Global Business Exam 3

chapter 10-13

Risk vs. Return

The concept that potential return on an investment rises with an increase in risk

Cash flows, not profits

refers to the actual inflow and outflow of cash generated by a business, which is a more accurate measure of financial health than accounting profits

-common problem for rapidly growing firms

Asset valuation

Process of determining the present value of an asset. Ability to generate positive cash flow over time

Diversification

A strategy of spreading a company's operations across different products, services, or markets to reduce risk and increase growth opportunities. Instead of focusing on a single area, a company might expand into related or unrelated businesses, which can help it become more resilient and profitable

The financial planning process

forecast→budget→control

Forecasting

How much cash is needed to meet objectives? In short and long term

Budgeting-operating

financial plan that forecasts a company's revenues and expenditures for a specific period, typically one year, to manage daily business operations

-The end product is the firm’s expected gross profit

Budgeting-capital

Establishes a plan to acquire and finance more expensive assets, such as equipment or real estate

operating vs capital budget

Operating: covers day-to-day spending on services (ex: recreation programs, parks maintenance, fire/police services)

Capital: funds the municipality’s infrastructure that supports service delivery (ex: sidewalks, streetlights, water)

Budgeting-cash flow

Designed to provide solutions for forecasted cash flow shortfalls, or to suggest a plan to best utilize any forecasted short-term cash surpluses

Budgeting-master

All of the budgets combined into one, master financial plan for the firm over a given planning horizon

Controlling

-Budget vs Actual

-Identify deviations from budget, propose solutions, make adjustments

Managing short-term financial needs

Cash inflows vs. cash outflows + managing accounts payable

Working capital

Funds for day-to-day operational needs

Trade credit

Given access to a product/service before you need to pay for it

Debt Financing

Secured loans (collateral), unsecured loans, corporate bonds

Corporate bonds

Repayment of loan at a predetermined time, often with a lump sum

Equity Financing

Retained earnings, issuing stock, venture capital

Retained earnings

Profits are reinvested in the company

Issuing stock

provides investors to take part ownership of the company

Venture capital

Investment firms provide funds to companies for a percentage of ownership

Debt vs. Equity Financing: repayment, ownership/control, tax treatment

Repayment:

-debt: principle and interest payable upon some agreed schedule, even if firm not profitable

-equity: investment not required to be repaid by firm

Ownership/control:

-debt: no ownership given but perhaps some restrictions as condition of borrowing

-equity: investors have ownership stake in company + voting rights

Tax treatment:

-debt: interest is tax-deductible

-equity: dividends aren’t tax deductible

Consumer Decision Process

Step 1: problem recognition

Step 2: information search

Step 3: evaluation of alternatives

Step 4: purchase decision

Step 5: post-purchase evaluation 

Consumer buying decisions

Extended problem solving, limited problem solving, routine response behavior

Business buying decisions

Straight rebuy (same exact), modified rebuy (changing purchase in some way), new task rebuy (completely new type of purchase)

Marketing research

The function that links the consumer and the public to the marketer through information

Types of business buyers

1-Producers: manufacturers, service producers

2-Resellers: supermarket

3-Government

4-Institutions

Design Research Method

-Exploratory: exploring unknown, focus groups + interviews

-Descriptive: describing groups, observe characteristics + behaviors, surveys + observations

-Casual: attempt to explain cause + effect relationships, lab tests + experiments

Marketing Strategy: STP

Segmentation: grouping customers by characteristics (narrow scope)

Targeting: deciding which group to focus upon (identify market segment)

Positioning: understanding customers’ perceptions of products/services (establish unique place in market)

Total Market

Existing customers, potential customers, purchasing criteria (ability, willingness, authority)

Targeting markets + descriptions

Undifferentiated Targeting: avoids segmentation, treats total market as segment

Differentiated Targeting: identifies multiple market segments, builds a unique marketing mix to appeal to each segment

Concentrated Targeting: selects a single segment of the market and focuses exclusively on that market 

Positioning

Establish a unique place, in the minds of the target market, relative to competitors

Marketing Mix

Product, promotion, price, place

Difference between consumer products

Convenience products: used routinely, limited deciding time, available everywhere

Shopping products: compare brands on quality price, customer service, important to promote effectively

Specialty products: consumers expend both time + effort, brand image is important

Product life cycle

Introductory stage, growth, maturity, declineIn

Introduction stage (plc)

few competitors, revenues positive but profit negative

Growth stage (plc)

customer demand increase, competitors enter market, marketing organizations expand, industry sales/profits grow

Maturity stage (plc)

Two parts, early in industry sales high but growth slows, profits decline, companies make adjustments. Midpoint industry sales peak + decline, competitors that are no longer profitable drop out

Decline stage (plc)

industry sales fall, companies either make planned exit or forced out due to lack of demand 

Branding descriptions:

-trade name

-family brand

-manufaturer’s brand

private label brand

-generic product

-individual brand

-Trade: identifies company (Whirlpool corporation)
-Family: single brand name for sale of two or more related products (Apple)

-Manufacturers: owned and controlled by producer (Heinz)

-Private: owned and controlled by intermediary, such as distributor or retailer

-Generic: no brand on product

-Individual: each product given its own brand name

Special considerations in services

Intangibility: no physical dimensions (making the service more tangible in customer’s eyes)

Inseparability: service is both produced/consumed at same time

Perishability: fleeting nature of a service (window of opportunity to use service)

Heterogeneity: variability of service quality perceived by customer

Promotional Mix

Advertising, personal selling, sales promotion, public relations

Advertising

A form of communication that promotes products or services through various mass media channels

Personal selling

salesperson makes a one-on-one connection with customerS

ales promotion

offer a potential customer a temporary incentive to buy product now

Public relations

generate publicity about brands and the company

Pricing objectives + descriptions

Profit maximization: high price, high profit margin

Sales maximization: low price, high volume

Status quo: same as competitors

Elastic vs Inelastic

Elastic: small change in price, big change in demand

Inelastic: small change in price, smaller change in demand

Marketing (distribution) channel

Organized network of agencies and institutions which, in combination, perform all functions required to link producers with end customers to accomplish a marketing task

ntermediaries

Perform a variety of functions to facilitate the efficient movement of products from producer → end user

Channel Structure: direct vs inderect

Direct: commonly used in B2B markets or marketing services, indicates fewer intermediaries operating between producer + end user

Indirect: imply a larger number of intermediaries and more commonly seen in consumer markets

Distribution Intensity types

Intensive: low-priced convenience products, distribute to as many retailers as possible (ex: soft drinks)

Selective: shopping products, use limited problem solving, used for highly shopped brands (ex: Levi jeans)

Exclusive: specialty products, require extended problem solving (ex: Tiffany & Co. diamonds)

Supply Chain Management

comprises the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities

Operations management goals

1-Provide customers with what they want

2-Ensure products/services are available when customers want them, and in quantities demanded

3-Ensure products/services are available where customers want them

4-Meet customers’ quality standards

5-Appropriately design facilities for the operations of the business

Making to order vs. making to stock vs. postponement

Making to order: consult with customers, provide exact features customers want in exact quantities (disadvantage: requires consultation, volume of outputs lower + costs per unit higher)

Making to stock: higher output + lower costs per unit (disadvantage: no customer customization, no guarantee product will be demanded by customer)

Postponement: wait until last minuteto finalize product specifications and decrease risk of excess inventory.I

Inventory management

management of items held for future use (trade off: too much vs. too little)

Yield management

using real-time analysis of demand data to price a service

Clustering

service location strategy, many services find locations close to competition to increase number of customers

Offshoring advantages + disadvantages

Advantages: access to markets, lower labor and facility costs, availability and cost of materials, access to skills

Disadvantages: loss of jobs in home country, less control over operations, greater customer dissatisfaction

Quality

defined as the characteristics of a product or service that bear on its ability to satisfy stated or implied needs

Acceptance sampling

determining the quality of a batch of products by testing a portion of the batch developed

Statistical process control

monitoring the variability or changes in processes that occur over time

Control charts

help to measure acceptable variability when developing new products

Total Quality Management

-A management system for a customer-focused organization that involves all employees focused on continual improvement

-Requires: total participation, continuous improvement, customer focus

-Developing a culture that values employee contributions and long-lasting relationships with suppliers 

Process layouts

-Variety of products

-make to order, lower output, higher cost per unit, high variety

Product layouts

-Highly similar products, repetitive

-make to stock, higher output, lower cost per unit, little/no variety

Manufacturing layout considerations

worker satisfaction, worker productivity, worker safety