Exam 3 Bus101 Ch10-13

risk-return trade-off

Individuals prefer more certain financial earnings than less certain outcomes. Therefore, investors and lenders usually demand higher earnings or a higher interest rate to be compensated for incurring additional risk.

inventory

can be either an assortment of finished goods that a firm has available for immediate delivery to customers, or it can also be a supply of inputs a firm uses to support its operations.

time value of money

individuals usually prefer to have good things sooner and prefer to put off bad things until later. the concept that a sum of money is worth more now than the same sum will be at a future date due to its earnings potential

cash flow not profits

financial managers recognize that "cash pays the bills, not profits."

valuation of assets

the process of determining the current value of a company's assets, such as stocks, buildings, equipment, brands, goodwill, etc. This process often happens as part of a wider business valuation, or before you buy, sell or insure an asset. an organization is its ability to generate positive cash flow over time.

diversification

a strategy used to expand market share or enter new markets by launching or acquiring new products

forecasts

(the first step of the financial planning process) - to generate a prediction of the upcoming financial needs of the firm.

cash flow forecast

estimates cash coming in and going out based on past business performance

short-term cash flow forecasts

based on expectations of net cash flows within the next 12 months.

long-term cash flow forecasts

based on expectations of net cash flows for one year or more.

budgets

used by firms as a roadmap to guide the activities of the firm. shows how the firm plans to allocate its financial assets to achieve the forecasted goals and objectives.

operating budgets

a detailed projection of what a company expects its revenue and expenses will be over a period of time.

capital budgets

process that businesses use to evaluate potential major projects or investments.

cash flow budgets

estimates your business's cash flow over a specific time period. You can use the information to see if you have enough cash coming in

master budgets

bring all of the information from the other budgets together and serve as a master financial plan for the firm over a given planning horizon.

controls

a function of management which helps to check errors in order to take corrective actions.

working capital

the funds that firms use to meet their day to day operational cash flow needs.

trade credit

when a seller allows the purchaser to pay for the product at some point in the near future yet take delivery of the product or service immediately.

purchasing manager

plans, directs, and coordinates activities related to acquiring the materials, products, and services that are needed for a firm to operate.

buyers / procurement officers

individuals who perform similar tasks within organizations. these employees work with potential suppliers to evaluate the prices of various inputs to production relative to the value that alternatives provide.

stockout

a situation where a firm misses out on potential revenue because they do not have enough product available. this results in a disappointed customer who may choose a competitor.

interest

is an amount of money, usually a percentage of the principle amount borrowed, that is paid to the lender as compensation for providing the funds.

collateral

may be required by lenders that the borrowing firm pledges assets before they agree to provide funds.

secured loans

if a borrower does not repay one of these, collateral may be seized and sold by the lender to pay off the debt.

unsecured loans

when lenders are comfortable enough in the borrowing firms ability to repay, this requires no assets of the firm to be pledged as collateral.

factoring

involves selling their accounts receivables to a specialized lender (at a discount) that is then responsible for collecting on those accounts.

commercial paper

short-term, unsecured promissory notes that are issued in denominations in excess of $100,000. typically used by large corporations, insurance companies, municipal governments, and financial institutions

corporate bonds

are a form of debt in which the borrowing firm agrees to pay the purchaser of the bond a specified amount of money according to some specified schedule of payments in the future.

retained earnings

the amount of profit a company has left over after paying all its direct costs, indirect costs, income taxes and its dividends to shareholders.one of the most common sources of equity financing used by firms.

stock

when issued by a firm, it provides the investor an ownership stake in the company.

venture capital

when start-up firms seek funds from wealthy investors in exchange for some percentage of ownership in the company.

consumers

customers who are the end users of the product. they purchase products for their own use.

business buyers

purchase products with the intention of either using that product in the production of another product or reselling it for a profit.

consumer decision process

1. Problem recognition
2. Information search
3. Evaluation of alternatives
4. Purchase decision
5. Post-purchase evaluation

extended problem solving

implementing the consumer decision process

routine response behavior

consumers frequently purchase products without giving much thought to either the product or the purchase situation.

limited problem solving

(in the middle of the decision continuum) the majority of decisions consumers make fall into this category. Consumers are familiar with the product, but prefer to compare brands and stores before purchasing.

business-to-business (B2B)

transaction that occurs when a business sells products to another business.

business-to-consumer (B2C)

when a business sells products to consumers.

producers

businesses that manufacture foods or provide services

resellers

wholesalers, distributors, and retailers.

outsourcing

purchasing of business services by institutions or any other business buyer. can be a cost effective way to manage business processes.

new task buy

most complex buying situation for a business. the business has never before purchased this good or service and does not have an existing set of product

modified rebuy

occurs when a business has previously purchased a product but must revisit the product specifications due to a change in circumstances.

straight rebuy

(similar to the customers routine response) business will often automate these so that a reorder is placed as soon as the product inventory reaches a certain point, or when it reaches a certain amount of time since the last order.

(ex. order placed the first week of every month)

buying center

is an informal group of individuals that, together, make a business buying decision

influencer

anyone inside or outside the business that can exert influence on any one of the buying center members

purchaser

in the buying center group, is the individual who has the authority to sign off on the purchase agreement

user

may have little inout into the purchasing decision even though that individual is one who will be using the product once it is purchased

decider

is frequently the highest-level management person involved in the decision. this individual has budgetary responsibility for the purchase by may delegate the actual decision to another member

gatekeeper

plays an important role in the decision process. a person who can grant or block access to key decision-makers

STP

segmentation, targeting, and positioning

total market

is composed of customers and potential customers who meet three criteria with respect to purchasing a particular product: ability, willingness, and authority.

market segmentation

process which helps companies narrow the scope of the market so that they can target their marketing efforts to appeal most effectively to those members of the overall market that are most likely to become customers.

market segmentation steps:

1. Selection of industry/product category /market
2. Identification of segmentation bases
3. Profile and analysis of segments
4. Selection of target market(s)
5. Development of marketing mix for each identified target market

target market

the market that a company wants to enter/focus selling on. this is an identified market segment on which a company will focus its marketing efforts.

undifferentiated targeting strategy

is one for which the marketer choses to avoid the segmentation process and treats the total market as a single segment.

differentiated targeting strategy

choosing this strategy, a company attempts to satisfy the broader marketplace by identifying multiple market segments to target, building a unique marketing mix to appeal to each segment.

concentrated targeting strategy

a company selects a single segment of the market on which it focuses all of its marketing efforts.

niche market

includes only those specific customers who would enjoy a particular product.

one-to-one marketing

(ultimate example of niche marketing) described as tailoring a marketing mix to appeal to a single customer.

product positioning

when a marketing organization makes efforts to establish a unique place in the midst of its target market, relative to competitors.

perceptual map

a graphical representation of the marketplace

4 P's (marketing mix)

PRODUCT
PROMOTION
PRICE
PLACE (distribution)

product

physical goods, services, and ideas

physical goods

tangible goods - computers, cars, and soft drinks

services

not tangible - pedicures, personal training, and lawn mowing

ideas

products that can be marketing to specific groups of customers. "don't drink and drive" "say no to drugs"

convenience product

a relatively inexpensive product that a consumer purchases on a regular, routine basis without much thought or effort.

shopping products

consumers will expend some effort to compare brands and invest some time to investigate product features and price points.

specialty product

a particular brand that is unique and has desirable characteristics. can be relatively expensive.

ex) tiffany jewelry, porsche automobiles

product mix

describes the overall group of products that a business offers and consists of a combination of product items, product categories, and product lines

cannibalization

occurs when a business experiences an unintended reduction in sales of one product due to its introduction of another similar product

new product development process

a commonly known process used when companies develop new products, and includes the following steps:
idea generation
screening
concept testing
business analysis
product development
test marketing
commercialization

manufacturer's brand (national brand)

where the brands are owned and controlled by a producer. ex) sony, ralph lauren, heinz.

private label brand (private brands, store brands, distributor brands)

where the brand is owned or controlled by an intermediary such as a distributor or retailer

ex) sears, gap

generic product

there is no brand name at all; instead of a brand name, only the product category name is indicated on the packaging.

ex) flour or sugar

family brand

ex) Whirlpool - all products carry the brand name.

individual brand

ex) Procter & Gamble - in its laundry detergent product line, they offer six different brands: Cheer, draft, era, gain, ivory, and tide.

Characteristics unique to services

intangibility: a service, unlike a good, cannot be held, touched, examined, or taken home and put on a shelf for the customers future use.

inseparability: a service is both produced and consumed at the same time

perishability: describes the fleeting nature of a service. services involve the performance of an activity, once the time period is over, the window opportunity to perform the service is over.

heterogeneity: (variability) services are difficult to standardize. service quality differs. ex) a haircut at the same company but with a different person will be different.

product life cycle (PLC)

the length of time from a product first being introduced to consumers until it is removed from the market. A product's life cycle is usually broken down into four stages; introduction, growth, maturity, and decline.

Four stages of product life cycle (PLC)

1. Introduction
2. Growth
3. Maturity
4. Decline

promotion

the communications arm of marketing. the way that a business informs, persuades, and reminds the target market about its products, brands, company or people.

advertising (defined by the AMA)

"The placement of announcements and persuasive messages in time or space purchase in any of the mass media by business firms, nonprofits, government agencies, and individuals who seek to inform and persuade members of a particular target market or audience about their products, services, organizations, or ideas"

personal selling (defined by AMA)

"Selling that involves face-to-face interaction with the customer"

sales promotion (defined by AMA)

"The media and non-media marketing pressure applied for a predetermined, limited period of time at the level of consumer, retailer, or wholesaler in order to stimulate trial, increase consumer demand or improve product availability"

Public relations (PR)

"That form of communication management that seeks to make use of publicity and other non-paid forms of promotion and information to influence the feelings, opinions, or beliefs about the company, its products or services, or about the value of the product or service or the activities of the organization to buyers, prospects, to other stakeholders.

pull promotional strategy

companies that advertise nationally branded products directly to consumers. they attempt to influence customers to ask for a branded product at their favorite retailer.

push promotional strategies

build demand within the distribution channel, at the wholesaler or retailer level, by spending promotional dollars on sales calls to the wholesaler or retailer or by offering them quantity discounts

integrated marketing communications (ICM)

"A planning process designed to assure that all brand contacts received by a customer or prospect for a product, service or organization are relevant to that person and consistent over time"

value

what the customer is willing to give up to get the desired benefits

pricing objectives

profit maximization, sales maximization, status quo

profit maximization

a business may choose a selling price designed to maximize the profit it earns on a product

Sales maximization

a business that pursues a growth strategy is concerned with maximizing sales or market share through pricing.

status quo

the company sets a price at the same level as competitors in the same industry

factors that determine price

1. cost structure
2. demand
3. competition
4. marketplace dynamics
5. objectives

price elasticity of demand

a measure of the relationship between a percentage change in the market price of a product and a consequential percentage change in the quantity demanded of a product.

marketing channel

(distribution channel) is made up of all the businesses necessary to move a product from the producer to the end user.

channel structure

means of reaching your customer with your products and services

Direct channels

a sales channel through which goods and services are sold by the manufacturer directly to an end user. These traditional channels don't involve partners of any sort. commonly used by B2B markets or in marketing services. indicates that there are fewer intermediaries operating between the producer and the end user.