1 Producer —> end-users (the product is sold directly to the end-user by the company's sales force, direct response advertising or direct mail (mail order))
2 Producer —> retailers —> end-users
3 Producer —> wholesalers/agents —> retailers —> end-users
4 Producer —> wholesalers —> directly to end-users
5 Producer —> multiple store groups / department stores / mail order houses —> end-users
6 Producer —> market —> wholesalers —> retailers —> end-users
Each stage must add value to the product to justify the costs: the person in the middle is not normally someone who just takes their 'cut' but someone whose own sales force and delivery system can make the product available to the largest number of customers more easily and cost-effectively. One principle behind this is 'breaking down the bulk': the producer may sell in minimum quantities of, say, 10,000 to the wholesaler, who sells in minimum quantities of 100 to the retailer, who sells in minimum quantities of 1 to the end-user. A confectionery manufacturer doesn't deliver individual bars of chocolate to consumers: distribution is done through wholesalers and then retailers who each 'add value' to the product by providing a good service to their customers and stocking a wide range of similar products.
PROMOTION = presenting the product to the customer
Promotion involves the packaging and presentation of the product, its image, the product's brand name, advertising and slogans, brochures, literature, price lists, after-sales service and training, trade exhibitions or fairs, public relations, publicity and personal selling. Every product must possess a 'unique selling proposition' (USP) -the features and benefits that make it unlike any other product in its market"
These four crucial variables are the foundation of the marketing strategy of any for profit or not for profit organization that uses the marketing concept and drives for success. The customer is not included in the marketing mix, but the customer is the target of all marketing efforts with the four Ps surrounding it. All four Ps are needed in a marketing mix. In fact, they should all be tied together. All four characteristics contribute to one whole. When a marketing mix is being developed, all decisions about the Ps should be made at the same time. That's why the four Ps are arranged around the customer, to show that they are all equally important. A marketing strategy sets a target market and a marketing mix. It is the overall scheme of a firms efforts in a market, however a marketing plan goes further. A marketing plan is a written statement of a marketing strategy and the time-related for carrying out the strategy. First, it details what marketing mix will be offered, to whom the strategy is directed toward, and for how long. Second, it forecasts what company resources, shown in costs, will be needed at what rate. Third, it determines what results are expected shown in sales and profits perhaps monthly or quarterly, customer satisfaction levels, and the like. The plan should also have some control features for whoever is carrying out the plan to see if things are going well or not. Having a plan greatly increases that the marketing strategy will succeed, and the customer will be satisfied.
1. What does marketing strategy planning mean?
2. There are two defining parts of a marketing strategy: the target market and the marketing mix. How would you characterize them?
3. Why do they play a key role in the outcome of a firm’s success?
4. What components does marketing mix include and how can they influence the product’s position on the market?
5. What is the difference between definitions “marketing concept” and “marketing strategy”?
6. What channel of distribution do you think is more effective? Why?
foreign exchange – money in a foreign currencycurrency – the system of money used in a countryrate – a fixed charge, payment or valuerisk – the possibility of meeting danger or of suffering harm or lossto distinguish – to recognise the difference between people or thingsbond – a certificate issued by a government or a company acknowledging that money has been lent to it and will be paid back with interest.portfolio – a set of investments owned by a person, bank, etc.to convert – to change from one form or use to anotherequity – the value of the shares issued by a company; the ordinary stocks and shares that carry no fixed interestadverse – not favourable, contrary, opposing, harmful
THE FOREIGN EXCHANGE AND CAPITAL MARKETS
The foreign exchange market is a market for converting the currency of one country into that of another country. An exchange rate is simply the rate at which one currency is converted into another. Without the foreign exchange market international trade and international investment on the scale that we see today would be impossible; companies would have to resort to barter. The foreign exchange market is the lubricant that enables companies based in countries that use different currencies to trade with each other.
The rate at which one currency is converted into another typically changes over time. Currency fluctuations can make seemingly profitable trade and investment deals unprofitable, and vice versa.
In addition to altering the value of trade deals and foreign investments, currency movements can also open or shut export opportunities and alter the attractiveness of imports. While the existence of foreign exchange markets is a necessary precondition for large-scale international trade and investment, the movement of exchange rates over time introduces many risks into international trade and investment. Some of these risks can be insured against by using instruments offered by the foreign exchange market, such as the forward exchange contracts
Thus, the foreign exchange market serves two main functions. The first is to convert the currency of one country into the currency of another. The second is to provide some insurance against foreign exchange risk, by which we mean the adverse consequences of unpredictable changes in exchange rates. To explain how the market performs this function, we must first distinguish among spot exchange rates, forward exchange rates, and currency swaps.
SPOT EXCHANGE RATES
When two parties agree to exchange currency and execute the deal immediately, the transaction is referred to as a spot exchange. Exchange rates governing such "on the spot" trades are referred to as spot exchange rates. The spot exchange rate is the rate at which a foreign exchange dealer converts one currency into another currency \// on a particular day.
FORWARD EXCHANGE RATES
The fact that spot exchange rates change daily as determined by the relative demand and supply for different currencies can be problematic for an international business. To avoid this risk, the U.S. importer might want to engage in a forward exchange. A forward exchange occurs when two parties agree to exchange currency and execute the deal at some specific date in the future. Exchange rates governing such future transactions are referred to as forward exchange rates. For most major currencies, forward exchange rates are quoted for 30 days, 90 days, and 180 days into the future.
CURRENCY SWAP
A currency swap is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates. Swaps are transacted between international businesses and their banks, between banks and between governments when it's desirable to move out of one currency into another for a limited period without incurring foreign exchange risk. A common kind of swap is spot against forward.
THE INTERNATIONAL CAPITAL MARKET
A capital market brings together those who want to invest money and those who want to borrow money. Those who want to invest money are corporations with surplus cash, individuals, and non bank financial institutions (e.g., pension funds, insurance companies). Those who want to borrow money are individuals, companies, and governments. In between these two groups are the market makers. Market makers are the financial service companies that connect investors and borrowers, either directly or indirectly. They include commercial banks and investment banks.
Commercial banks perform an indirect connection function. They take deposit from corporations and individuals and pay them a rate of interest in return. They then loan that money to borrowers at a higher rate of interest, making a profit from the difference in interest rates. Investment banks perform a direct connection function. They bring investors and borrowers together and charge commissions for doing so.
EUROCURRENCY MARKET
A Eurocurrency is any currency banked outside its country of origin. Eurodollars which , account for about two-thirds of all Eurocurrencies, are dollars banked outside or the United States. Other important Eurocurrencies include the Euro, the Euro-yen, and the Euro-pound. The term Eurocurrency actually a misnomer, since a Eurocurrency can be created anywhere in the persistent Euro-prefix reflects the European origin of the market. The Eurocurrency market is significant because it is an important, relative source of funds for international businesses. From small beginnings, this is mushroomed.
THE INTERNATIONAL EQUITY MARKET
There is no international equity market in the sense that there are international currency and bond markets. Rather many countries have their own domestic equity markets in which corporate stock is traded. The largest of these domestic equity markets are to be found in the United States, Britain, Japan, and Germany. Although each domestic equity market is still dominated by investors who are citizens of that country and companies incorporated in that country, developments are internationalising the world equity market. Investors are investing heavily in foreign equity markets as a means of diversifying their portfolios.
THE INTERNATIONAL BOND MARKET
Bonds are an important means of financing for many companies. The most common kind of bond is a fixed-rate bond. The investor who purchases a fixed-rate bond receives a fixed set of cash payoffs. Each year until the bond matures, the investor gets an interest payment and then at maturity he gets back the face value of the bond.
International bonds are of two types: foreign bonds and Eurobonds.Foreign bonds are sold outside the borrower's country and are denominated in the currency of the country in which they are issued.
Eurobonds are normally underwritten by an international syndicate of banks and placed in countries other than the one in whose currency the bond is denominated For example, a bond may be issued by a German corporation, denominated in U.S dollars, and sold to investors outside the United States by an international syndicate of banks. Eurobonds are routinely issued by multinational corporations, large domestic corporations, sovereign governments, and international institutions, they are usually offered simultaneously in several national capital markets, but not in the capital market of the country, nor to residents of the country, in whose currency they are denominated. Eurobonds account for the lion's share of international bond issues.
QUESTIONS
1. How would you explain the currency fluctuations?
2. What is the necessary precondition for large-scale international trade and investment?
3. The foreign exchange market serves two main functions. What is their essence?
4. What is the difference between spot exchange rate and forward exchange rate?
5. What are the main participants of swap operations?
6. What is the difference between commercial and investment banks?
7. What types are international bonds divided into?
8. How would you characterise foreign bonds and Eurobonds?
9. What is the principle of the international capital market activity?
10. Who is each domestic equity market dominated by?
budget – an estimate or plan of the money available to smb. and how it will be spent over a period of timerevenue – income, esp. the total annual income of a state or an organisationto approximate – to estimate or calculate smth fairly, accuratelymanagement – the control and making of decision in a business or similar organisationassumption – thing that is thought to be true or certain to happen, but is not provedforecast – a statement that predicts smth with the help of informationflexible – easily changed to suit new conditionobjective – a thing aimed at or wished for, a purposeinventory – a detailed list esp. of goods, furniture or jobs to be doneto compile – to collect information and arrange it in a book, list, report, etc.
BUDGETING IN BUSINESS
A budget is a financial plan. Specifically, a budget sets forth management's expectationsfor revenues and, based on those financial expectations, allocates the use of specific resources throughout the firm. You may live under a carefully constructed budget of your own. A business operates in the same way. A budget becomes the primary basis and guide for financial operations in the firm.
Budgeting is the principle activity in the planning function that all managers of successful firms must do in order to meet desired results. Just as managers use forecasts to approximate income from sales, they must also forecast the future availability of major resources, including people, raw materials, energy, and money. Techniques for forecasting resources are the same as those employed to forecast sales: hunches, market surveys, time-series analysis, and econometric models. The only difference is that the manger is seeking to know the quantities and prices of goods that can be purchased rather than those to be sold. A very close relationship exists between budgeting as a planning technique and budgeting as a control technique. During the planning phase of management, firms forecast future allocations of resources for business activities. After the organization bas been engaged in activities for a time, actual results are compared with the budgeted (planned) results and may lead to corrective action. This is the management function of controlling.
The budgeting process is complex in nature, derived from the management's objectives for the organization to the final financial budgeted balance sheet formulated. Sales forecasts play a key role in the budgeting process. It consists of a forecast of quantities sold and forecast of dollar income expected. All other budgets are related to it either directly or indirectly. The production budget, for example, must specify the materials. labour, and other manufacturing expenses required to support the projected sales level. Similarly, the marketing expense budget details the costs associated with the level of sales activity projected for each product in each sales region. Administrative expenses also must be related to the predicted sales volume. The projected sales and expenses are combined in the financial budgets, which consist of pro forma financial statements,inventory budgets, and the capital additions budget.
Most firms compile yearly budgets from short-term and long-term financial forecasts. There are usually several budgets established in a firm:
· An operating budget
· A capital budget
· A cash budget
· A master budget
Forecast data are based on assumptions about the future. If these assumptions prove wrong, the budgets are inadequate. So the usefulness of financial budgets depends mainly on the degree to which they are flexible to changes in conditions. Two principle means exist to provide flexibility: variable budgeting and moving budgeting. Variable budgeting provides for the possibility that actual output changes from planned output. It recognizes that variable costs are related to output, while fixed costs are unrelated to output. Thus, if actual output is 20 percent less than planned output, it does not follow that actual profit will be 20 percent less than that planned. Rather, the actual profit varies, depending on the complex relationship between costs and output. Furthermore. moving budgeting is the preparation of a budget for a fixed period (say, one year), with periodic updating at fixed intervals (such as one month). For example, a budget is prepared in December for the next 12 months, January through December. At the end of January, the budget is revised and projected for the next 12 months, February through January. In this manner, the most recent information is included in the budgeting process. Premises and assumptions are constantly being revised as management learns from experience.
In addition, budgets can sometimes lead companies to overlook critical variables such as quality and customer service. Often, their decision-making process is based solely on numbers and dollars, and wrong moves can turn into lost profit. To combat this companies set up guidelines that include the necessity to plan first, budget later: budget for managers, not accountants: measure output, not input; and design budgets to protect against dispute between departments.