+ Business will be able to repay the loan
BUDGETING
A budget is a target for cost or revenue that a firm or department must aim to reach over a given period of time.
Budgeting is a process of setting targets covering all aspects of costs and revenues and turning firm strategy into reality.
Objective Budgets based on finding the best way of achieving a particular objective.
Flexible Budgets vary with changing business
Zero Budgeting approach that set each department’s budget at zero and budget holders justify each pounds they are asking for. Business can set a budget to department which will use this money to finance the department spending.
+ Efficient way of cutting of the entire cost based on the organisation
+ Department gain the amount which they really need
+ Identify the departments that no longer need as large budget
− Great amount of time is pending on justify each pound
− Some managers try to justify larger budget than actually need
Variances the difference between actual and budgeted figures. They can be favourable (actual figures are better than budgeted ones) or adverse (actual figures are worse than budgeted ones). Variance suggests new strategy should be considered.
Budget holder is the person who is responsible for the account
Advantages and disadvantages of budgets:
+ Help to control income and expenditure
+ Help to identify wasting, losses and inefficiency
+ Clarify responsibility and give a power to management
+ Identify the department which does not need as large a budget
+ Cutting of entire costs base of the organization
+ Gives a business more structure
+ Gives the power to department
− Inflexibility, missing of business opportunity
− Wasting with managerial time
− Not prevent from larger budgets than necessary
− Some managers try to justify a larger budget than is really needed.
− Budget can not react to internal and external changes
COST AND PROFIT CENTRES
Cost centres breaking the business up to monitor cost. The way how to manage the cost.
Profit centres breaking the business up to monitor profit and record revenue, therefore the profit can be calculated
Centres may be used by different product, department or individuals.
Direct costs are directly linked to a specific product or operation (materials)
Advantages and disadvantages of profit and cost centres:
+ Control and monitor cost/revenue
+ Find out which is the most expensive cost in the business
+ Focus parts of the business
+ Motivate individuals and gives employees responsibility
+ Aid deciding the price for a product and management accounting
+ Problems areas can be identified
− Not all costs and revenues can be connected with a particular part of the firm and it can be difficult to allocate cost and revenue to certain areas.
Sources of finance
Working capital money needed to finance day-to-day running of business
INTERNAL FINANCE
Profit: Level of profit = Revenue – Cost
+ Less risk − Opportunity cost
+ Quick and easy − Long term –profit for cashflow
+ Organic, natural − No returns of investment
Working capital: money needed to finance the day-to-day running of business (stocks, bills). Delaying payment to creditors, cutting stocks
+ Quick and easy − Bed reputation
Selling assets: selling machinery to raise cash
+ No interest, no risk, no borrowing − No assets to operate
+ Renting assets − Less level of output
+ To dispose of redundant assets − Take a long time
EXTERNAL FINANCE
External finance is finance from outside their own sources
Share capital: money are put into business by owners
+ No interest charge − Risk of losing money
+ Easy for new business
Loan capital: money offered by bank
+ Variable – long or short − Form of security – assets
+ Common and fast − Interest rates
Bank overdrafts (kontokorentní úvěr):
+ Effective short term source − Expensive way of borrowing
+ Agreed level of overdraw − Withdrawn by lender
+ Flexibility
+ Firms borrow what need
Debentures (dluhopisy) corporate bonds (firemní obligace): loans by individual or financial institutions
+ Fixed rates of interest − Specified length of time
+ Pay off small amount of money − Secured against assets
Trade credit: gain goods or services but pay later
+ Simplest form of financing
+ Deferred payment
+ No interest rate
Grants: government assistance
+ Many grants available − Difficult to obtain
+ Free cash − Business is controlled
Marketing
Market Analysis
MARKET ANALYSIS helps to understand of the market, how many customers are there, what they really want, whether the numbers is raising or falling and much else.
Market segmentation splitts data into subgroup by either consumers or products.
Consumers can be segmented into many groups:
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Age
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Socio-economic
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Regional
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National
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Ethnicity
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Gender
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Psychographic – way of lifestyle
Anna Stále Reší Nepřipravenost Evropského Genetického Průzkumu
MARKET SIZE measure of all sales by all companies within a marketplace (how big is a potencional number of people that firm is selling to.) Reference point for calculating trends. Market shrinking or increasing. Market growth is affected by economic growth, changes in fashion and social changes.
Measured by volume – quantity of goods and value – amount spent by customers.
MARKET POTENTIONAL measured by the annual rate of growth
MARKET SHARE proportion of the total market held by one company or product.
MS = Total Sales of Company x 100
Total Sales of market
Market leader can offer lover discount terms to retailer, get higher distributor level and it is easier to obtain distributors and consumers for a new product.
To strengthen brand’s name by TV advertising, trade promotion, consumer price promotion and an on-pack special offer.
MARKET RESEARCH collects information about consumers, competitors and distributors within the market. Aid market analysis. Monitors consumer attitudes to the brand.
Primary (field) research collects original data
- Consumer panel (group of consumers who try a product)
- Market testing (product can be launched in a small area)
- Observation (shopper’s reaction is observed whilst they are shopping)
- Questionnaires (designed specifically for the task)
+ Data will be totally relevant for the project
+ Latest information from the market
−Risk of questionnaire and interwiever bias (zaujatost)
− Expensive and time spending
Sample (vzorek) must be representative, random and stratified.
Secondary (desk) research uses existing information collected for another purpose
- Sources of information (financial statement, national statistic, privet agency)
+ Less expensive, obtained without cost
+good overview of market
−data may not be updated
− Information may not be useful
Quantitative data numerical data, how many people do this?
+ Easily quantifiable
Qualitative data find out opinions, likes and dislikes
1. Repeated measures
- Use the same subjects for each part of research
- Use different subjects for each part of research
- Use different but similar subjects for each part of research
2. Independent measures we can repeat the measure with different group
3. Measure with matched pairs, the group has member with similar subjects
Measure of central tendency
- Mode – value that occurs (nastává) more frequently
- Median – middle value
- Mean – average value
Confidence level how relevant the data are
SWOT analysis – analysis of Strength, Weakness, Opportunities, Threats (hrozby) facing a business or a product.
Market Objectives
Marketing objectives are targets that must be reached for the company to achieve its overall (celkový) goals. They allow a clear strategy to be devised, a plan to be set and give the motivation.
Marketing targets a specific, measurable goals to be achieved.
General objectives:
- Increase the market share
- Develop and innovate the range (rozsah, řada) of products
- Increase revenue of a product
Objectives divided into areas:
- Growth – setting higher sales or market share targets, target new market
- Innovation – constantly bringing new products, services (fashion, technologies)
- Continuity – setting long-term goals
- Product differentiation – influence on value added
Niche & Mass Market
Niche marketing is tailoring a specialized product to a particular type of customer.
Mass marketing is creating a product with mass appeal and promoting to all types of customers.
Global marketing through the world as if it is one market.
Niche marketing:
+ Fulfilling needs
+ Competitive advantage over mass marketers
+ Good for small firms and expensive products
− Higher cost of product, no economic of scale
− Higher product cost attract competitors
− Smaller customer base
Mass marketing:
+ High sales turnover
+Strategy to increase stagnant profit
+ Economic of scale
+ Standardization – no changing production
+ Opportunity to expand oversea
− Strong global competitors
− Need to offer low price
− Slower in adapting to market changes
− Transfer of brand name
− Cultural differentiation
Product life cycle
Product life cycle shows the sales of a product over time consists from Development & Introduction, Growth, Maturity and Decline
Introduction has the highest risk of failure. Investment has been made into Research & Development required finance. There will be heavy promotion, low sales, possible losses and high stock level.
Growth sales volume and profit increase and competitors should be monitored closely.
Maturity saturated (nasycený) sales level, the firm will be competing strongly to defend its market position. To maintain the sales volume, the firm will have to invest in promotion, encourage loyalty and consider product differentiation and extend its life by new version or changing the marketing strategy.
Decline demand in the market will drop off. Product can diversify into niche market.
Successful business continually releases (vydávají) new products to avoid creating a product vacuum.
Extension strategy to prevent sales from declining by changing element of the marketing mix, targeting a new segment of the market and developing new uses for the product
Boston Matrix
Boston matrix to consider the position of the product portfolio. Shows current market share and growth in the market.
Star product in profitable quadrant with high market share and growth, needs a lot of investment.
Holding involve marketing spending to maintain sales
Cash cow dominates but is not selling as well but still generate a lot of revenue. Firms major source of finance, need investment to keep the position and without attention they could become a dog.
Milking means taking whatever profit you can without much more new investment.
Problem child has a lot of potential but not sure what will happen.
Building involves investment into promotion and distribution to boost sales.
Dog holds little appeal for a firm.
Divesting (zbavení) involves selling off the products.
Adding value
Adding value means convince the customers that what they for is right by different packaging, logo, brands or quality.
USP = Unique Selling Point, the term means that product has some special feature which doesn’t have competitor. This feature can be highlighted to differentiate it from its competitors. Might be based upon design, quality, function, image or service.
Branding is way of adding value, method helping develop customer’s loyalty.
+ Retailers will give special place to well-known brands
+ Brands can be transferred to new product
+ Increase customer’s loyalty
Pricing methods:
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Going rate pricing – the price is set by dominant firm and others follow.
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Predatory pricing – lower price or undercutting competitors
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Discount pricing – giving discount (sleva) for bulk purchase
Marketing Mix
Marketing mix is combination of variables through which the firm carries out its marketing strategy, Product, Price, Place and Promotion.
PRODUCT is something what is capable (schopný) of satisfying a consumer’s desire. Once a product is in the market the business needs to monitor customers and competitor’s reaction.
Features of product:
- Well designed
- Functionally sound (platný)
- Capable of economic production
New product should constantly be developed to keep customers interested in
- Innovative products – not exist before
- Improved products – replace existing
- Imitative products – adopts ideas of competitors
Modification of product by:
+ Design such as shape or colour
+ Performance (výkon) extra features or easier to use
+ Service level
PRICE is what must be given in exchange for a particular product. Cover the cost of marketing, production, distribution and deliver a profit.
Pricing strategy includes:
- Market penetration (proniknutí) – price is set low to introduce the product
- Skimming/creaming – unique product generating high profit (technologies)
- Competitive pricing – adjust (nastavit) price able to compete with competitors
- Price discrimination – different prices to different market and groups of customer
- Destroyer pricing – set price so low that competitors can not survive
Ways determining the price:
- Cost based
- Competition based
- Market orientated pricing – based on state of market
Pricing tactics:
- Loss leader – prices are set bellow the cost to encourage customers who than purchase related products. (Supermarkets)
- Psychological pricing – ₤99.9 seems to be lower than ₤10
- Special-offer pricing
PROMOTION is about telling potencional consumers about the product and persuade them to buy it. Promotion can be persuasive, informative or reassuring.
Above the line promotion aiming to attract as wide an audience as possible and involves mass media and national advertising.
+ Can attract huge number of consumers
− Expensive, organization
Below the line promotion is aiming to attract a specific target audience.
+ Targeting someone who is interested in product
− Extremely expensive per head, needed to know who the customers are
Ways of promotion:
- Advertising – through TV, newspapers or product placement
- Direct selling – sales catalogue
- Point-of-sale – where the product is selling, displays, free samples
- Incentives (pobídka) – loyalty cards, bonus
- Public relationship – sponsorship of sport
PLACE is element of marketing mix which relates to the distributing the product. The firm must consider what the best outlet for reaching potential customers is and how it convinces those outlets to stock its product.
Channel of distribution the rout taken by product to get to the customer.
Three main channels of distribution:
- Traditional = Producer – Wholesaler – Retailer – Consumer
- Modern = Large Retailer – Consumer
- Direct = directly to final Consumer
Selling in retailers:
+ Ability to attract a huge number of customers
− They take part of revenue
Direct marketing: occurs when sales are made without intermediary involved. Internet, direct mail, personal selling, telephone selling, mail order catalogues.
+ Consumers purchase from their home
+ No intermediary taking part of profit
+ Access large number of people
+ The faster growing way of distribution
