press releases)
- Sales Promotion (contests, rebates)
- Personal Selling (face-to-face, sales representative)
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EVALUATION
Instructions: Choose the correct answer. Write the letter (capital letter) of your answer on
the space provided.
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APPLICATION
1. MARKETING STRATEGY
1.1 BUYER’S BUYING CYCLE
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1.3 BRANDING
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1.4.2 PRICE
1.4.3 PLACE
1.4.4 PROMOTION
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1.6 MARKETING BUDGET
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REFERENCES
https://www.mbacrystalball.com/blog/marketing/market-research/
https://www.mbacrystalball.com/blog/marketing/marketing-strategy/
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RUBRIC
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MOTIVATION
2. What are other business platforms that new entrepreneurs can use to sell their products?
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3. Compare and contrast the difference between setting –up a business through physical and
online store (e-commerce)?
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DISCUSSION
Being in the right location is a key ingredient in a business's success. If a company selects the
wrong location, it may have adequate access to customers, workers, transportation, materials,
and so on. Consequently, location often plays a significant role in a company's profit and overall
success. A location strategy is a plan for obtaining the optimal location for a company by
identifying company needs and objectives, and searching for locations with offerings that are
compatible with these needs and objectives. Generally, this means the firm will attempt to
maximize opportunity while minimizing costs and risks.
A company's location strategy should conform with, and be part of, its overall corporate strategy.
Hence, if a company strives to become a global leader in telecommunications equipment, for
example, it must consider establishing plants and warehouses in regions that are consistent with
its strategy and that are optimally located to serve its global customers. A company's executives
and managers often develop location strategies, but they may select consultants (or economic
development groups) to undertake the task of developing a location strategy, or at least to assist
in the process, especially if they have little experience in selecting locations.
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6. Trade zones. Companies may want to consider the benefits offered by free-trade zones,
which are closed facilities monitored by customs services where goods can be brought
without the usual customs requirements. The United States has about 170 free-trade
zones and other countries have them as well.
7. Political risk. Companies considering expanding into other countries must take political
risk into consideration when developing a location strategy. Since some countries have
unstable political environments, companies must be prepared for upheaval and turmoil
if they plan long-term operations in such countries.
8. Governmental regulation. Companies also may face government barriers and heavy
restrictions and regulation if they intend to expand into other countries. Therefore,
companies must examine governmental—as well as cultural—obstacles in other
countries when developing location strategies.
9. Environmental regulation. Companies should consider the various environmental
regulations that might affect their operations in different locations. Environmental
regulation also may have an impact on the relationship between a company and the
community around a prospective location.
10. Incentives. Incentive negotiation is the process by which a company and a community
negotiate property and any benefits the company will receive, such as tax breaks.
Incentives may place a significant role in a company's selection of a site.
Depending on the type of business, companies also may have to examine other aspects of
prospective locations and communities. Based on these considerations, companies are able to
choose a site that will best serve their needs and help them achieve their goals.
COMPANY REQUIREMENTS
The initial part of developing a location strategy is determining what a company will require of
its locations. These needs then serve as some of the primary criteria a company uses to evaluate
different options. Some of the basic requirements a company must consider are:
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Infrastructure. Companies must consider what their infrastructure requirements will be,
including what modes of transportation they will need and what kinds of
telecommunications services and equipment they will need.
Labor. Companies must establish their labor criteria and determine what kind of labor
pool they will need, including the desired education and skilled levels.
Suppliers. Companies must consider the kinds of suppliers they will need near their
locations. In addition, having suppliers nearby can help companies reduce their
production costs.
Besides these basic requirements, companies must take into consideration their unique
requirements of prospective locations. These requirements may correspond to their overall
corporate strategy and corporate goals and to their particular industries.
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range of values for each factor (see Table 1). A company can rate each site with a value from the
range based on the costs and benefits offered by the alternative locations, and multiply this value
by the appropriate weight. These numbers are then summed to get an overall "factor rating."
Then a company can compare the overall ratings of alternative sites. This technique enables a
company to choose a location systematically based on the best rating.
Linear programming provides a method for evaluating the cost of prospective locations within a
production/distribution network. This technique uses a matrix of production facilities and
warehouses that shows the unit shipping costs from a manufacturing location designated by a
variable, such as X, to prospective destinations, such as warehouses designated by other
variables— E, F, and G —and the total amount of goods the prospective manufacturer, X, could
produce. Other prospective manufacturing locations and the same information for each are also
included in the matrix. After computing the total costs for each prospective location, a company
can determine which one has lower total costs in terms of the entire production/distribution
network.
The center of gravity method is useful for identifying an individual location by considering existing
locations, the distances between them, and the volume of products to be shipped. Companies
use this method mostly for locating distribution warehouses. To use this technique, companies
plot their existing locations on a grid with a coordinate system (the particular coordinate system
used does not matter). The idea behind this technique is to identify the relative distances
between locations. After the existing locations are placed on the grid, the center of gravity is
determined by calculating the X and Y coordinates that would have the lowest transportation
costs.
SERVICES.
Since service businesses generally must maintain a number of sites to remain close to customers,
the location selected should be close to the targeted segment of the market. The market also can
influence the number of new locations, as well as their size and features.
A simple technique for determining service locations is to establish a set of minimum criteria for
opening new outlets. These criteria should be developed so that the locations selected have
strong chances of success. A company could assess the potential of prospective locations based
on primary criteria such as:
The population of the community should more than 100,000.
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Globalization and technology have been the biggest drivers of change in the location decision
process over the last thirty years. Location activity has been very high in recent decades as a
result of technology improvements, economic growth, international expansion and globalization,
and corporate restructuring, mergers and acquisitions.
The top five location factors for global companies are costs, infrastructure, labor characteristics,
government and political issues, and economy. Key sub-factors are the availability and quality of
the labor force, the quality and reliability of modes of transportation, the quality and reliability
of utilities, wage rates, worker motivation, telecommunication systems, record of government
stability, and industrial relations laws. Other sub-factors—protection of patents, availability of
management resources and specific skills, and system and integration costs—are of increasing
importance.
Whereas wages and the industrial relations environment are significant factors in multinational
location decisions, by far the main determinant is the host country market size. Furthermore,
global economic considerations have become paramount in location strategy as companies
contemplate the advantages afforded by various locations in terms of positioning in international
markets and against competitors.
When companies seek new sites they generally strive to keep operating and start-up costs low,
and so they often choose locations in collaboration with economic development groups to
achieve these goals. Companies also now expect to move into new facilities more quickly than in
the past, so they tend to focus more on leasing facilities than purchasing land and building new
facilities. Also, by leasing facilities, companies can relocate every few years if the market requires
it.
Technology, especially communications technology, has not only been a driver of change, but has
facilitated the site selection process. Managers can obtain initial information on alternative
locations via the Internet and promotional software. Site selections agencies increasingly use
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Geographical information system (GIS) technology, and e-mail has become a dominant mode of
communication in location research and negotiation.
Location databases have enabled companies to do initial screening themselves, hence reducing
their need to rely on economic developers to providing only very specific information and details
on locations—such as commuting patterns and workforce characteristics.
Telecommunications technology has created the "virtual office" of employees working from
remote locations. The growth of the virtual office has impacted location strategy in that some
companies no longer need as much workspace because many employees work from remote sites.
When these employees need to work at the office, they can call and reserve office space for
themselves. The decrease in facility size can lead to millions of peso worth of savings each year,
while increasing productivity.
Summary
Before you start looking for a business location, you should have a clear picture of what you
have and what you want to have in future. Coming up with that picture is a time-consuming
process, which is both tedious and exciting – but you need to give it the attention that it
deserves.
The Need for Location Decisions
Location decisions arise for a variety of reasons:
Addition of new facilities
As part of a marketing strategy to expand markets
Growth in demand that cannot be satisfied by expanding existing facilities
Depletion of basic inputs requires relocation
Shift in markets
Cost of doing business at a particular location makes relocation attractive
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Location: Options
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communities that are largely dependent on a specific industry, you need to be careful because a
slump can be bad for business.
3. Foot Traffic
For many businesses, foot traffic is very important. Nobody wants to be tucked away in a corner
where potential customers will pass him/her by. On the other hand, if your business needs
confidentiality, you should opt for a low-traffic area.
Find an ideal location by monitoring the traffic outside a certain location at different times of the
day and different times of the week. Doing so is a great way of confirming whether the traffic
meets your needs.
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EVALUATION
Instructions: Choose the correct answer. Write the letter (capital letter) of your answer on the
space provided.
_____3. The most important factor to consider when deciding on locations is the amount of
land to be used
a. True b. False
_____5. Refers to the number of people who pass a retail location during a given period of
time.
a. Passage c. Traffic
b. Movement d. Patronage
_____6. Before deciding on a retail location, is important to consider if the town will accept a
new retail business.
a. True b. False
_____7. The rise of the internet has led to the closure of many high street travel agent
branches. This is because, recently, being located close to:
a. Competitor has become more important
b. Labor has become more important
c. Raw materials has become less important
d. Customers has become less important
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_____8. Which of the following is likely to be the main factor influencing the location of a small
barber shop? Proximity to:
a. Customers c. Labors
b. Raw materials d. Competitors
_____9.The rise of the internet has meant that many businesses costs are:
a. Lower as there is more need for expensive retail premises
b. Higher as there is less need for expensive retail premises
c. Higher as there is more need for expensive retail premises
d. Lower as there is less need for expensive retail premises.
_____10. A business has the choice to locate at Site A, which is close to the market, or Site B,
which is close to materials and labor. The benefit of choosing Site A over Site B is that
it is close to:
a. Customers c. Suppliers
b. Raw materials d. Employees
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APPLICATION
REFERENCES
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MOTIVATION
Watch “How To Make Your Business Grow Fast - 5 Methodical Ways (Ep. #33)”
(Duration: 06:35 minutes). Youtube video: https://www.youtube.com/watch?v=aaN1KXjZ5us
Questions:
1. Based on the video shared by Fibo Lim, what are the 5 Methodical Ways to grow your
business?
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3. Compare and contrast the way people promote and set-up their business 30 – 50 years ago
compared to how people promote or advertise their businesses now.
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DISCUSSION
Promotion Strategy
What is promotion, and what are the key elements of a promotional mix?
Promotion is an attempt by marketers to inform, persuade, or remind consumers and B2B users
to influence their opinion or elicit a response. Most firms use some form of promotion. Because
company goals vary widely, so do promotional strategies. The goal is to stimulate action from the
people or organizations of a target market. In a profit-oriented firm, the desired action is for the
consumer to buy the promoted item. Mrs. Smith’s, for instance, wants people to buy more frozen
pies. Not-for-profit organizations seek a variety of actions with their promotions. They tell us not
to litter, to buckle up, to join the military, or to attend the ballet. (These are examples of products
that are ideas marketed to specific target markets.)
Promotional goals include creating awareness, getting people to try products, providing
information, retaining loyal customers, increasing the use of products, and identifying potential
customers, as well as teaching potential service clients what is needed to “co-create” the services
provided. Any promotional campaign may seek to achieve one or more of these goals:
1. Creating awareness: All too often, firms go out of business because people don’t know
they exist or what they do. Small restaurants often have this problem. Simply putting up
a sign and opening the door is rarely enough. Promotion through ads on social media
platforms and local radio or television, coupons in local papers, flyers, and so forth can
create awareness of a new business or product.
Large companies often use catchy slogans to build brand awareness. For example,
Dodge’s wildly successful ads where a guy in a truck yells over to another truck at a
stoplight, “Hey, that thing got a Hemi?” has created a huge number of new customers for
Dodge trucks. Hemi has become a brand within a brand. Now, Chrysler is extending the
Hemi engine to the Jeep brand, hoping for the same success.
2. Getting consumers to try products: Promotion is almost always used to get people to try
a new product or to get nonusers to try an existing product. Sometimes free samples are
given away. Lever, for instance, mailed over two million free samples of its Lever 2000
soap to targeted households. Coupons and trial-size containers of products are also
common tactics used to tempt people to try a product. Celebrities are also used to get
people to try products. Oprah Winfrey, for example, recently partnered with Kraft
Heinz to launch a new line of refrigerated soups and side dishes made with no artificial
flavors or dyes. Kate Murphy, director of strategic partnerships at the social marketing
platform Crowdtap, weighed in on the strategy. “Celebrity endorsements can provide
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immense value to a product/brand when done right,” Murphy said. “If a celebrity aligns
with a product, they bring a level of trust and familiarity to the table.”
3. Providing information: Informative promotion is more common in the early stages of the
product life cycle. An informative promotion may explain what ingredients (for example,
fiber) will do for a consumer’s health, describe why the product is better (for example,
high-definition television versus regular television), inform the customer of a new low
price, or explain where the item may be purchased.
People typically will not buy a product or support a not-for-profit organization until they
know what it will do and how it may benefit them. Thus, an informative ad may stimulate
interest in a product. Consumer watchdogs and social critics applaud the informative
function of promotion because it helps consumers make more intelligent purchase
decisions. StarKist, for instance, lets customers know that its tuna is caught in dolphin-
safe nets.
4. Keeping loyal customers: Promotion is also used to keep people from switching brands.
Slogans such as Campbell’s soups are “M’m! M’m! Good!” and “Intel Inside” remind
consumers about the brand. Marketers also remind users that the brand is better than
the competition. For years, Pepsi has claimed it has the taste that consumers prefer.
Southwest Airlines brags that customers’ bags fly free. Such advertising reminds
customers about the quality of the product or service.
Firms can also help keep customers loyal by telling them when a product or service is
improved. Domino’s recently aired candid advertisements about the quality of their
product and completely revamped their delivery operations to improve their service. This
included advertisements highlighting a Domino’s pizza being delivered by reindeer in
Japan and by drone in New Zealand. According to University of Maryland marketing
professor Roland Rust, “delivery” stands out in how Domino’s has broadly improved its
quality, and “the customized delivery vehicles are a competitive advantage.”
5. Increasing the amount and frequency of use: Promotion is often used to get people to
use more of a product and to use it more often. The National Cattlemen’s Beef Association
reminds Americans to “Eat More Beef.” The most popular promotion to increase the use
of a product may be frequent-flyer or -user programs. The Marriott Rewards program
awards points for each dollar spent at a Marriott property. At the Platinum level,
members receive a guaranteed room, an upgrade to the property’s finest available
accommodations, access to the concierge lounge, a free breakfast, free local phone calls,
and a variety of other goodies.
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6. Identifying target customers: Promotion helps find customers. One way to do this is to
list a website as part of the promotion.
7. Teaching the customer: For service products, it is often imperative to actually teach the
potential client the reasons for certain parts of a service. In services, the service providers
work with customers to perform the service. This is called “co-creation.” For example, an
engineer will need to spend extensive time with team members from a client company
and actually teach the team members what the design process will be, how the
interaction of getting information for the design will work, and at what points each part
of the service will be delivered so that ongoing changes can be made to the design. For
services products, this is more involved than just providing information—it is actually
teaching the client.
The combination of traditional advertising, personal selling, sales promotion, public relations,
social media, and e-commerce used to promote a product is called the promotional mix. Each
firm creates a unique promotional mix for each product. But the goal is always to deliver the
firm’s message efficiently and effectively to the target audience. These are the elements of the
promotional mix:
Traditional advertising: Any paid form of nonpersonal promotion by an identified
sponsor that is delivered through traditional media channels.
Sales promotion: Marketing activities (other than personal selling, traditional advertising,
public relations, social media, and e-commerce) that stimulate consumer buying,
including coupons and samples, displays, shows and exhibitions, demonstrations, and
other types of selling efforts.
Public relations: The linking of organizational goals with key aspects of the public interest
and the development of programs designed to earn public understanding and
acceptance. Public relations can include lobbying, publicity, special events, internal
publications, and media such as a company’s internal television channel.
Social media: The use of social media platforms such as Facebook, Twitter, Pinterest,
Instagram, and various blogs to generate “buzz” about a product or company. The skills
and knowledge needed to generate information as well as to defend the company against
problems (such as incriminating videos “going viral”) are separate skills from those related
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This disjointed approach to promotion has propelled many companies to adopt the concept
of integrated marketing communications (IMC). IMC involves carefully coordinating all
promotional activities—traditional advertising (including direct marketing), sales promotion,
personal selling, public relations, social media and e-commerce, packaging, and other forms of
promotion—to produce a consistent, unified message that is customer focused. Following the
concept of IMC, marketing managers carefully work out the roles the various promotional
elements will play in the marketing mix. Timing of promotional activities is coordinated, and the
results of each campaign are carefully monitored to improve future use of the promotional mix
tools. Typically, a company appoints a marketing communications director who has overall
responsibility for integrating the company’s marketing communications.
When Weight Watchers signed up DJ Khaled to be one of its celebrity endorsers, many were
surprised by the choice. Khaled will broadcast his quest to slim down across Facebook, Instagram,
Twitter, and Snapchat in a bid to attract more men to sign up for the program. Khaled is not the
usual choice for a Weight Watchers spokesperson, but once you scratch below the surface, he’s
actually a great brand fit. Authenticity and relevance are words bandied about like the gospel in
influencer marketing, but they are the most important ingredients when it comes to working with
any level of influencer. What challenges and payoffs are associated with integrated marketing
communications?
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Word of Mouth
To promote and manage word-of-mouth communications, marketers use publicity techniques to
achieve desired behavioral response.
Word of mouth, or viva voce, is the passing of information from person to person by oral
communication. Storytelling is the oldest form of word-of-mouth communication where one
person tells others of something, whether a real event or something made up. Another important
form of word of mouth is oral history—the recording, preservation, and interpretation of
historical information, based on the personal experiences and opinions of the speaker. Oral
history preservation is the field that deals with the care and upkeep of oral history materials
collected by word of mouth, whatever format they may be in. An important area of marketing is
called word-of-mouth marketing, which relies on the added credibility of person-to-person
communication.
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naturally. The relatively new practice of word-of-mouth marketing attempts to inject positive
“buzz” into conversations directly. While marketers have always hoped to achieve positive word-
of-mouth, intentional marketing relying on such techniques is legislated in some jurisdictions. For
example, in the United States, deliberate efforts to generate beneficial consumer conversations
must be transparent and honestly conducted in order to meet the requirements of Section 5 of
the Federal Trade Commission Act that prohibits ” unfair or deceptive acts or practices. ” To help
marketers understand the difference between legitimate and unfair practices, a number of
professional organizations have put forward recommendations for ethical conduct.
Digital Marketing
Digital marketing is the use of internet connected devices to engage a customer with online
advertising to promote products and services.
Internet marketing ties together the creative and technical aspects of the Internet, including
design, development, advertising, and sales. Internet marketing also refers to the placement of
media along many different stages of the customer engagement cycle through search engine
marketing (SEM), search engine optimization (SEO), banner ads on specific websites, email
marketing, mobile advertising, and Web 2.0 strategies.
In 2008, The New York Times, working with comScore, published an initial estimate to quantify
the user data collected by large Internet-based companies. Counting four types of interactions
with company websites in addition to the hits from advertisements served from advertising
networks, the authors found that the potential for collecting data was up to 2,500 times per user
per month.
Digital marketing is the use of internet-connected devices to engage a customer with online
advertising in order to promote products and services. Internet-connected devices are those such
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as web browsers, smart phones, and game consoles. As technology develops, more devices
become capable of internet browsing and the digital marketing potential that comes with it.
Pull digital marketing is marketing in which the consumer must actively seek content—often via
web searches or arrangements in which the recipient has been given permission to receive
content that is sent to the consumer by email, text message, or web feed. Websites, blogs, and
streaming media (audio and video) are also examples of pull digital marketing. Articles with
specific target / topic are a great source to pull interested viewers. In each of these, users have
to link to the website to view the content. Only current web browser technology is required to
maintain static content. However, additional internet marketing technologies (search engine
optimization) may be required to attract the desired consumer demographic. Research by Martin
et al. (2003) found what permission email marketing content consumers find useful, such as
special sales and new product information, whereas suggesting interesting hyperlinks was not
seen as useful.
Push digital marketing involves a marketer sending a message without the consent of the
recipients, such as display advertising on websites and news blogs. Email, text messaging, and
web feeds can also be classed as push digital marketing when the recipient has not given
permission for the marketer to send the marketing message. (This is also known as spam. ) Push
technologies can deliver content as soon as it becomes available and are better targeted to their
consumer demographics, although audiences are often smaller, and the costs of creation and
distribution are higher. Push digital marketing technologies are more proper when done with
prior permission—a concept called permission marketing. This is also more ethical. Permission
can be obtained through subscriptions, consent to send email, etc.
Push and pull message technologies can be used in conjunction with each other. For example, an
email campaign can include a banner ad or link to a content download. This enables a marketer
to benefit from both types of digital marketing.
Sampling
Sampling involves providing a sample of a consumer product to consumers so that they may try
said product before committing to a purchase.
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Sampling Defined
During the product promotion process, sampling involves providing a sample of a consumer
product to consumers so that they may try said product before committing to a purchase. A free
sample, or freebie, is a portion of a product (i.e., food or makeup) given to consumers in retail
stores or other outlets. Sometimes samples of non-perishable items are included in direct
marketing mailings. The purpose of a free sample is to acquaint the consumer with a new
product, and is similar to the concept of a test drive, in that a customer is able to try out a product
before purchasing it.
Many consumer product companies now offer free samples through their websites, to encourage
consumers to regularly use the products and to gather data for mailing lists of potentially
interested customers. The expansion of online marketing with regards to promotional giveaways
has facilitated the rise of “freebie websites” that seek to aggregate all promotional free sample
offers in one place. These sites will often compile free product samples from all over the web and
categorize them by type. Some product sample offers may require consumers to complete a
survey or refer a friend in order to qualify for the freebies. Additionally, the advent of the “social
graph” and the realization that consumers more and more take cues from each other’s reviews,
has opened up a new branch of sampling called Social Sampling.
It is also possible to purchase products in small “trial size” containers. This is common with
toiletries such as shampoo. Samples may also be loaned to the customer if they are too valuable
to be given for free, such as samples of a countertop or of carpet to be used for remodeling.
Effectiveness of Sampling
While placement and word of mouth impact future purchases, sampling can create an almost
immediate impulse purchase. According to the Product Sampling Study by Arbitron, sampling
successfully reaches 70 million consumers every quarter, and one-third of customers who try a
sample will buy the sampled product in the same shopping trip, and 58 percent of those surveyed
reported that they would buy the product again.
Improved Product Sampling
The success of a sampling program for a new product introduction is dependent on sound
planning of overall project objectives and selection of the best distribution technique, sample
design, and packager. Marketers who are considering sampling their next product introduction
should define the objectives of the sampling program. Procedures and timetables should be
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established to correspond with the sampling program, with the overall promotion of the
product in mind. There are a number of popular sampling techniques:
1. Coupons in pages of newspapers or magazines
To increase demand
To differentiate a product from others in the marketplace
There are different ways to promote a product in different areas of media. Promoters use
Internet advertisement, special events, endorsements, and newspapers or magazines to
advertise their product. Many times with the purchase of a product there are incentives like
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discounts, free items, or contests. These methods are used to increase the sales of a given
product.
Marketing strategy is a process that can allow an organization to concentrate its limited resources
on the greatest opportunities to increase sales and achieve a sustainable, competitive advantage.
Marketing strategy includes all basic and long-term activities in the field of marketing that deal
with the analysis of the strategic situation of a company and the formulation, evaluation and
selection of market -oriented strategies and therefore contribute to the goals of the company
and its marketing objectives.
Marketing strategies may differ depending on the unique situation of the individual business or
product. However, there are a number of ways to categorize some generic strategies.
Strategies Based on Market Dominance
In this scheme, firms are classified based on their market share or dominance of an industry.
Typically there are four types of market dominance strategies:
Leader
Challenger
Follower
Nicher
Porter Generic Strategies
These strategies concentrate on the dimensions of strategic scope and strategic strength.
Strategic scope refers to the market penetration while strategic strength refers to the firm’s
sustainable, competitive advantage. The generic strategy framework (porter 1984) comprises
two alternatives, each with two alternative scopes: Differentiation and Low-Cost Leadership,
each with a dimension of focus—which can be broad or narrow. Some of these are:
Product differentiation
Cost leadership
Market segmentation
Innovation strategies
A company or product can fall into one of three categories:
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Pioneers
Close followers
Late followers
If the company is not a pioneer, then it must consider growth strategies. In this scheme we ask
the question, “How should the firm grow? ” There are a number of different ways to answer that
question, but the most common answers are:
Horizontal integration
Vertical integration
Diversification
Intensification
The Promotion Mix
There are five (sometimes six) main aspects of a promotional mix: Advertising, Personal selling,
Sales promotion, Public relations, and Direct marketing.
There are five (sometimes six) main aspects of a promotional mix. These are:
Advertising: Presentation and promotion of ideas, goods, or services by an identified
sponsor. Examples: Print ads, radio, television, billboard, direct mail, brochures and
catalogs, signs, in-store displays, posters, motion pictures, Web pages, banner ads, and
emails. (Always in Paid Form non personal)
Personal selling: A process of helping and persuading one or more prospects to purchase
a good or service or to act on any idea through the use of an oral presentation. Examples:
Sales presentations, sales meetings, sales training and incentive programs for
intermediary salespeople, samples, and telemarketing. Can be face-to-face or via
telephone.
Sales promotion: Media and non-media marketing communication are employed for a
pre-determined, limited time to increase consumer demand, stimulate market demand
or improve product availability. Examples: Coupons, sweepstakes, contests, product
samples, rebates, tie-ins, self-liquidating premiums, trade shows, trade-ins, and
exhibitions.
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Public relations: Paid intimate stimulation of supply for a product, service, or business
unit by planting significant news about it or a favorable presentation of it in the media.
Examples: Newspaper and magazine articles/reports, TVs and radio presentations,
charitable contributions, speeches, issue advertising, and seminars.
Direct Marketing is a channel-agnostic form of advertising that allows businesses and
nonprofits to communicate straight to the customer, with advertising techniques such as
mobile messaging, email, interactive consumer websites, online display ads, fliers, catalog
distribution, promotional letters, and outdoor advertising.
Corporate image may be considered as a sixth aspect of promotion mix. The Image of an
organization is a crucial point in marketing. If the reputation of a company is bad, consumers are
less willing to buy a product from this company as they would have been, if the company had a
good image. Sponsorship is sometimes added as an seventh aspect.
New Media is also sometimes considered an element of the promotion mix.
A Brief Description
Promotion is one of the marketing mix elements, including personal selling, advertising, sales
promotion, direct marketing, and publicity.
There are five components to a promotional or marketing mix (sometimes known as the Five P’s).
These elements are personal selling, advertising, sales promotion, direct marketing, and
publicity. A promotional mix specifies how much attention to pay to each of the five
subcategories, and how much money to budget for each. A promotional plan can have a wide
range of objectives, including: sales increases, new product acceptance, creation of brand equity,
positioning, competitive retaliations, or creation of a corporate image. Let’s focus specifically on
the promotion element of the marketing mix. There are three basic objectives of promotion and
these are:
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discounts, free items, or a contest. These methods are used to increase the sales of a given
product.
Product promotion is the act of advertising a good or service with the short or long-term goal of
increasing sales. Many companies use different techniques to promote their products through a
vast array of communication mediums. In this day and age, there is not necessarily one
communication medium that is better than another simply because the most effective medium
depends upon on what type of product you are promoting. There is the physical form (magazines
and newspapers) of product promotion and the digital form (websites and e-books), both of
which require clear and concise textual information about the product being advertised.
Since the turn of the twenty-first century, many companies have been trying to utilize online
social media for product promotion. Some of the most popular forms of online social media are
Facebook, Twitter, and Pinterest. Within an online social media network, companies have the
ability to advertise and promote their products to anyone, at anytime, anywhere in the world.
Because of the vast popularity and expansion of social media, companies have had great success
in marketing products to the younger generation who otherwise might not see an ad in a
newspaper or on TV.
Promotion Objectives
Promotion is to present information to consumers to increase demand and to differentiate a
product.
Product promotion is the act of advertising a good or service with the goal of increasing sales.
Many companies use different techniques to promote their products through a vast array of
communication media. In this day and age, there is not necessarily one communication medium
that is better than another simply because the most effective medium is based on what type of
product you are promoting. There is the physical form of product promotion and the digital form,
both of which require clear and concise textual information about the product being advertised.
Since the turn of the 21st century, many companies have been trying to utilize online social media
for product promotion. Some of the most popular forms of online social media are Facebook,
Twitter, and MySpace. Within an online social media network, companies have the ability to
advertise and promote their products to anyone, at anytime, anywhere in the world. Because of
the vast popularity of social media, companies have had great success on marketing products to
the younger generation who otherwise might not have seen an ad in a newspaper or on TV.
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Promotion is one of the five market mix elements: personal selling, advertising, sales promotion,
direct marketing, and publicity. A promotional plan specifies how much attention to pay to each
of the five subcategories and how much money to budget for each. A promotional plan can have
a wide range of objectives, including sales increases, new product acceptance, and creation of
brand equity, positioning, competitive retaliations, or the creation of a corporate image.
Fundamentally, however there are three basic objectives of promotion. These are to present
information to consumers as well as others, to increase demand, and to differentiate a product.
There are different ways to promote a product in different media. Promoters use internet
advertisement, special events, endorsements, and newspapers to advertise their product. Many
times with the purchase of a product there is an incentive like discounts, free items, or a contest.
This is to increase the sales of a given product.
Summary:
What is Promotion?
Promotion is an activity undertaken by successful companies.
Promotion may be defined as activities, including advertising, personal selling, sales promotions,
public relations, and direct marketing, used by SBOs (Small Business Organizations) to persuade
prospective customers to buy the company’s products or services.
-One of the most important tasks of the SBOs is to convince the customers to buy this task is
called promotion.
-Promotion is used to increase customers demand through recruiting new ones and maintaining
current customers. If the promotion efforts are effective, the SBO may just achieve the target
level of sales.
-Promotion consists of several methods including advertising, personal selling, publicity, sale
promotion, and word-of-mouth. Each of their methods has its own advantages and
disadvantages. However, they complement one another at times.
-The various types of advertising media include television, radio, newspaper, magazines,
billboards, specialty advertising, public transportation, yellow pages, direct mail, local cable TV,
cinema, and other means like catalogs, samples, handouts and leaflets.
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-Salesperson may be classified as news, business feature articles, service feature articles, finance
release, product releases, pictorial releases, background editorial releases, and emergency
publicity.
-The major tools of sales promotion are point-of-purchase displays, premiums, trading stamps,
sampling and demonstration, retailer coupons, consumer contests and sweepstakes, rebates and
trade shows.
-A positive word –of-mouth is a result of having competent employees, good products and
services, and good customer relations.
Established Demands
-Positive experience with the firm’s products;
-The convenience location of the firm; and
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Methods of Promotion
-Advertising
-Personal selling
-Publicity
-Sales promotion
-Word of mouth
Advertising
-Advertising is in any paid form of nonpersonal presentation of ideas, goods, and services by an
identified sponsor.
Types of Advertising
-Retail Advertising
-Service Advertising
-Trade Advertising
-Industrial Advertising
-Institutional Advertising
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-Newspaper
-Magazines
-Outdoor billboard
-Specialty advertising
-Cinema (movie house)
-Other means such as catalogue samples, handouts, and the like
Personal Selling
-Is the that method of promotion that is direct, personal and often face –to – face interchange
between the company’s salesperson and the consumer.
-Personal selling is very important complement of the other method of promotion.
Types of Salesperson
The types of salespersons are the following:
Order getters
Order takers
Support Personnel
Order Getter
The task of the order getter is to increase the firm’s sales by selling to new customers and by
increasing sales to present customers. Order getters may be classified as follows:
Order Taker
-The responsibility of the order taker is to seek repeat sales from current customers by making
sure that product quantities are there where and when they are needed. Order takers are
classified as follows:
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Support Personnel
-The job of the support personnel is to facilitate the selling function. Their function includes
locating prospects, educating customers, building goodwill, and providing service after sale.
Support personnel may be classified as follows:
-Missionary salesperson
-Trade salesperson
-Technical salesperson
Approach
Presentation and demonstration
Handling objections
Closing
Follow-up
Publicity – is a method of promotion where news is generated about the firm or its products or
services and appearing in print, broadcast, or electronic media and not paid for the firm.
- Is one of the promotional methods which can be tapped by the cash-strapped small
businessman. The only requirement is a prepared publicity release describing any of the
following:
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Types of Publicity:
News Publicity
Business feature articles
Service feature articles
Finance releases
Product releases
Pictorial releases
Background editorial releases
Emergency publicity
Sales promotion: is a method of promotion other than advertising, personal selling, and publicity
that increase sale through temporary sale incentives.
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Premium – a special incentive in the form of a gift that is made available to customers who buy
certain products of the firm.
Trading Stamps – sales promotion tools in which customers are given in relation to the amount
of their purchase.
Sampling – to the process by which manufacturers give away free samples to introduce a new
product.
Product Demonstration – customers are given the opportunity to observe the product benefits
and performance before purchasing.
Retail Coupons – device that motivates consumers to buy from the retailer
-Coupon entitles the buyer to a discount (or a free item)
Consumer Contests – customers compete for prizes by completing a contest
Sweepstakes – require the participants to submit some kind of entry form but are purely games
of chance requiring no analytical or creative effort by the consumer.
Rebates – offers that return of money based on proof of purchase
Not overcharging
Not using false claims in advertising
Keeping promises to customers
Having a good product or service; and
Keeping customers happy
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EVALUATION
Instructions: Choose the correct answer. Write the letter (capital letter) of your answer on the
space provided.
______1. Which term refers to a group of customers who share common wants and needs?
______2. Which term refers to the process of getting goods and services to customers?
a. Distribution c. production
b. Marketing d. financing
a. Age c. gender
b. Income d. last names
______4. What is the final step in the process in developing a new product?
a. Television c. radio
b. Newspapers d. textbooks
a. Impression c. infomercial
b. Frequency d. ad campaign
a. Ad campaign c. frequency
b. Audience d. mass media
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______9. Which type of advertising best allows a business to reach a specific target market?
a. Television c. radio
b. Direct mail d. newspapers
11 -20. What is promotion, and what are the key elements of a promotional mix?
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APPLICATION
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REFERENCES
Entrepreneurship, 8th edition by R.H Hisrich, M.P. Peters and D.A. Shepherd, Mc Graw Hill
https://www.youtube.com/watch?v=4CZltSZmSts
https://opentextbc.ca/businessopenstax/chapter/promotion-strategy/
https://opentextbc.ca/businessopenstax/chapter/promotion-strategy/
https://courses.lumenlearning.com/boundless-business/chapter/promotion/
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I. PRINT AD RUBRIC
40 35 30 25
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Illustrations -extremely colorful -very colorful -uses some colors -uses little or no
colors
10% -several eye-catching -very good -some
illustrations illustrations illustrations -little or no
illustrations
-corresponds to the -corresponds to -somewhat
theme of the print ad the theme of the corresponds to -does not
extremely well. print ad very well. the theme of the correspond to the
print ad. theme of the print
ad or is absent
from the
assignment
10 8 6 4
Target -target audience has -target audience -target audience -target audience
Audience been identified has been is hard to identify has not been
(implied) identified (overt) identified
10%
10 8 6 4
Spelling and -Spelling and -spelling and -spelling and -many spelling
Grammar grammar is almost grammar is grammar is and grammatical
always correct (fewer usually correct (3- sometimes errors (more than
10%
than two mistakes) 5 mistakes) correct (5-7 7 mistakes)
mistakes)
10 8 6 4
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