Small Business Management II - Exam I

Disadvantages of extending credit

- Capital tied up in merchandise bought by charge customers - Borrowed Money - Losses - Pay Slowly Abuse Increases Overhead Cost

Competition in price policies in the funeral home

- Casket prices should compare favorable with other funeral homes in the area - Must offer same amount or more "service" to client/families

Sound Credit System is One in Which

- 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

Marketing Strategy

- 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

Advantages of extending credit

- 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

Sales promotion must be good consumer relations

- 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

For funeral homes, average expense for advertising is _____ of gross

2.7%

An estimated _____ % of the average company's business comes from its present customers

65

____ % of dissatisfied customers will never again buy from the offending company

91

If the firm has borrowed the extra money required when credit is granted, the interest must be

Added to the cost of the goods sold

Basic considerations regarding prices, once the business owner has acquired and stocked merchandise, materials, or supplies, he or she

Adds value to these goods

Impersonal presentation of an idea which is identified with a business sponsor and is projected through mass media

Advertising

Marketing cost for most consumer goods make up __________ paid by the final consumer

Almost half of the price

For wholesalers or retailers, cost of goods is the

Amount paid for the goods or merchandise

To be continuously successful, sales promotion must be

Based upon good consumer relations

In advertising small business must use limited funds to the

Best possible advantage

Some losses from bad debits and customers with fraudulent intentions are

Bound to occur

Process of creating in your customer's mind the perception that your product or service being offered is of premium value

Branding

Pricing policy factors which influence price setting

Competition in price policies in the funeral home Fair Trade Laws Economic fluctuations

Customer service can provide a

Competitive edge

If product offered is similar to yours, a

Competitive price must be set

Seller has to organize the nature of their

Competitors

Credit that is extended to the final consumer for the purpose of facilitating the sale of consumption goods

Consumer Credit

Installment Credit

Consumer paying in installments for durable goods of high value. These types of goods can be repossessed

Consistent projection of company's selected image in all promotions

Continuity

Economics of pricing: Price reflects

Cost of goods or services sold, administrative selling principles and to make some profit

Components of selling price

Cost of goods sold, plus operating expenses, plus net profit

Markup calculation based either upon

Cost or selling price

Goods can be exchanged with greater ease and if necessary, goods can also be sent out on approval with a

Credit granting store

In retailing, which are more profitable and do larger volume of business Strictly cash sales or Credit granting stores

Credit granting stores

Customer satisfaction is not a means to achieve a certain goal, rather it is a goal

Customer Service

Revolving Charge Accounts - Open-end Credit

Customers pay a specified percentage of the outstanding balance but they do have fixed credit limits

Markup may be calculated for each item of merchandise or may

Denote an average markup of all goods

Advertised 50% reduction in the price of a major brand of color TV would increase sales because demand is

Elastic

Lower price alone increases total revenue, demand is

Elastic

Change in the dollar volume sales that accompanies price changes

Elasticity of demand

Increase in sales of a product at a given price as a result of advertising

Expansibility of demand

Can be used as guidelines for a new business

Expense ratios

Goods who's appeal rest on its design appearance or style

Fashion Goods

Personal Relationship can be maintained with credit, customers who

Feel a bond with the firm

Attracting a new customer cost _____ times as much as keeping an old customer

Five

Markup is the difference between operating cost (overhead) and price of services rendered

For service establishments

One of the most important aspects of managing a business

Formulating price policies and setting the "right" price

Economic fluctuations

Generally have less impact on funeral service than other retail establishments. Retailers and manufacturers prices fluctuate less than do wholesaler's prices

Credit customers more regular than cash customers, who tend to

Go where bargains are greatest

Markup

Gross Margin, Gross Profit, Gross Income

Factors Associated with Evaluating a Credit Risk

Have to have credit application Investigation Setting a credit limit Establishing payment terms and down payments Controlling the account Follow up on delinquent accounts

Marketing Strategy: Are items to sell long-run or short-run items

High fashion items such as hula hoops Limited sales appeal for only a short period of time

Each entrepreneur must estimate the following to arrive at a price

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

Although the trend in retailing has been towards self-service, personal selling remains an

Important means of promoting the sale of products

Lower price decreases total revenue, even though the number of units sold increases, it is

Inelastic

Reduction in price of table salt would have little effect upon sales because the demand is

Inelastic

Conveys an idea regarding the business establishment

Institutional advertising

Once the budget is drawn up, then

Intelligent sales promotion/advertising campaign can be drawn up and executed

Credit increases operation and overhead cost by adding the expenses of

Investigation and bookkeeping entailed in keeping accounts, sending statements, and collecting payments

Pricing of some merchandise at close to or below cost to attract customers who will purchase other goods for sale

Loss leader pricing

Advertising is a

Major cost for small business

Process materials

Manufacturers

In response to changing economic conditions whose prices fluctuate less Manufacturers' - Retailers' - Wholesalers'

Manufacturers' Retailers'

Difference between cost of goods sold and selling price

Markup

Difference between cost of goods sold and the selling price

Markup a.k.a. Gross Margin

Markup expressed as a percentage of cost

Markup ÷ Cost x 100

Markup expressed as a percentage of selling price

Markup ÷ Selling Price x 100

Experience shows that, in retailing, credit-granting stores are

More profitable and do larger volume of business than do business who do strictly cash sales

Expense ratios are available for

Most types of retailing and service enterprises

Factors other than cost of goods which affect price of product or service

Nature of product Competition Business conditions Marketing Strategy Distribution methods

91% of dissatisfied customers will never again buy from the offending company and they will tell _____ other people about their bad experience

Nine

New or unusual goods intended mainly for personal or household adornment

Novelty Goods

Types of Consumer Credit

Ordinary Charge Accounts Revolving Charge Accounts - Open-end Credit Installment Credit Credit Card

Ordinary Charge Accounts

Payments are due when bill is sent to customer

Consumer buying motives

Perceived Need Comfort Convenience Security Prestige Help Economical

Most retailers state markup as a

Percentage of retail price

Promotion delivered in a one-on-one environment, includes the inside sales person and the outside sales person

Personal Selling

Pricing something higher than justified by the cost of producing it

Prestige pricing

Types of advertising

Product Institutional

To make customers aware of a particular product or service and of their need for it

Product Advertising

Good Personal Selling Characteristics

Product Knowledge Good Sales Presentation Practice Prospecting/Networking

Advertising should be in amounts proportionate to the

Product's relative elasticity and expansibility

_______ make up a small percentage of the retail price

Production costs

Newspaper reports on owners and employees of business in newspaper/radio

Promotions ie. salesperson to buyer Salesperson of the month or employee of the month Anything newsworthy to keep name before the public

Repeating of the promotions

Repetition

Assemble an assortment of goods in various sizes and quality suitable for sale to particular customers along with care and use information

Retailers

Determining the success of advertising

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

Credit customers are more likely to abuse the privileges of

Returning goods and having goods sent out on approval

Use supplies in the performance of a required service

Service Establishments

Goods for which consumers or customers shop around and compare before buying them as to their quality, style, and price

Shopping Goods

Type of firm potentially in a much better position to achieve customer satisfaction Large or Small Firm

Small

Distribution or marketing cost, relative to production cost do not change much with

Small changes in prices

Fair Trade Laws

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

Referred to as the lasting medium because it is worth something to the consumer

Specialty Advertising

Inexpensive goods which consumers expect to have readily available at handy locations

Stable or Convenience Goods

Types of Merchandise

Stable or Convenience Goods Fashion Goods Shopping Goods Novelty Goods

Types of advertising media generally used by funeral home

Telephone Book/Yellow Pages Newspaper Radio Trade Magazines Bilboards Direct Mail Public Transportation Specialty Advertising - Television

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

The demand for a product that is considered inelastic becoming elastic for individual business firm

Some credit customers pay slowly because

They overestimated their ability to pay in the future

Credit extended by one business firm to another to facilitate the sale of commercial or production goods

Trade Credit

New business usually spends _____ times as much on advertising as an established firm

Two

Credit Card

Visa, MasterCard, Discover, etc

Advertising Plan

What do you want to say about business

Shop and accumulate a wide variety of market items, and then make goods available in smaller quantities and suitable for inspection by retail buyers

Wholesalers