6. Ease of ownership change. It is easy to change the owners of a corporation. All that is necessary is to sell stock to someone else. This means that new owners can be brought in easily as well.
7. Separation of the ownership from management. Corporations are able to raise money from many different investors without getting them involved in management, so the owners/shareholders are separate from the managers and employers. The owners elect a board of directors. The directors select the officers. They, in turn, hire managers and employees. The owners thus have some say in who runs the corporation, but no control.
There are also a few disadvantages:
1. Initial cost. Incorporation may cost thousands of dollars and involve expensive lawyers and accountants.
2. Paperwork. The papers to be filed to start a corporation are just the beginning. Tax laws demand that a corporation prove all its expenses and deductions are legitimate. A corporation, therefore, must process many forms. A sole proprietor or partnership may keep rather casual accounting records; a corporation, on the other hand, must keep detailed records, the minutes of meetings, and more.
3. Two tax returns. If an individual incorporates, he or she must file both a corporate tax return and an individual tax return. The corporate return can be quite complex.
4. Size. Large corporations sometimes become too inflexible and too tired down in red tape to respond quickly to market changes.
5. Social security. A corporation has a high social security and unemployment compensation burden; that is, it must contribute to these funds.
6. Termination difficult. Once a corporation is started, it is relatively hard to end.
7. Double taxation. Corporate income is taxed twice. First the corporation pays tax on income before it can distribute any to stockholders. Then the stockholders pay tax on the income (dividents) they receive from the corporation.
Exercise 4. True or false?
Small businesses cannot be corporations.
Corporate owners are responsible for business' debts.
Shareholders are separated from company management.
Corporations are taxed only once.
Exercise 5. Match the words and their definitions:
1. Marketing a. Getting goods to the right place at the right time in the right quantity.
2. Productb. A process of studying people's wants and needs and satisfying them by exchanging goods and services, resulting in profits for sellers.
3. Placec. Money paid by customers and received by sellers.
4. Promotion d. A good or a service and everything connected with them– package, guarantee, brand name, etc.
5. Pricee. Combination of different tools such as advertising, publicity, personal selling etc in order to sell goods or services.
A popular slogan that describes modern-day marketing is, "Find a need and fill it". What does it mean? It means that business must do some market research to find out what goods and services people and organizations want and need. Listening should come first. Then marketers must do whatever it takes to satisfy those wants and needs. The ultimate goal is to make money (profit) by producing and selling goods and services. Marketing, then, can be defined as follows:
Marketing is the process of studying wants and needs and satisfying those wants and needs by exchanging goods and services; this results in satisfied buyers and creates profits for sellers.
When developing programs to satisfy market wants and needs, marketing managers work with several variables known as the marketing mix. A marketing mix is the strategic combination of product decisions with decisions on packaging, pricing, distribution, credit, branding, service, complaint handling and other marketing activities. All these activities are often combined under four easily remembered categories called the four P’s: product, place, promotion, and price.
Product
From a marketing viewpoint a product is not just the physical good or service. A product consists of all the tangibles and intangibles that consumers evaluate when deciding whether or not to buy something. When people buy a product, they evaluate its price, package, guarantee, image created by advertising, reputation of the producer, brand name, service, buyers’ past experience, store surroundings etc. Therefore a successful marketer must begin to think like a consumer and evaluate the product as a total collection of impressions created by all the factors listed.
The major function of packaging, for example, is to attract the attention of the buyer. To do this a package needs visibility. Visibility is achieved through the creative use of colour, shape, texture, design and size. Using these cues, one can easily identify most of the popular consumer products. For example, most people can easily recognize a Coke bottle, a box of Tide, a pack of Marlboro cigarettes from several meters away.
Another function of packaging is to give consumers added convenience for their money through the use of easy-open cans, clear plastic wraps, squeezable ketchup bottles and so on. In the future we may expect to see more packing innovations that will enable us to keep meat and milk without refrigeration, keep fresh vegetables for months etc.
One more function of packaging is to protect the goods from environmental factors such as rain and sun; against breakage and harm from animals.
Packaging also helps the middleman by grouping goods into easily managed sizes; retailers to price items, store them on their shelves, reduce errors etc.
Branding, like packaging, changes the product by changing consumer perceptions.
A brand is a name, symbol or design (or a combination of them) that identifies the goods or services of one seller or group of sellers and distinguishes them from those of competitors. A brand name is that part of the brand consisting of a word, letter, or group of words or letters comprising a name that differentiates the goods or services of a seller from those of competitors. Brand names such as Colgate, Sony, Del Monte, Campbell etc. give products a distinction that tends to make them attractive to customers.
A trademark is a brand that has been given legal protection. It includes the brand name and the pictorial design.
People are often impressed by certain brand names, even though they say they know there is no difference between brands in a given product category.
Exercise 6. True or false?
1. Product is just a physical good.
2. A good marketer must think like a consumer.
3. We can identify many consumer products looking at their packaging.
4. People often buy certain products just because of their brand names.
Place
Place, or distribution, means getting goods to the right place at the right time in the right quantity. The distribution mix includes eight main functions– research, risk bearing, storage, selling, buying, credit, transportation and grading.
Two institutions have emerged to perform the distribution function: wholesalers and retailers. They are known as marketing middlemen because they are in the middle of distribution network that connects producers with consumers.
Marketing middlemen have always been viewed by the public with some suspicion. Surveys have shown that about half the cost of the thing we buy are marketing costs that are largely to pay for the work of middlemen! But if there are no middlemen, then consumers or someone else will have to perform their tasks, including transportation, storage, finding suppliers etc. Yes, middlemen add costs to products, but these costs are usually more than offset by the values they create. Middlemen, such as retailers, add time utility to products (utility is value added to raw materials) by making them available when they are needed; add place utility by having them where people want them; add possession utility by doing whatever is necessary to transfer ownership from one party to another, including providing credit; add information utility by opening two-way flows of information between marketing participants.
A retailer is a marketing middleman who sells to consumers. The success of any retail establishment depends largely on its sales workers. Courteous and efficient service from behind the counter or on the sales floor does much to satisfy customers and build a store’s reputation. Whether selling furniture, electrical appliances or clothing, a sales worker’s primary job is to interest customers in the merchandise. This is done by describing the product’s construction, demonstrating its use, and showing various models and colours.
Different products call for different retail distribution strategies. There are three categories of retail distribution: intensive distribution, selective distribution, and exclusive distribution.
Intensive distribution puts products to as many retail outlets as possible. Products that need such distribution include candy, cigarettes, gum etc.
Selective distribution is the use of only preferred group of the available retailers in an area. Such selection helps assure the producers of quality sales and service. Manufacturers of TV sets, furniture and clothing usually use selective distribution.
Exclusive distribution is the use of only one retail outlet in a given geographical area. Because the retailer has exclusive rights to sell the product, he or she is more likely to carry more inventory, give better service and pay more attention to this brand than others. Automobile manufacturers usually use exclusive distribution.
Regardless of the strategy used, manufacturers often ship their goods through wholesalers, because they are more efficient at performing the distribution functions.
A wholesaler is a marketing middleman who sells to organizations and individuals, but not final consumers. He purchases, for resale, the best available merchandise at the lowest possible prices and expedite the delivery of goods from the producer to the customer.
There are basically 2 types of wholesalers: full-function wholesalers that do all eight functions and limited-function wholesalers that do only a few.
So, the reason for middlemen is to help perform the physical distribution function, that is movement of goods from producer to customer. Physical distribution begins with raw materials that have to be shipped to manufacturers who change them into useful products; it also includes those functions involved in purchasing goods, receiving them, moving them through the plant, inventorying them, storing them, and shipping finished goods all the way to final users.
Exercise 7. True or false?
1. Middlemen only add cost to products and do no good.
2. A wholesaler is a marketing middleman who sells to final consumers.
3. The success of any retail outlet depends largely on its sales workers.
4. A good distribution strategy for selling expensive cars is intensive distribution.
Promotion
A promotion mix is some combination of promotional tools (advertising, personal selling, public relations, publicity, sales promotion, a good product or service, and word-of-mouth) that can be used to communicate to various publics.
Advertising is limited to paid, nonpersonal communication through various media by organizations and individuals who are in some way identified in the advertising message. When people refer to advertising, they are usually talking about TV advertising; but only about 22% of advertising is on TV. The other media used for advertising are: newspapers, radio, magazines and direct mail.
The public benefits greatly from advertising. First, we learn about new products, new features, sales items, and more. But we also benefit from free radio and TV and subsidized newspapers and magazines. In short, advertising not only informs us about products but pays for us to watch TV and get the news from magazines and newspapers.
Sales promotion consists of those marketing activities that stimulate consumer purchasing and dealer interest by means of such things as displays, shows and exhibitions, and contests. Sales promotion programs supplement personal selling, advertising, and public relations efforts by creating enthusiasm for the overall promotional program.
There are two ways to promote the movement of products from producers to customers. The first is called a push strategy. In push strategy, the producer uses promotional tools to convince wholesalers and retailers to stock and sell merchandise. If it works, consumers will then walk into the store, see the product, and buy it. The idea is to push the product down the distribution system to the stores. One example of a push strategy is to offer dealers one free case of beer or soda for every dozen cases they purchase. A second strategy is called a pull strategy. In this case heavy promotion is directed toward consumers. If it works, consumers will go to the store and order the products. The storeowner will then order them from the producer. Products are thus pulled down through the distribution system. Dr. Pepper has used television advertising in a pull strategy to increase distribution. Of course, a company could use both a push and pull strategy at the same time in a major promotional effect.
Word-of-mouth promotion encourages people to tell other people about products they have enjoyed. Word of mouth is one of the most effective promotional tools, but one most marketers do not use to full effectiveness.
Anything that encourages people to talk favourably about an organization is effective word of mouth – music, fairs, clowns and other attention-getting devices. Samples are another way to generate word of mouth. But the best way is to have a good product, provide good services, and keep customers happy. We consumers are happy to tell others where to get good services and reliable products. However, we are also quick to tell others when we are unhappy with products and services. Negative word of mouth hurts a firm badly. Taking care of consumer complaints quickly and effectively is the best way to lessen negative word of mouth.
Public relations is defined as the management function that evaluates public attitudes, identifies the policies and procedures of an individual or an organization with the public interest, and executes a program of action to earn public understanding and acceptance. Public relations start with good marketing research. The second step, after listening to the public, is the development of policies and procedures that are in the public interest. The final step is to take action to earn public understanding and acceptance.
Personal selling is the face presentation and promotion of products and services plus the searching out of prospects and follow-up service. Effective selling is not simply a matter of persuading others to buy. In fact, it is more accurately described as helping others to satisfy their wants and needs.
Exercise 8. True or false?
1. Advertising is paid, personal communication through different media.
2. Only companies benefit from advertising.
3. Displays, shows and exhibitions are all means of sales promotion.
4. Offering a dealer a free box of goods for every dozen bought is an example of a push sales strategy.
Price
Firms must establish realistic and measurable pricing goals if marketing strategy is to be effective. Some firms aim for a target return on investment which enables them to determine a required level of profit. This, in turn, helps in the setting of prices and other marketing mix variables.
Some firms use market share as a pricing goal. In the search for increased share of the market, firms might cut prices and hurt their profit margins.
Another pricing objective is to meet competition. Many firms are suffering greatly from such practices or even go bankrupt.
Some firms set a profit-maximization objective, where the goal is to earn as mush as possible. Such policy cannot usually be implemented over a long run because of competitive and government forces, but in the short run it can be quite effective.
Pricing objectives are based on a firm’s overall objectives, the market segments being served, competition, market conditions, and many other variables. The basic overall objective is to establish mutually beneficial exchange relationships with selected target markets.
There are different pricing strategies. A skimming price strategy is one in which the product is priced high to make optimum profit while there is little competition. Of course, those large profits will attract others to produce similar goods so they can’t last long.
A penetration strategy is one in which a product is priced low to attract more customers and discourage competitors. This strategy enables the firm to penetrate or capture a large share of the market quickly. Another pricing strategy is called psychological or odd pricing when retailers price good at $9.99 instead of $10.00 believing that such odd prices are psychologically more attractive than even prices.