BUSINESS STUDIES
MODULE 3 – INTRODUCTION TO MARKETING & FINANCE
MARKETING
Definition of Marketing
“Marketing is concerned with the people and the activities involved in the flow of goods
and services from the producer to the consumer”.
–American Marketing Association.
The activities which are part of marketing are basically the various functions which are
performed under marketing such as planning, designing the product, packaging and
labelling of the product, standardising, branding, warehousing, transport, advertising,
pricing and distribution.
In addition, it includes after sales activities such as customer care and feedback.
SCOPE OF MARKETING
Scope of Marketing:
1. Study of consumer wants and needs: Goods are produced to satisfy consumer needs
and wants. Therefore, study is done to identify consumer needs and wants as they
motivate consumer purchase.
2. Study of consumer behaviour: Marketers perform study of consumer behaviour as
analysis of buyer behaviour helps marketer in market segmentation and targeting.
3. Production planning and development: Production planning and development starts
with the generation of product idea and ends with the product development and
commercialisation. Production planning includes everything from branding and
packaging to product line expansion and contraction.
SCOPE OF MARKETING
4. Pricing policies: Marketer has to determine pricing policies for their products and they
differ from product to product. It depends on the level of competition, product life
cycle, marketing goals and objectives etc.
5. Distribution: Study of distribution channel is important as goods are required to be
distributed to the maximum consumers at minimum cost for maximum sales and profit.
6. Promotion: Promotion includes personal selling, sales promotion and advertising. Right
promotion mix is crucial in accomplishment of marketing goals.
7. Consumer satisfaction: The product or service offered must satisfy the consumer,
Consumer satisfaction is the major objective of marketing.
8. Marketing control: marketing audit is done to control marketing activities.
EVOLUTION OF MARKETING
Evolution of Marketing
i. Barter System: The goods are exchanged against goods, without any other medium of
exchange, like money.
ii. Production Orientation: This was a stage where producers, instead of being
concerned with the consumer preferences, concentrated on the mass production of
goods for the purpose of profit. They cared very little about the customers.
iii. Sales Orientation: The stage witnessed major changes in all the spheres of economic
life. The selling became the dominant factor, without any efforts for the satisfaction of
the consumer needs.
iv. Marketing Orientation: Customers’ importance was realised but only as a means of
disposing of goods produced. Competition became more stiff. Aggressive advertising,
personal selling, large scale sales promotion etc. are used as tools to boost sales.
EVOLUTION OF MARKETING
v. Consumer Orientation: Under this stage only such products are brought forward to the
markets which are capable of satisfying the tastes, preferences and expectations of the
consumers-consumer satisfaction.
vi. Management Orientation: The marketing function assumes a managerial role to co-
ordinate all interactions of business activities with the objective of planning, promoting
and distributing want-satisfying products and services to the present and potential
customers.
MARKETING MIX
Marketing mix is a systematic combination of four elements product, price, place and
promotion activities used to satisfy the needs of an organisation.
MARKETING MIX
PRODUCT MIX:
Product means goods and services which are offered to the market for sale. Product mix
is the combination of all products offered for exchange by a company.
Product Quality: An article may be sold at a price above the cost if the customers
consider the article is of exception quality. On the other hand, the article may not sell
even at low price if the quality of product is considered to be very poor.
Branding: Branding is a process to give a distinctive name identification to the product
by which it is to be known and remembered. It can be in the form of a name term,
symbol or design. Lux, Coca-Cola, L.G., are examples of brand.
Packaging: The act of designing and developing a product's container or wrapper.
Because good packaging often aids in the sale of a product, it is referred to as a silent
salesman. Packing refers to wrapping, crafting, filling so that goods can be protected
from spoilage, pilferage and breakage and leakage, etc.
MARKETING MIX
Labelling: Labelling refers to designing the label to be put on the package. A label is an
important feature of a product as it provide useful information about the product and its
producer.
Services: Service is as intangible act that can satisfy the needs of customer. Teacher,
doctor, firms, banks, etc are providers of service. Services are intangible, perishable,
inseparable and variable.
Warranties: A warranty for a product is a written or implied guarantee provided by the
manufacturer or seller that assures the product's quality, performance, and reliability for
a specified period. Warranties aim to instill confidence in consumers and ensure they
receive a product that meets certain expectations.
MARKETING MIX
PRICE MIX:
The term price refers to the money value of a product or service. According to Clark:
"The price of an article or service is its market value expressed in terms of money. It
reflects the worth of a product or service and the amount of money for which it can be
exchanged."
Pricing Method: Pricing method is a technique that a company apply to evaluate the
cost of their products. The price should match the current market structure and also
compliment the expenses of a company and gain profits. Also, it has to take the
competitor’s product pricing into consideration.
Pricing Strategy: Pricing strategies are the methods and procedures companies employ
to determine the rates they charge for their goods and services. Pricing is the amount
you charge for your items; pricing strategy is how you calculate that number.
MARKETING MIX
Price Change: Changing the price of a product, even slightly, has a significant impact
on its demand in the market. Many things that need to be kept in mind while deciding
the product’s price are distribution channels, retail price, list price, discounts, offers, price
of competitor’s product, location, etc.
Discount: “Discount pricing” is a broad term that encompasses a variety of pricing
tactics aimed at increasing demand, clearing out unsold inventory, or raising sales.
Discount pricing works because customers believe they’re “getting a good deal” on a
product or service.
MARKETING MIX
PLACE MIX:
Place element of marketing mix refers to distribution of product to customer for
consumption. Its main objective is to make the product available to customers at the
right time and right place.
Channel of Distribution: A channel of distribution is the route through which products
flow from the point of production to the point of ultimate consumption. It serves as a
connecting link between the producer and consumer.
Order processing: Order processing refers to the set of activities and tasks involved in
managing and fulfilling customer orders for products or services. This process typically
includes order entry, verification, inventory checking, invoicing, and shipping
arrangements to ensure accurate and timely delivery to customers..
Transportation: It transports goods from manufacturers to consumers, making the
product available at the point of sale.
MARKETING MIX
Inventory Control: Choosing the level of inventory is an important inventory decision.
Additional demand can be met in less time, and inventory requirements will be minimal.
MARKETING MIX
PROMOTION MIX:
'Promotion' of goods and services involves informing the customers about the firm's
product, its features, quality, etc. and persuading them to purchase the same.
'Promotion mix' refers to combination of promotional tools (or methods) used by an
organisation to achieve its communication objectives.
Advertising: It is the most commonly used tool of promotion which is a paid form of non-
personal presentation and promotion of ideas, goods or services by an identified
sponsor. According to American Marketing Association — "Advertising is any paid form
of non-personal presentation and promotion of ideas, goods or services by an identified
sponsor."
Personal selling: It involves oral presentation of message in the form of conversation with
one or more prospective customers for the purpose of making sales. Companies
appoint salespersons to contact prospective buyers and create awareness about the
company's products.
MARKETING MIX
Sales promotion: It refers to short-term incentives, which are designed to encourage the
buyers to make immediate purchase of a product or service, e.g., discounts, contests,
free samples, offering extra quantity, etc.
Publicity and public relations: Publicity is a non-paid form of non-personal
communication. It takes place when favourable news is presented in the mass media
about the company's products or services, e.g., a news covered by TV or newspaper
that a company manufactured a car, which runs on water.
MARKETING PROCESS
The process of marketing involves the following:
(i) Identification of market or customer who are chosen as the target of marketing effort:
This involves analyzing demographics, psychographics, and other relevant factors to
pinpoint the target audience for the marketing efforts.
(ii) Understanding needs and wants of customers in the target market: This involves
conducting surveys, interviews, and analyzing data to uncover insights into the
challenges and aspirations of the target audience, helping businesses tailor their
offerings accordingly.
(iii) Development of products or services for satisfying needs of the target market: This
involves creating offerings that stand out in terms of quality, features, and value to meet
or exceed customer expectations.
MARKETING PROCESS
(iv) Satisfying needs of target market better than the competitors: This involves a
continuous process of refining products, improving services, and staying abreast of
industry trends to ensure that the offerings outshine those of competitors in the eyes of
the target market.
(v) Doing all this at a profit: Companies must carefully manage their resources, pricing
strategies, and operational efficiency to ensure that their marketing efforts lead to
sustainable profitability. This step emphasizes the importance of achieving a balance
between delivering value to customers and maintaining financial viability for the
business.
FINANCE
Finance is an activity or a process which is concerned with acquisition of funds, use of
funds and distribution of profits by a business firm.
This finance comes at some cost and financial management is concerned with optimal
procurement and usage of finance.
Role of Finance:
In any business enterprise, the important functional areas are production, finance,
marketing and personnel activities. Out of these, financial activities are given the utmost
importance. The role of finance is discussed below:
Helps in decision-making taking into consideration the availability of funds, impact on
profitability, alternatives available to the business, selection of financially viable projects
etc.
Helps in raising capital for a project through various sources like issue of shares,
debentures, bonds pr even taking loans from the banks.
FINANCE
Helps in research and development through continuous financial support to improve old
products, develop new products etc., in order to attract customers.
Helps in smooth running of business firm by ensuring that salaries of employees are paid
on time, loans are cleared on time, raw materials are purchased as per requirement,
sales promotion is carried out smoothly and products can be launched effectively.
Promotes expansion and diversification of a company by ensuring that funds are
available to purchase modern machines and techniques.
Finance pays dividend to shareholders, interest to creditors, banks etc.
Finance is also involved in payment of taxes and fees to government.
Finance is also involved in managing various financial risks like loss due to sudden falls in
sales, losses due to natural calamities, losses due to strikes etc.
FINANCE
Plays a significant role in control and coordination of various business activities. E.g.,
Finance provides adequate finance for purchase of raw materials and to meet other
day-to-day financial requirements for the smooth running of the production department
so that sales does and suffer and affect the income and profits of the business.
Finance is also required for replacement of old assets through purchase of new assets.
FINANCE
Role of Finance Managers:
Coordinating the financial aspects of a company, including managing budgets, cash
flows and expenditures.
Providing input related to funding requests or strategic decisions about mergers and
acquisitions.
Preparing financial reports such as profit projections in layman's terms by paying
attention to detail.
To analyse the market trends and competitor's moves to expand the organisation's
opportunities.
To stay updated about the latest trends in the stock markets.
To oversee budgetary allocation and focus on maximising the finances of the
organisation.
FINANCE
To know the best interests of the company’s shareholders.
Handle financial negotiations with banks and other financial institutions.
Develop long-term business plans based on financial reports.
Predicting future financial trends and analysing associated financial risks.
FINANCIAL PLANNING
Financial Planning is the process of determining the objectives, policies and procedures,
programmes and budgets to deal with the financial activities of an enterprise.
Financial planning involves both short-term and long-term planning.
The steps in financial planning are as follows:
(i) Determination of financial objectives.
(ii) Estimation of capital requirements.
(iii) Determination of kinds of securities to be issued.
(iv) Formulation of financial policies, procedures and budgets.
SOURCES OF FUNDS
LONG-TERM FINANCE
LONG-TERM FINANCE
(1) Equity shares:
Equity shares represent the value of an investor's stake in a company.
The investors in the equity share hold the right to vote, share profits and claim the assets
of the company. It is the Owner's Capital, therefore, it is also known as owner's equity.
(2) Preference shares
Preference shares are those which carry the following two rights:
(i) They have a right to receive dividend at a fixed rate before any dividend is paid on
the equity shares.
(ii) In case of winding up, they can claim their funds before the equity shareholders.
LONG-TERM FINANCE
Distinction between Equity shares and Preference shares:
S. No Basis Equity shares Preference shares
1 Nominal value Generally low Generally high
2 Degree of risk Very high risk because dividend is Comparatively low risk because of
not fixed. fixed rate of dividend
3 Right to After dividend is paid on preference Prior to dividend on equity shares
dividend shares
4 Rate of Varies with the company’s profits Generally fixed
dividend
5 Refund of Repayment after all other Prior to refund of equity capital.
capital obligations are refunded
6 Voting rights Voting rights exists No voting rights
LONG-TERM FINANCE
S. No Basis Equity shares Preference shares
7 Appeal Appeal to the bold adventurous To the cautious and conservative
investors investors
8 Redemption Not redeemed during the life of the Redeemable preference shares are
company redeemed during the life of
company.
9 Convertibility Not convertible into preference May be convertible into equity
shares shares
10 Arrears of Never accumulate May accumulate
dividend
11 Order of refund After preference shares are paid Before equity shares are paid
12 Further issue of Entitled to issue of right shares Not entitled to issue of right shares
shares and bonus shares and bonus shares
LONG-TERM FINANCE
(3) Retained earnings
Retained earnings or ploughing back of profits refers to the process of retaining a part of
the net profit every year and reinvesting it in the business.
This source is also called ‘self-financing’ as it is an internal method of finance.
Retained earnings are a popular source of capital for modernisation and expansion of
business.
(4) Debentures
According to Section 2 (30) of the Companies Act, 2013 the " debenture includes stock,
bonds and any other instrument of a company, whether constituting a charge on the
asset of the company or not."
LONG-TERM FINANCE
Distinction between Shares & Debentures
S. No Basis Shares Debentures
1 Status Owners Creditors
2 Yield Fluctuating dividend out of profits Fixed interest irrespective of profits
3 Order of Unsecured, after debenture holders Usually secured always before
repayment shareholders
4 Voting rights Full voting rights No voting rights
5 Terms of Usually irredeemable Usually redeemable
repayment
6 Risk to holders No security, high risk Generally secured low risk
7 Redemption Not redeemable except Redeemable after a certain period
redeemable preference shares
8 Restrictions on Certain restrictions No restrictions
issue
9 Convertibility Not convertible May be convertible
LONG-TERM FINANCE
(5) Loans from commercial banks
Commercial banks usually provide short term finance because most of their deposits are
short term deposits. Under a term loan, a banks advances a fixed amount in lump sum
to the borrower for a specified period. The Interest is changed at a fixed rate on the
sanctioned amount. The loan is advanced against the security of some assets or on the
personal guarantee of the borrower.
(6) Loans from financial Institutions
Special institutions in the country provide long term and medium-term finance to
business enterprises. These institutions or development banks have become a major
source of finance for floatation of new concerns as well as for the modernisation and
expansion of the existing concerns. They provide finance both in the form of equity and
debt. They also provide promotional, technical and managerial services. They take
initiative in locating and filling gaps in the country’s industrial structure.
SHORT-TERM FINANCE
SHORT-TERM FINANCE
(1) Public Deposits
Public deposits refer to the deposits of money made by the public with non-banking
companies.
These deposits represent loans from the public including employees and shareholders of
the company.
(2) Commercial Banks
Commercial banks are a major source of short-term finance for business. Banks provide
finance through:
Loan which is a direct advance made in lump sum which is credited to a separate loan
account in the name of the borrower.
SHORT-TERM FINANCE
Cash credits which is a formal and revolving credit agreement under which a borrower
is allowed to borrow up to a certain limit.
Bank overdrafts which is a kind of a temporary financial accommodation extended by
a bank to its regular customers.
Discounting of Bills which implies procuring cash from a bank in exchange for credit
instruments.
(3) Trade Credit
Trade credit is the credit extended by one business firm to another as incidental to sale
or purchase of goods and services. It is also known as mercantile credit.
Trade credit may be defined as credit extended by sellers to buyers at all levels of the
production and distribution process down to the retailer.
SHORT-TERM FINANCE
It does not include consumer credit or instalment credit. It arises out of transfer of goods
and is unsecured.
Trade credit is usually granted for periods ranging from 15 days to three months.
(4) Customer Advances
In certain cases, manufacturers or suppliers of goods require the customers to deposit an
advance payment at the time of booking before the delivery of goods.
The customers advance represents a part of the price of the goods ordered/booked by
the customers to be supplied at a later date. This arrangement is used in case of
products which are in short supply, or which involve a waiting period for delivery, e.g.,
automobiles, telephone connection, etc. A nominal interest is paid on such advance. At
the time of delivery of the article, the advance is adjusted against the price of the
article.
SHORT-TERM FINANCE
(5) Factoring (Accounts Receivable Financing)
Accounts receivable financing implies raising finance through the sale or mortgage of
book debts.
Finance companies or factors provide finance to business concerns through outright
purchase of accounts receivable or against the security of accounts receivable.
The finance companies generally make advances up to 60 per cent of the accounts
receivable pledged with them.
The debtors of the firm make payments to it which in turn forwards them to the finance
company. Bad debt losses, if any, are to be borne by the business concern itself.
Outright sale of accounts receivable is known as ‘factoring’. The business concern is
relieved of the cost and effort of collecting debts and bad debt losses. But it is an
expensive method of financing, because accounts receivables have to be sold at a
heavy discount.
SHORT-TERM FINANCE
(6) Inter-Corporate Deposits
When a company borrows funds for a short period (say up to six months) from another
company which has surplus funds, it is called intercorporate deposit (ICD).
The ICDs are generally unsecured and are arranged by a financier. These deposits are
very convenient and popular because no legal formalities are involved. The identity of
the borrower is not disclosed to the public.
Interest rate payable on ICDs is usually lower than that payable on loans from banks and
financial institutions.
The entire working of ICDs is based upon the personal connections between the
borrowers, the lenders and the borrowers.
ICDs are available only to reputed companies.
SHORT-TERM FINANCE
(7) Instalment Credit
Instalment credit refers to the facility of buying machinery, equipment and other
durable goods on credit.
The buyer has to pay a part of the price of the asset at the time of delivery and the
balance is payable in a number of instalments.
The supplier charges interest on the balance due and the interest is included in the
amount of instalment itself.
Some suppliers provide instalment credit through finance companies and commercial
banks.
A business firm may also buy fixed assets on hire purchase basis. Under this arrangement,
the ownership of the asset remains with the supplier until all the instalments are paid by
the buyer.
