Business Administration - Basic Skills Guide (SKAT, 1994, 162 p.) Module 7: Marketing Introduction Goal Purpose The Product Definition Features Quality Price/Quantity Marketing Tools Purpose Distribution Promotion Selling (introduction...) Main Points Impression

Business Administration - Basic Skills Guide (SKAT, 1994, 162 p.)

Module 7: Marketing

Introduction

Goal

This module explains basically, what marketing is and gives some ideas how marketing can be done.

Purpose

The purpose of marketing is to find out who your customers are, what their needs are and how these needs can be fulfilled. Marketing is responsible for the design and distribution of products. Selling is necessary for a successful business and marketing is necessary to sell goods. Marketing is an essential part of running a business and should not be neglected.

The purpose of this module is to give you a little basic knowledge about marketing and show how this knowledge can be used to improve your business. The most important aspects of the product are described and the marketing tools “distribution”, “promotion” and “selling” are presented.

For more detailed information please consult the “Marketing and Selling Guide”.

The Product

Definition

Marketing is concerned with finding out what customers need. It is also responsible for the design of products. Tiles, for example, vary with regard to shape, size, colour, quality and price.

Features

You need to find out what your customers need, when they need it, and where they want it. There are many ways to find out what customers want. Below some possibilities are given how to do this:

· Ask existing and potential customers what they need. When you visit a customer, listen to him and try to find out what he really needs. You may have to offer new products to meet the needs of your customers.

· Analyse your sales: How many goods of each type were sold? Are there trends?

· Find out current trends in the market. Are there new products? What advantages and disadvantages do they have compared to your products?

· What are your competitors doing? Are they having more success? If so, what are the reasons for this?

· Analyse your own and your competitors’ products. What are the strong points and what are the weak points of your products compared to those of your competitors? Could you improve your position? And if so, how?

A few architects asked Mr. Garcia if he could offer green pantiles. Others would prefer to buy whole roofs instead of loose tiles. Mr. Garcia decides to produce a few green pantiles and try to sell them for a good price. Moreover, he will took for a carpenter. Together they could offer whole roofs.

Quality

Most customers do not like products with poor quality. They will hardly buy the same product again, even if the quality has improved. High quality is one of your best marketing tools. Therefore, only offer products with a high quality.

Test every product before selling it, to see whether it meets your high quality standard.

A roof is expensive and should be of good quality. If potential customers see roofs which are not constructed well or have broken tiles, they wilt not trust the quality of FCR/MCR tiles and prefer to use other roofing materials.

Price/Quantity

As you have seen in module 4 “Costing and Pricing” and in module 6 “Financial Analysis”, price and quantiy are interdependent. If the demand for a certain product is high enough, it may be interesting to produce and sell more pieces at a lower price. However, the selling-price should always be higher than the production costs of that product.

Mr. Garcia finds out that with his production of 20’000 gray tiles per year, the costs per tile are LU 19 and the market price is LU 18. However, if he produces 50’000 gray tiles per year, the costs per tile will be LU 14. As long as he can sell all the gray tiles he produces, he should produce more tiles and sells them at a lower price.

Marketing Tools

Purpose

Even if your products meet customer needs, you cannot be sure that your customers will buy them. You have to inform potential customers about your products and their advantages. For this reason you have to think about distribution channels as well as promotion and selling.

Distribution

When starting your business, it may be quite difficult to inform people about your products and to sell enough goods to make a profit. It may be a good idea to sell to retailers who then sell at speciality shops (for example building materials shops). The price a retailer pays will be lower than the one a customer will pay. Your marketing costs, however, are lower and the greater turnover will help to cover fixed costs. In addition, because retailers normally pay cash on delivery, you will have less debtors.

Promotion

Even if you offer an attractive product at an attractive price, people will not buy your products if they do not know about them. For this reason, you should promote your products and other services. When planning a promotion campaign, the following points should be considered:

· You need to have a clear idea who should know about your product. Who decides whether your tiles will be bought and used?

· Next, you should find a way to make people aware of your product. How can potential customers learn about the advantages of your products?

· You have to think about the message: what would you like to tell people?

Mr. Garcia knows that architects normally decide what roofing material is used. Therefore, his promotion campaign will be designed to reach architects. Mr. Garcia consults the telephone book and finds the addresses of 34 architects in his town. He decides to write personal letters to each of them and enclose a folder about the advantages of FCR/MCR technology. He also plans to visit each of them. Mr. Garcia knows from experience that many architects use FCR/MCR tiles for the roofs of expensive houses. Thus he presents the tiles as a “modern, attractive and high quality roofing material for people with high social ambitions”.

A few more ideas for promotion campaigns are given below:

· To make people aware of your products, you can demonstrate your products at fairs or at busy places where people can see them.

Mr. Garcia installs a demonstration roof at a bus station in the centre of his city.

· You might rent a display window to show your products.

· You can place advertisements in newspapers, on the radio and television.

· It is also a good idea to make special conditions for customers who are important people. If they have trust in your product, other people will follow.

Selling

Even if potential customers know about your products, you still have to actively sell your products. Selling skills can be learned. You can learn more about selling in the special toolkit on marketing. In this module only a few essential points are mentioned:

Main Points

Normally, there will be other businesses selling the same products. You need to have good arguments and reasons why your products are better than those of your competitors. This means that you must know the strong points of your products. Unfortunately, most products also have weak points. It is important to know their disadvantages and to have good arguments to dispel your customers’ doubts.

However, do not tell your customers things which are not true.

If a customer asks you if it is possible to walk on an FCR/MCR tile-covered roof, you must not say “yes”, when you know that walking on the tiles will break them. You can, however, ask him how often and why he needs to walk on his roof and he may realise that it is not necessary to walk on the roof.

Impression

An important point is the impression a potential customer has of you and your workshop during negotiations. If he has a positive impression, it is more likely that he will decide to buy your tiles.

	CASH BOOK
	YEAR _____________	SHEET NO. __________________________
DATE	ITEM	VOUCHER NO	CODE OF ACCOUNT	CASH IN	CASH OUT	BALANCE
	Starting cash
	TOTAL

CASH BUDGET: FOR THE PERIOD ____________ TO ____________ 19 ____
	Time
	Cash
CASH AT START
	Cash Sales
CASH IN	Other CASH IN
	TOTAL CASH IN
CASH AT START + CASH IN
	Wages
	Raw Materials
	Overheads (water, energy, management)
	Maintenance
CASH OUT	Withdrawals
	Loan repayment
	Loan interest
	Investments
	Other CASH OUT
	TOTAL CASH OUT
CASH AT END (START + CASH IN) - CASH OUT

	DEPRECIATION RECORD
Item: _______________________________________________________
Year of purchase:			________________
Price paid:			________________
Estimated lifetime (in years):			________________
Depreciation per year		cost	________________
		estimated lifetime	________________
If the yearly inflation is higher than 30%, please enter above the figures for ‘Price Paid’ and ‘Depreciation per year’ in US$ and use the table below to calculate the yearly depreciation in your local currency.
Year	Exchange rate to US$	Depreciation amount in local currency	Commentary (maintenance, condition etc.)
____	_______________	______________	________________________
____	_______________	______________	________________________
____	_______________	______________	________________________
____	_______________	______________	________________________
____	_______________	______________	________________________
____	_______________	______________	________________________
____	_______________	______________	________________________
____	_______________	______________	________________________
____	_______________	______________	________________________
____	_______________	______________	________________________
____	_______________	______________	________________________
____	_______________	______________	________________________
____	_______________	______________	________________________
____	_______________	______________	________________________
____	_______________	______________	________________________

		Costs per Tile
		Calculation based on figures for the period from ________ to ________ Estimated production: _____________________________
Variable costs per 1’000 tiles
Material		quantity	unit	price/unit	costs
Cement		________	_____	___________	____________________
Sand		________	_____	___________	____________________
Fibre/Aggr.		________	_____	___________	____________________
Wire		________	_____	___________	____________________
				TOTAL	____________________
Labour		hours	costs/hour*		costs
unskilled		________	___________________		____________________
skilled		________	___________________		____________________
				TOTAL
Total variable costs for 1000 tiles					____________________
-->Total variable costs per tile					____________________
Fixed costs
	- Water, energy				____________________
	- Transport				____________________
	- Fixed salaries + social security expenses				____________________
	- Depreciation				____________________
	- Financial costs				____________________
	- Maintenance				____________________
	- Office				____________________
	- Marketing				____________________
	- Fees				____________________
	- Other fixed costs				____________________
	Total fixed costs				____________________
	Estimated production				____________________
	Fixed costs per tile (Total costs ÷ production)				____________________
Costs per tile (fixed costs + variable costs)					____________________

* Including direct social security expenses

	STOCK RECORD
Date: ________________________________
STOCK
		amount in stock (A)	unit (B)	cost/unit (C)	value (A-C)
- cement		_____________	_____________	_____________	_____________
- sand		_____________	_____________	_____________	_____________
- fibre		_____________	_____________	_____________	_____________
- colorants		_____________	_____________	_____________	_____________
- wire		_____________	_____________	_____________	_____________
- tiles		_____________	_____________	_____________	_____________
- _________		_____________	_____________	_____________	_____________
- _________		_____________	_____________	_____________	_____________
Total value of stock					_____________

DEPRECIATION SUMMARY
Date: ______________
DESCRIPTION	DATE OF PURCHASE	LIFETIME (Years)	PRICE PAID	YEARLY DEPRECIATION
		TOTAL

	Profit and Loss Statement FOR THE PERIOD _______ TO _______
Sales (100)			________________	+	________________
Costs of Goods Sold
Initial Value of Stock		+	________________
Purchase of Raw Materials (200)		+	________________
Goods available for Sales		=	________________
Final Value of Stock		-	________________
= Costs of Goods Sold				-	________________
Gross Profit				=	________________
Expenses
Working Costs (300) (wages, salaries and social security expenses)		+	________________
Production Inputs (400) (water, energy, consumables)		+	________________
Overheads (500) (transport, office, marketing, maintenance, taxes and fees, interest, others)		+	________________
Depreciation (600) (buildings and equipment)		+	________________
= Total Expenses				-	________________
Net Profit				=	________________
Less withdrawals (700)				-	________________
Retained Profit				=	________________

	Break-Even-Point
	Calculation based on the period from ___________ to ___________

Fixed costs/period	:	____________________ (A)
Variable costs/period	:	____________________ (B)
Unit sales/period (actual/estimated)	:	____________________ (C)
Selling price per tile	:	____________________ (D)
Your maximum capacity (tiles/period)	:	____________________ (E)

Break-Even-Point (BEP): The level of sales where you make no profit and no loss: · Break-Even-Point: ____________________ (F)

Capacity utilization: The extent of production capacity used at the Break-Even-Point: · Use of capacity: ____________________ % of capacity used at BEP

Break-Even-Price: The price per tile, at current sales’ level, and with current cost structure, that will result in no profit and no loss · Break-Even-Price: ____________________

Break-Even-Point adjusted for loan repayment: The volume of sales needed to break even and to repay loan obligations · Amount of loan repay per period: ____________________ (G) · Break-Even-Point: ____________________ tiles/period