DIFS ~ Small Business Management II ~ Part 1&2
Nine
91% of dissatisfied customers will never again buy from the offending company and they will tell _____ other people about their bad experience
- Sales Increased - Personal Relationship - Credit customers more regular than cash customers - Credit customers more likely to be interested in quality and service than in price - Goodwill is built up and maintained more easily - Adjustments
Advantages of extending credit
Elastic
Advertised 50% reduction in the price of a major brand of color TV would increase sales because demand is
What do you want to say about business
Advertising Plan
Major cost for small business
Advertising is a
Product's relative elasticity and expansibility
Advertising should be in amounts proportionate to the
Important means of promoting the sale of products
Although the trend in retailing has been towards self-service, personal selling remains an
65
An estimated _____ % of the average company's business comes from its present customers
Retailers
Assemble an assortment of goods in various sizes and quality suitable for sale to particular customers along with care and use information
Five
Attracting a new customer cost _____ times as much as keeping an old customer
Adds value to these goods
Basic considerations regarding prices, once the business owner has acquired and stocked merchandise, materials, or supplies, he or she
Expense ratios
Can be used as guidelines for a new business
Elasticity of demand
Change in the dollar volume sales that accompanies price changes
- Casket prices should compare favorable with other funeral homes in the area - Must offer same amount or more "service" to client/families
Competition in price policies in the funeral home
Cost of goods sold, plus operating expenses, plus net profit
Components of selling price
Continuity
Consistent projection of company's selected image in all promotions
Perceived Need Comfort Convenience Security Prestige Help Economical
Consumer buying motives
Institutional advertising
Conveys an idea regarding the business establishment
Visa, MasterCard, Discover, etc
Credit Card
Returning goods and having goods sent out on approval
Credit customers are more likely to abuse the privileges of
Go where bargains are greatest
Credit customers more regular than cash customers, who tend to
Trade Credit
Credit extended by one business firm to another to facilitate the sale of commercial or production goods
Investigation and bookkeeping entailed in keeping accounts, sending statements, and collecting payments
Credit increases operation and overhead cost by adding the expenses of
Consumer Credit
Credit that is extended to the final consumer for the purpose of facilitating the sale of consumption goods
Customer Service
Customer satisfaction is not a means to achieve a certain goal, rather it is a goal
Competitive edge
Customer service can provide a
The demand for a product that is considered inelastic becoming elastic for individual business firm
Demand for bread is inelastic, if one store lowers the price on the bread drastically, it can increase its own bread sales greatly this is an example of
Return of coupons Split run advertising Number of items sold Mix of items sold Customer traffic Increase of overall sales Customer behavior Increase in sales dollars over a comparison
Determining the success of advertising
Markup
Difference between cost of goods sold and selling price
Markup a.k.a. Gross Margin
Difference between cost of goods sold and the selling price
- Capital tied up in merchandise bought by charge customers - Borrowed Money - Losses - Pay Slowly Abuse Increases Overhead Cost
Disadvantages of extending credit
Small changes in prices
Distribution or marketing cost, relative to production cost do not change much with
How much additional value is added to the product Which price level will bring maximum profits Is selling a small volume at a high price be more profitable or Is selling a large volume at a low price more profitable
Each entrepreneur must estimate the following to arrive at a price
Generally have less impact on funeral service than other retail establishments. Retailers and manufacturers prices fluctuate less than do wholesaler's prices
Economic fluctuations
Cost of goods or services sold, administrative selling principles and to make some profit
Economics of pricing: Price reflects
Most types of retailing and service enterprises
Expense ratios are available for
More profitable and do larger volume of business than do business who do strictly cash sales
Experience shows that, in retailing, credit-granting stores are
Have to have credit application Investigation Setting a credit limit Establishing payment terms and down payments Controlling the account Follow up on delinquent accounts
Factors Associated with Evaluating a Credit Risk
Nature of product Competition Business conditions Marketing Strategy Distribution methods
Factors other than cost of goods which affect price of product or service
Some states have unfair practice laws intended to prevent selling at a price below the cost of doing business, or anti-loss leader laws requiring a price no less than "landed cost" plus 10%. (Landed costs is the manufacturer's list price less all relevant discounts and deductions plus the amount of freight-in) Many state courts have declared the laws unconstitutional
Fair Trade Laws
2.7%
For funeral homes, average expense for advertising is _____ of gross
Amount paid for the goods or merchandise
For wholesalers or retailers, cost of goods is the
Product Knowledge Good Sales Presentation Practice Prospecting/Networking
Good Personal Selling Characteristics
Credit granting store
Goods can be exchanged with greater ease and if necessary, goods can also be sent out on approval with a
Shopping Goods
Goods for which consumers or customers shop around and compare before buying them as to their quality, style, and price
Fashion Goods
Goods who's appeal rest on its design appearance or style
Competitive price must be set
If product offered is similar to yours, a
Added to the cost of the goods sold
If the firm has borrowed the extra money required when credit is granted, the interest must be
Advertising
Impersonal presentation of an idea which is identified with a business sponsor and is projected through mass media
Best possible advantage
In advertising small business must use limited funds to the
Manufacturers' Retailers'
In response to changing economic conditions whose prices fluctuate less Manufacturers' - Retailers' - Wholesalers'
Credit granting stores
In retailing, which are more profitable and do larger volume of business Strictly cash sales or Credit granting stores
Expansibility of demand
Increase in sales of a product at a given price as a result of advertising
Stable or Convenience Goods
Inexpensive goods which consumers expect to have readily available at handy locations
Consumer paying in installments for durable goods of high value. These types of goods can be repossessed
Installment Credit
Elastic
Lower price alone increases total revenue, demand is
Inelastic
Lower price decreases total revenue, even though the number of units sold increases, it is
- May involve deciding whether to seek a large volume at a low markup or - Low volume at a high markup - Are items to sell long-run or short-run items - Prestige pricing -Loss leader pricing
Marketing Strategy
High fashion items such as hula hoops Limited sales appeal for only a short period of time
Marketing Strategy: Are items to sell long-run or short-run items
Almost half of the price
Marketing cost for most consumer goods make up __________ paid by the final consumer
Gross Margin, Gross Profit, Gross Income
Markup
Cost or selling price
Markup calculation based either upon
Markup ÷ Cost x 100
Markup expressed as a percentage of cost
Markup ÷ Selling Price x 100
Markup expressed as a percentage of selling price
For service establishments
Markup is the difference between operating cost (overhead) and price of services rendered
Denote an average markup of all goods
Markup may be calculated for each item of merchandise or may
Percentage of retail price
Most retailers state markup as a
Two
New business usually spends _____ times as much on advertising as an established firm
Novelty Goods
New or unusual goods intended mainly for personal or household adornment
Promotions ie. salesperson to buyer Salesperson of the month or employee of the month Anything newsworthy to keep name before the public
Newspaper reports on owners and employees of business in newspaper/radio
Intelligent sales promotion/advertising campaign can be drawn up and executed
Once the budget is drawn up, then
Formulating price policies and setting the "right" price
One of the most important aspects of managing a business
Payments are due when bill is sent to customer
Ordinary Charge Accounts
Feel a bond with the firm
Personal Relationship can be maintained with credit, customers who
Loss leader pricing
Pricing of some merchandise at close to or below cost to attract customers who will purchase other goods for sale
Competition in price policies in the funeral home Fair Trade Laws Economic fluctuations
Pricing policy factors which influence price setting
Prestige pricing
Pricing something higher than justified by the cost of producing it
Manufacturers
Process materials
Branding
Process of creating in your customer's mind the perception that your product or service being offered is of premium value
Personal Selling
Promotion delivered in a one-on-one environment, includes the inside sales person and the outside sales person
Inelastic
Reduction in price of table salt would have little effect upon sales because the demand is
Specialty Advertising
Referred to as the lasting medium because it is worth something to the consumer
Repetition
Repeating of the promotions
Customers pay a specified percentage of the outstanding balance but they do have fixed credit limits
Revolving Charge Accounts - Open-end Credit
- Sponsor youth projects - Free use of window space for announcements and community projects or events - Your truck drivers/employee drivers on the streets - Support given to charity campaigns - Proper disposal or refuse - Newspaper reports on owners and employees of business in newspaper/radio
Sales promotion must be good consumer relations
Competitors
Seller has to organize the nature of their
Wholesalers
Shop and accumulate a wide variety of market items, and then make goods available in smaller quantities and suitable for inspection by retail buyers
They overestimated their ability to pay in the future
Some credit customers pay slowly because
Bound to occur
Some losses from bad debits and customers with fraudulent intentions are
- Credit applicants are thoroughly investigated - Limits are placed on the amount of credit granted - Charge accounts are systematically monitored or controlled - Delinquent accounts are promptly followed up
Sound Credit System is One in Which
Based upon good consumer relations
To be continuously successful, sales promotion must be
Product Advertising
To make customers aware of a particular product or service and of their need for it
Small
Type of firm potentially in a much better position to achieve customer satisfaction Large or Small Firm
Ordinary Charge Accounts Revolving Charge Accounts - Open-end Credit Installment Credit Credit Card
Types of Consumer Credit
Stable or Convenience Goods Fashion Goods Shopping Goods Novelty Goods
Types of Merchandise
Product Institutional
Types of advertising
Telephone Book/Yellow Pages Newspaper Radio Trade Magazines Bilboards Direct Mail Public Transportation Specialty Advertising - Television
Types of advertising media generally used by funeral home
Service Establishments
Use supplies in the performance of a required service
91
____ % of dissatisfied customers will never again buy from the offending company
Production costs
_______ make up a small percentage of the retail price