1.1

Market Sector Activity

• Goods

  • Primary- All raw materials acquired (extracting, mining, farming, fishing, hunting, trapping, etc.)

  • Secondary- Raw materials are processed (by manufacturing)- consumer durables, non-durables, and capital goods

• Services

  • Tertiary- All services are provided here (financial, leisure, healthcare, education, transport, security, etc.) Banking, insurance, transportation, retail, and wholesale have become important as manufacturing has shifted

  • Quaternary- Provides services that are especially focused on knowledge (e-services, IT, media, web-based services)

Process for Starting a Business

1. Organizing the Basics

   1. Where will you be located?

   2. How will you name the business?

   3. What is the legal structure?

   4. What is the operational structure?

   5. Are there enough suppliers, customers, and government services to make this business successful?

2. Refining the Business Idea through Market Research

   1. Happens after you determine business idea is feasible

   2. Rarely is a gap in a given market obvious to find

      1. That would make starting a successful business too easy

   3. Failure rate for new business= Very high

   4. That failure rate is the reason that you have to do market research

      1. How will you conduct research?

      2. Who will be you target market?

      3. Can the Business test its concept?

      4. What will be its “Unique Selling Proposition” (USP)?

      5. How will the business communicate with the market?

3. Planning the Business

   1. Business Plan= a document that addresses all the issues that need to be planned before operations begin

      1. Sets out how the organization will meet its business objectives

      2. The plan applies to a specific period (potentially over several years)

      3. Detailed statement of short-term and long-term objectives

      4. Usually combined with detailed budgets to finance the required activities

      5. Purpose

         1. Support the launch of a new organization or business idea

         2. Attract new funds from lenders

         3. Support strategic planning

         4. Identify resource needs

         5. Provide a focus for development

         6. Work as a measure of business success

   2. The plan will serve multiple stakeholders (potential owners and financial institutions) that may provide capital

   3. Must think through the most specific elements of how the business will operate

   4. Business Plan will provide confidence to those investors

4. Establishing Legal Requirements

   1. Business must be registered (30 to 90 days in US)

   2. Need to check on tax obligations, labor practices, operational practices, and any specific licenses and/or pass inspections before you can officially operate

   3. Taxes

      • Income taxes

      • Payroll tax (employee pensions, sick benefits, medical insurance)

5. Raising the Finance

   1. Done once the Business Idea is refined, business plan is written, and legal requirements have been met

   2. The business needs to raise the money to get the business started and able to sustain operations

   3. Start-up money (initial investment)

   4. Selling shares

      1. If you accept equity from another person, they are a partial owner

   5. Who will be the leaders? What kind of terms will they want?

6. Testing the Market

   1. Launch the business

   2. Some will release products in a limited capacity (depending on finances)

   3. Verifying that the business idea will be received well enough by the consumers in that market

4.1

Market approaches

1. Market Oriented

   1. Outward looking and focused on carrying out market research first and then making products that can sell

   2. Market-led and focused on establishing consumer demand so as to supply products that meet consumer needs and wants

Benefits

• Businesses have increased confidence that their product will sell

• Access to market information means that businesses can respond more quickly to changes in the market

• Businesses will be in a position to meet the challenge of new competitors as a result of regular feedback from customers

Limitations

• Conducting market research is expensive

• Due to frequently changing consumer tastes, businesses may find it difficult to meet every consumer need and want

• Uncertainty about the future could also have a negative influence on market strategies

1. Product Oriented

   1. Inward looking and focused on making the product first and then trying to sell it

   2. Product-led and assuming that Supply creates its own Demand (producers produce products and tempt the customers to buy them)

Benefits

• It is associated with high quality products, creating a quality image for the business

• It can succeed in industries where the speed of change is slow

• It has control over its activities

Limitations

• There is a risk of ignoring the needs of the customer and it could lead to a loss of sales or worse

• Spending money on product development without considering the consumer needs could be costly and not yield promising results

Market Share= firm’s sales/ total sales in the market x 100

• the percentage of total sales a business firm has (either in volume [products] or in value [dollars]) of the total sales in the market

Market growth= amount of the change/ starting amount x 100

• percentage change in the total market size (either in volume [products] or in value [dollars]) over a given period of time (usually 1 year)

4.5

7 P’s of Marketing

1. Product

   • Stages

     • Development

       • Generating ideas

       • Screening ideas

       • Creating a prototype

       • Carry out test marketing

       • Commercialization

     • Introduction

       • Product awareness is needed through advertising and promotions

       • At this point, sales are low and likely the product is not profitable, and cash flow is negative

     • Growth

       • Sales volume and revenues start to increase

       • Profits start to increase

       • Promotions are designed to increase product loyalty

     • Maturity

       • Sales volume continues to rise, but at a slower rate

       • High market share and positive cash flow

       • More competition has entered the market

       • Competitive pricing needed

       • Plans for new products need to be in the advanced stages

     • Saturation

       • Sales volume is at its highest point and may begin to start falling

       • Market share beginning to go down, but there is still positive cash flow

       • Some businesses will be forced out due to high levels of competition

       • Competitive pricing continues to be in place

       • Aggressive promotions may be needed

     • Decline

       • Sales volume and profits have dropped

       • Cash flow is going down

       • Product has lost some of its appeal

       • Promotions may be reduced

       • Extension strategies may need to be done- attempt to stop sales from falling by lengthening a product’s lifecycle

2. Price

3. Promotion

4. Place

5. People

6. Processes

7. Physical Evidence

Boston Consulting Group (BCG) Matrix

• a product portfolio analysis method that measures the market growth rate on the vertical axis and the relative market share on the horizontal axis

• Stars- products with high market growth rates and high market share

• Cash Cows- products with low market growth rates and high market share

• Problem Children or Question Marks- products with high market growth rates, but low market share

• Dogs- products with low market growth rates and low market share

product lifecycle

pricing strategies

branding