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Accounting & Financial Management
AFM 131
Robert Sproule

Module 2: Globalization Article: Borderline Insanity  Many companies want free trade between Canada and the US  Trade with Canada is a low priority for the US  They’re very protective after 9/11  Umar Farouk Abdulmutalalb hid explosives in underpants and failed to blow up Detroit bound jet  With this incident, the US closed borders even more  US and Canada are working together to bail out large companies  It’s easy to sneak past the border  The border costs Canada a lot of money (especially for the auto sector) Video: Globalization Effects on the Global Poor  Is globalization good or bad for the poor? o If you phrase this question, you have to take sides o Answer: both, good and bad  Good: helped those countries prosper  Bad: inequalities in income  Looking at the Gini coefficient to see the distribution of wealth Chapter 3: Competing in Global Markets Why trade with other nations? 1. Can’t produce enough to be self sufficient 2. Other nations will try to sell so they survive 3. Abundance of goods Free trade: trading among nations without political/economic trade barriers Comparative advantage theory: a country should sell what its best at and buy what its worst at (in terms of effectiveness/efficiency) Absolute advantage: ability to produce a g/s using fewer resources than another country Trade  specialization  resources used productively Measuring Global trade, and the Canadian experience  Many small businesses are getting involved in global markets  Trade enhances quality of life for Canadians and contributes to country’s economic well being  Balance of trade: nations ratio of exports to imports (trade surplus vs. Trade deficit)  Balance of payments: (import $ - export $) + extra flowing $ 1  Canada trades heavily with the US  Gov’t has identified 13 priority markets where Canadian opportunities and interests have the greatest potential for growth  By 2050 – US, China, India = largest economies  To encourage Canadian presence (Canada’s Global Commerce Strategy) o Tax cuts o Support of R&D o Improve infrastructure of Can-US border and Canada’s Asia Pacific Getaway Strategies for Reaching Global Markets  Exporting: export g&s (simplest way to go international) o Canadians may be reluctant o Specialists: export-trading companies  Licensing: licensing the right to manufacture its product or use its trademark to a foreign co. For a fee o Can gain additional revenue from a product that may not have worked in home market o $ from additional fees (start up supplies, services etc.) o Adv: spend little/no $ to produce and market products o Con: selling secrets  Franchising: business sells the rights to use the business name and sell a product or service to others  Contract manufacturing: foreign country’s production of private label goods to which domestic company attaches brand name or trademark (aka outsourcing)  International Joint Venture and Strategic Alliances o Joint Venture: partnership where 2 or more © undertake a major project or form a new ©  Pros  Shared tech and risk  Shares marketing and mgmt expertise  Easier entry into foreign markets  Shared knowledge of local market/customs/laws/gov’t  Cons  Loss of trade secrets  Become too large to be flexible o Strategic Alliance: long term partnership between 2 or more ©s to help each one build their own competitive market advantage  Foreign Direct Investment (FDI): buying permanent property and business in foreign nations o Foreign subsidiary: © owned in a foreign country by another © 2 Forces affecting trading in Global Markets  Sociocultural forces: must understand cultural diversity o “ethnocentricity”: feeling of superior culture o Ppl do things diff: must understand that (ex. Culture, religion, business practices)  Economic forces o Have to tailor products and strategies for local market conditions o Different exchange rates...”floating exchange rates”, devaluation by gov’t o Bartering, countertrading...: no need to deal with money directly  Legal and Regulatory forces o Deal with diff law, interpretations may be diff o Corruption in many other countries  Technological forces o Diff levels of tech advancement in diff countries Trade Protectionism: use of gov’t regulations to limit imports  Barrier to global trade  Pro: allows domestic producers to survive and grow = more jobs  Con: impedes global trade, make things more expensive for consumers  Dumping: selling prices at lower prices in foreign countries o To dispose of surplus goods o To gain a foothold by offering lower prices o Benefits foreign firms: generates more sales because of price reduction o Benefits purchasers: can buy at lower price o Con: domestic producers suffer: must lower prices to compete->leads to less revenue and job losses  Tariffs: tax imposed on imports 1) Protective taxes 2) Revenue taxes  Non tariff barriers exist as well  Embargo: ban  Import quota: limits # allowed Organizations: pro globalism  The GATT: General Agreements on Tariffs and Trade o Created in 1948 with 28 nations: negotiated trade agreements o 1986 (Uruguay Round): voted to modify...became WTO  WTO: World Trade Organization o HQ: Geneva, Switzerland, 153 members o Purpose: over see cross border trade issues & global business practices o Trade issues expected to be resolved in 12-15 months 3  IMF: International Monetary Fund o Created in 1944 o Makes short term loans to countries experiencing trade deficit o Goals:  Promote exchange stability  Maintain orderly exchange agreements  Avoid competitive currency depreciation  Establish multilateral system of payments  Eliminate exchange restrictions  Create standby reserves  World Bank: (International Bank for Reconstruction and Development) o Develops infrastructures o Borrows from rich, gives to the poor @ better rate  Producers’ Cartels (ex OPEC): formed to stabilize or increase prices to get over all profits for long term  Common Markets: regional group with no internal tariffs and common external tariff o NAFTA: Canada, US, Mexico (Jan. 1 , 1993) o EU: 27 nations, (late 1950s), in 1999 had a joint currency 4 Module 3: Impacts of Government on Business Article: Stimulus spending did little to boost economy  Canadian government put in $62 billion to spur the economy  This did nothing, tax reductions would have been better  Debate over whether government spending helped or not Article: How will HST impact Ontarians?  HST: harmonized sales tax, came into effect July 1 , 2010  Many fees for services in the province will be more costly  HST gets rid of the intermediate taxes o Manufacturers, wholesalers, retailers can get tax rebates on the intermediate taxes they’ve paid  Prices of goods will remain the same mostly  Investing cost will increase  Houses over 400 k will be more pricey Video: Short Documentary on Listeriosis Outbreak  Maple Leaf foods Listeriosis Outbreak  Major debate on the breakout and if it could have been preventable  Current government policies contributed to public health safeguards  Did the government do their job in inspecting? Critics say no Video: Maple Leaf Foods – New food Safety Protocols  Maple leaf came out with many new protocols  Michael McCain spoke himself  Hired a chief food safety officer  Made enhancements to food safety Chapter 4: The Role of Government in Business Government activities that affect business: 1) Crown Corporations  Companies owned by fed/prov gov’t  Created to: provide services that weren’t being provided, bail out a major industry in trouble, provide services that couldn’t be provided  Ex 1. Alberta Heritage Savings Fun (1970s)  Ex 2. Quebec Deposit and Investment Fund  Since the 1990s the government has been trying for more privatization 5 2) Laws and Regulations  Laws derived from: the constitution, precedents, prov and fed statutes, and fed and prov admin agencies  Fed Gov’t Responsibilities: affect citizens across Canada, ensure and support the country’s economic performance  Marketing boards: organizations that control the supply or pricing of certain agricultural products in Canada  Prov Gov’t responsibilities: affect prov residents but not all of Canada  Municipal gov’t: things like food, zoning, etc. 3) Taxation and Financial Policies  Gov’t uses sin tax and tax credit  Fiscal policy: the fed gov’ts effort to keep the economy stable by increasing or decreasing taxes of government spending  High tax rates: slow the economy  Low tax rates: give the economy a boost  Deficit: gov’t spends more than it gets in taxes  National debt: accumulation of gov’t surpluses and deficits over time  Federal budget: comprehensive report that reveals gov’t financial policies for the coming year  Monetary policy: mgmt of the $ supply and interest rates, controlled by the Bank of Canada  If economy booming: BoC raises interest rates to control inflation (makes borrowing money more expensive)  If BoC lowers rates, businesses borrow more and economy improves  BoC also controls $ supply  Subprime mortgage crisis  Subprime mortgages given out (low rates)  When rates went up, people couldn’t pay or sell house  The US gov’t did a bank bailout  Now people are cautious, therefore Canada had trouble borrowing money  Credit squeeze stock market crashing global meltdown??  Therefore, Canada did a SEMI bailout 4) Government Expenditures  Financial aid: grants, loans, consulting, info, and other aids to businesses sometimes to save jobs  Transfer payments: from governments to other governments or to individuals  Equalization: federal government program to reduce fiscal disparities among provinces o Ex. 2009: Ottawa gave 6 provinces 14.2 billion 6 5) Purchasing Policies  Governments use their large purchasing power to favour companies  Try to insist a min. Portion of advanced tech items be built IN Canada (so we keep the knowledge and it provides employment)  Try to get more Canadian 6) Services  Industry Canada o Variety of programs to help small businesses get started o Participates in production of publications to promote Canadian businesses internationally o NRC: National Research Council: provides substantial resources to help Canada with R&D  Foreign Affairs and International Trade Canada o b/c exports = important, services provided o info, marketing, financial aid, insurance and guarantees, publications, and contracts In conclusion Government plays a big role Debate: Should the government stop trying to privatize and take more control and develop an industrial policy:a comprehensive, coordinated government plan to guide/revitalize economy) 7 Module 4: Small Business Video: Interview with Trish Mumby  one of the founders of label company  started out selling to friends, then went to the internet  started once a week, time increased, now make them every day and sell thousands a week  now sell almost exclusively online  word of mouth primarily drives the business  Why small business? o For her, she had entrepreneurism in her family  Why partnership? o It’s a risk way to get into business o Had a lot of faith in the business  Were friends from the beginning, actually related o It’s cheap and easy to do  What doesn’t work well with partnerships? o Financing – were unappealing because it relies on the credit of individuals o Liability risk  Key provisions for partnership o Divided roles o Took obligations very seriously  Why not corporation? o Size of business o Idea of something going wrong Video: Interview with Amit Seth  Got CA, working with franchising with Tim Hortons  What do you look for in a franchise partner? o need to be in the people business  Same partnership of corporation form for all franchises? o Use a corporate structure for Timmies o Corp structure a little bit more preferred with risks involved and for taxes and investing, basically helps the debt to equity funding o There is some partnership forms but thats more for if theres consultation or legal claims etc.  What does Amit attribute success to o People he works with, support and involvement o Putting people first 8  Work-life balance? o On-going challenge o Outline what has to be done, make goals o Be flexible Chapter 6: Forms of Business Ownership Types:  sole proprietorship: owned and operated by 1 person  partnership legal form of business with 2 or more parties  corporation: legal entity with authority to act and have liability separate from owners Sole proprietorships  Advantages o Ease of starting and ending the business o Being your own boss o Pride of ownership o Retention of company profit o No special taxes o Less regulation  Disadvantages o Unlimited liability o Limited financial resources o Mgmt difficulties o Overwhelming time commitment o Few fringe benefits o Limited growth o Limited life span o Possibility pay higher taxes Partnerships  General partnership: all owners equal  Limited partnership: has one or more limited partners o Limited partner: invests money but doesn’t have any mgmt responsibility or liability for losses  Limited liability: limited partners aren’t responsible for debt of business beyong the amount of their investment  Advantages o More financial resources o Shared mgmt and pooled/complementary skills and knowledge o Longer survival 9 o Shared risk o No special taxes o Less regulation  Disadvantages o Unlimited liability o Division of profits o Disagreements o Difficult to terminate o Possibly pay higher taxes  “right of first refusal”: can’t sell your share of the partnership without offering it to the other partner first Corporations  Def’n: a federal or provincial chartered legal entity with authority to act and have liability separate from its owners o Public corporation: has the right to issue stock to the public, listed on the stock exchange o Private corporation: has the right to issue stock to the public, not listed on the stock exchange, and limited to 50 or fewer stockholders  Advantages  Disadvantages o Limited liability o Extensive paperwork o More money for investment o Double taxation o Size o Two tax returns o Perpetual life o Size o Ease of ownership change o Difficulty of termination o Ease of getting talented o Possible conflicts between employees stockholders and board of o Separation of ownership and directors management o Initial cost  Other types of Corporations: o Professional corporations: provide professional services o Non-resident corporations: foreign o Non-profit corporations o Crown corporations: only federal or provincial government can set up  Corporate Governance: process and policies that determine how an organization interacts with its shareholders (both internal and external)  Business Regulations o Registration  Government needs to know name  Government needs to make sure taxes are paid 10  Articles of incorporation: legal authorization from federal or provincial government for a company to use the corp. Format o Reporting and Information  Must file annual reports containing basic data  Must file annual tax return  Statistic Canada uses info for database Corporation Expansion  Acquisition: a company’s purchase of the property and obligations of another company  Merger: two firms forming one company o Vertical: the firms are in different stages of related businesses o Horizontal: firms in the same industry and can diversify or expand products o Conglomerate: firms in completely unrelated industries; primary purpose is to diversify business operations and investments  Leveraged buyout: attempt by employees/managers/investors purchase an organization through borrowing  buy out stockholders and become new owners Franchising  Franchise agreement: someone with a good idea for a business (a franchisor) sells the rights to use the business name and to sell a g/s (the franchise) to others (the franchisee)  Advantages o Mgmt and marketing assistance o Partnership ownership o Nationally recognized name o Financial advice and assistance o Lower failure rate  Disadvantages o Large start up costs o Shared profit o Mgmt regulation o Coattail effects o Restrictions on selling o Fraudulent franchisors Co-operative: an orgz that’s owned by members and customers who pay an annual membership fee and share in any profits  Ways its different from other businesses: o A different purpose o A different control structure o A different allocation of profit 11 Module 5: Entrepreneurship Article: Careers: Be your own boss  Steam Whistle Brewing, makes a single beer that has become popular in Ontario  Idea all started at a campfire trip; shows entrepreneurial spirit  Hidden story: took a lot of work and planning  Some great ideas don’t sell, and some terrible ideas do – all depends on timing and marketing  Opening your own business is about lifestyle choices  The key is to have a solid business plan in place  Must be prepares for downswings Video: Interview with Trish Mumby  Why did she choose to work for herself instead of a boss? o Had an idea that nagged her o Had parents that were entrepreneurs  Men vs. woman as entrepreneurs o Impression: women are very supportive of each other o First, secretive of processes, then became more open and accepting  What type of support was most useful? o Family at the beginning o People first think you’re crazy  Why didn’t you buy an existing business or a franchise? o Franchise is limiting if you want to entrepreneur  What are the three things for advice for going into a business? o Build a network o Be prepared to work o Be sure you love what you’re doing  Customers will see if you don’t believe your product  US Market – differences with Canada o US is more “word of mouth”, endorsements are important o Canadians are more sceptical, but are more loyal  How have the changes of financial circumstances affected business? o Stopped growth o People stopped just buying and started “thinking” Video: Most Important Lessons Learned as an Entrepreneur  Life is long, don’t need to succeed immediately o As long as you’re moving toward your goal, its good  Build relationships for the long term  Have bias toward action: what can you do TODAY 12  Think big, have goals, write them down, review them often, and judge on performance  Do something you’re passionate about  Know your core motivation, what drives you Chapter 7: Entrepreneurship and Starting a Small Business Entrepreneurship: accepting the challenge of starting and running a business  Differences from small businesses o Amount of wealth creation o Speed of wealth creation o Risk o Innovation  SME: small and medium sized enterprises: have fewer than 500 employees Why entrepreneur?  New idea/process/product  Independence  Challenge  Family pattern  Profit  Immigrants Reasons for the significant emergence of female entrepreneurs:  Financial aid  Lack of promotion opportunities  Women returning to the workforce  Family and personal responsibility  Public awareness of women in business  Part time occupations  Higher rate of success for women Entrepreneurial team: group of experienced people from different areas of business who join together to form a managerial team with the skills needed to develop, make, and market a new product Micropreneurs and Home based businesses  Micro-enterprise: a small business defined as having fewer than five employees  Many micropreneurs are owners of home-based businesses  Reasons for the growth of home based businesses” o Computer technology o Corporate downsizing o Change in social attitudes  Challenges of home based business 13 o Getting new customers o Managing time o Work vs. Family tasks o Abiding by city ordinances o Managing risks Intrapreneurs: creative people who work as entrepreneurs within corporations What the Government does  Fed. Govt info service for entrepreneurs that serves as a single point of access  Incubators: centres that provide hands on mgmt assistance, education, info, technical and vital business support services, networking, resources, financial advice, and advice on where to go to seek financial assistance Starting a small business  Business establishment: must have at least one paid employee, have annual sales rev of $30,000, or be incorporated and have filed a federal corporate income tax return at least once in the previous 3 years  Employer business: meets one of the business establishment criteria and usually maintains a payrool of at least 1 person, possibly the owner o If neither, called intermediate  Small business: a business that’s independently owned and operated, is not dominant in its field, and meets certain standards of size in terms of employees or annual revenues o Many = Canadian, therefore maintain Cdn identity and economic independence o Can be feeders to large companies: employ a LOT of ppl Wide Diversification: many small businesses in different fields  Service businesses  Retail businesses  Construction firms  Wholesales  Manufacturing How to get your first business venture:  Start your own company o Take entrepreneurship programs o Talk to people who have done it; get free advice o Get experience: industry standard: 3 years in a comparable business  Buy an existing business o Plan: apprentice (prove yourself) assistant manager (learn, offer)  take over mostly Take over  Buy a franchise unit  Inherit/takeover a family business 14 o Personal identity, family legacy and community responsibility is entwined with economic results Managing a Small Business Planning a business  Need a business plan; a detailed written statement that describes the nature of the business, the target market, the advantages it has, and the resources and qualifications of owner(s) Financing your Business  Banks provide 54%  Other: credit union & caisses popularies, finance companies, insurance companies, and venture capital/investment funds  Venture capitalists: (VCs) finance for a stake in the business  Angel investors: private individual who invest their own money in potential hot new companies before they go public Knowing your customers  Know the market: people with unsatisfied wants and needs who have the resources and willingness to pay Managing Employees  Nagging questions like “who” and “how much power” must be answered Keeping Records  Set up an accounting system early  Get a good accountant Looking for Help?  Lawyer  Marketing consultant  Go on Internet, and have a site  Commercial account office  Insurance agent Why small businesses don’t go international:  Can’t find finance  Don’t know how to start  Don’t understand cultural differences  Too much bureaucratic paperwork Advantages of being a small business in international trade  Overseas people can deal with individual not large corporate bureaucracies  Small © can usually begin shipping faster  Small © provide a wide variety of suppliers  More personal service and undivided attention b/c overseas account would be major 15 Module 6: Teamwork Article: Ten is a Crowd  Teams should be used less often o Because people mindlessly assign a job to teams when an individual would do it better  If a task doesn’t require a team, don’t rush to pull one together  Effective team: less than 10  Team members will not express ideas for the sake of keeping harmony  Teams have a tendency to pressure everyone to agree with the majority view  Longer the team has been together, the better – increase their effectiveness Video: Teamwork and Collaboration  Cisco mistakes: moving too slow  Had an internet revolution – decade of productivity  Now creating a business network  Create committees, good structure  Teamwork and collaboration is now part of its DNA Video: League of Rock-Team Building  Rewrite a rock song in front of all your peers  League of rock: next best thing in corporate team building events  Music brings people together  Allows people to come out of their shells, listen to other people 16 Module 8: Accounting Video: Discussion with Teresa Fortney  Talks about accounting basics Chapter 16: Accounting Information and Financial Activities Liquidity Ratios  Current Ratio = Current Assets ÷ Current Liabilities  Acid Test Ratio = (Cash + A/R + Marketable securities) ÷ Current Liabilities Leverage (Debt) Ratios  Debt to Owners Equity = total liability ÷ Owner’s equity Profitability Ratios  Earnings per share = Net Income after taxes ÷ Avg # of Common Stock Shares outstanding  Return on sales = Net income ÷ Net sales  Return on equity = Net income ÷ Avg. Total Owners equity Activity Ratios  Inventory Turnover = COGS ÷ Avg. Inventory 17 Module 9: Marketing 1 Article: Dewing it Alone  Social media dominating  Labatt’s success with Bud Light Lime and facebook campaign  Mountain Dew social media  Doritos: make your own video Super Bowl contest Article: Customer Relationship Management Done Right  Customer is king  Five crucial steps to support CRM success o Algin CRM strategy to company goals o Make the business case o Better input maximizes output o Review and improve processes o Support breeds success Video: Sliced Bread, and other marketing Delights  Need to know how to spread the idea; spreading idea wins o Ex the success of sliced bread done by Wonder  TV industrial complex used to be the way to go, now it doesn’t have the same impact  “the world revolves around me” o Consumers have too many choices, too little time, so they just ignore stuff o Things that don’t have anything in common, that are new are the ones that sell  Marketers used to make it for the people of the majority o Should actually market to the people that’re minority because they’ll pay attention and then pass on the word  Safety is risky  Gotta do something risky Video: The Rise of the Amateur Professional  Pro am consumers who have the knowledge and passion to innovate create new stuff – ex mountain bike  You don’t need an organization to be organized  Radical innovation have a great deal of uncertainty is attached to them o Payoff for the uncertain is higher  Big corporations have a tendency to reinforce past successes  Emerging markets are the way to go 18  Turn users into producers, consumers into designers Video: Discussion with Peter Carr  Talks about mountain bikes, should probably listen to this one again Chapter 14: Marketing What is marketing?  Marketing: the process of determining customer needs and wants and then developing g&s that meet/exceed these expectations  Green marketing: marketing efforts to produce, promote, and reclaim environmentally- sensitive products Evolution of Marketing  Production era (settling  1900s) o Produce as much as possible because demand exceeded supply  Sales Era (1920s ) o Developed mass production techniques, supply > demand... sell more!  Marketing Concept Era (After WWII in 1945) o Larger demand  competition  Customer Relationship Era (starting 1990s) o Learning about customers to satisfy = long term loyalty -Non profit organizations prosper from marketing The Marketing Mix: the ingredients that go into a marketing program: product, price, place, and promotion  Product: any physical good, service, or idea that satisfies a want/need  Test marketing: process of testing products among potential users  Brand name: word/device/combo of, used to distinguish a sellers g&s from those of competitors  Price: $/other consideration, exchanged for ownership/use of g/s  Promotion: all techniques sellers use to motivate customers to buy products Providing Marketers With Information  Marketing research: analysis of markets to determine opportunities and challenges, and to find info needed to make good decisions  The marketing research process: 1) Define the question and determine the present situation 2) Collecting data (either secondary or primary)  Focus group: small group of people who meet under the direction of a discussion leader to communicate their opinions about an organization, its products or other issues 3) Analyzing the research data 19 4) Choosing the best solution and implementing it The Market Environment Environmental scanning: process of identifying the factors that can affect marketing success  Global factors: globalization with growth of internet  Technological factors: internet and growth of consumer databases  Sociocultural factors: social trends, population growth, changing demographics  Competitive factors: dynamic competition  Economic factors: economic state  Legal and regulatory factors: see how it impacts Markets: there are two different types of markets  Consumer market  Business to business market (B2B) Consumer Market  Market segmentation: process of dividing the total market into groups whose members have similar characteristics  Target marketing: toward segment that’s profitable  Segmenting the consumer market o Geographical o Demographic o Psychographic o Behavioural  Reaching smaller market segments o Niche marketing: process of finding small but profitable market segments and designing/finding products for them o Individual marketing: developing a unique mix of g&s for each individual customer  Moving towards relationship marketing o Mass marketing: developing products and promotions to please large groups of people o Relationship marketing: strategy with goal of keeping individual customers over time by offering them products that meet their exact requirements  Consumer Decision making process o Problem recognition o Info search o Alternative evaluation o Purchase decision/or no purchase? o Post purchase evaluation  Influences on consumer behaviour o Marketing mix influences: the four P’s o Sociocultural: reference groups, family, social class, culture, subculture 20 o Psychological : perception, attitudes, learning, motivation o Situational: type of purchase, social & physical surroundings, previous experience The B2B Market: manufacturers, retailers, institution, government  Bigger than consumer market because products resold  Factors that make B2B different: o # of customers in B2B is relatively few o Size of business customers is relatively large o B2B markets tend to be geographically concentrated o Buyers are more rational o Sales are direct o Emphasis on personal selling 21 Module 10: Marketing 2 Article: Olympics Sponsorship: the value of gold  Sponsorships are a gamble  Companies should not have high expectations for what advertising at the Olympics will do Article: Grub Guru  Social media marketing is a must have tool for many companies  Doritos is the “Guru”: they made an 11 week program where Cdns had to make a catchy name and create a commercial o Generated an increase in sale and a LOT of interest  Social media played a huge role, but the promotions success really came from its communication and marketing tactics Video: What we learn from spaghetti sauce  Howard Moskowitz – reinvented spaghetti sauce  You cant make the perfect pepsi, you need to make the perfect pepsis  Campells soup, Prego vs. Ragu  Made 45 different flavours of sauce, then put it into clusters and found people liked it around three types  Assumption from before: ask people what makes them happy  But the problem with that is that people don’t know or won’t admit what they want  Horizontal plane idea: no types are better than the others, the different types are equal to each other Chapter 15: Managing the Marketing Mix Product Development and the Total Product Offer  Product development: only way Canadians ©s can compete with foreign producers is to produce goods with more value  Value: good quality at a fair price  Companies must constantly monitor changing consumers wants and needs  Total product offer: (value package) everything that consumers evaluate when deciding whether to buy something  Product line: a group of products that are physically similar or are intended for a similar market  Product mix: the combo of product lines offered by a manufacturer 22 o a diversified mix reduces risk  product differentiation: creation of real or perceived product differences o packaging changes the product Branding and Brand Equity  trademark: a brand that has been given exclusive legal protection for both the brand name and the pictorial design  brand equity: combo of factors that people associate with a given brand name  brand loyalty: degree to which customers are satisfied, enjoy the brand, and are committed to further purchase  brand awareness: how quickly or easily a given brand name comes to mind when a product category is mentioned  brand manager: has direct responsibility for one brand or one product line; called a product manager in some firms Competitive Pricing Popular Pricing Objectives:  achieving a target return on investment or profit  building traffic  achieving greater market share  creating an image  furthering social objectives Major Approaches to Pricing  cost based pricing: production costs and margin of profit  demand based pricing: considers factors underlying tastes o bundling: grouping 2 or more products together and pricing them as a unit o psychological pricing: pricing g/s at points that sound less ex. 2.99 o target costing: designing a product so that it satisfies customers and meets the profit margins desired (target cost = price people would pay – desired profit margin)  competition based pricing: based on what all other companies are doing o depends on customer loyalty, perceived differences, competitive climate o price leadership: one or more dominant firms set the price and others follow Break Even Analysis: process used to determine profitability  Break Even Point = Total fixed cost ÷ (Price of one unit – Variable cost of One Unit) o Total fixed cost: all expenses that remain the same o Variable costs: costs that change according to level of production Pricing Strategies for New Products  Skimming price strategy: priced high to make optimum profit while there’s little competition  Penetration price strategy: priced low to attract more customers and discourage competitors 23 Retailer Pricing Strategies  Everyday low pricing (EDLP) – ex. Walmart  High-low pricing strategy: regular prices lower than EDLP stores but has special sales How Market Forces affect pricing  Demand oriented pricing (ex. Low rate for children at the movies)  Problem: Internet lets us compare! Therefore non-price competition must be used Non-Price Competition:  Promoting services that accompany basic products  Prices are so easy to match so have to emphasize non-price differences Channels of Distribution  Marketing intermediaries: organization that assist in moving g&s from producers to business and consumer users  Channels of distribution: a set of marketing intermediaries, such as agents, brokers, wholesalers, and retailers, that join together to transport and store goods in their path (or channel) from producers to consumers  Agents and brokers: marketing intermediaries that bring buyers and sellers together and assist in negotiating an exchange but don’t take title to the goods  Wholesaler: marketing intermediary that sells to other organizations  Retailer: organization that sells to ultimate consumers  CoD: ensures communication flows and the flow of money and title to goods ensures right questions and assortments of goods will be available when and where needed  Why does marketing need intermediaries? o MI perform certain tasks faster and cheaper than most manufacturer (transporting, storing, selling, advertising, relationship building) o Creates exchange efficiency Retail Distribution Strategy  Intensive: puts products into as many retail outlets as possible  Selective: sends products to only a preferred group of retailers in an area  Exclusive: sends products to only one retail outlet in a given geographical area Non Store Retailing  Electronic retailing: consists of selling products to ultimate consumers over the Internet  Telemarketing: sale of g/s by telephone  Vending machines, kiosks, carts  Direct selling: selling to consumers in their homes or where they work Choosing the right Distribution mode: minimize cost, ensure certain level of service Mode: type of transportation Promotion and the Promotion Mix  Promotion Mix: combo of Promotional tools an organization uses 24  Integrated marketing communication (IMC): combines all promotional tools into one comprehensive and unified promotional strategy  The traditional promotional mix:  Advertising: paid, non personal communication through various media by organization and individual  informative!  Personal Selling: face to face presentation and promotion of g&s  Public Relations: mgmt function that evaluates public attitudes, changes policies and procedures in response to the public’s requests, and executes a program of action and info to earn public understanding and acceptance  Sales promotion: stimulates consumer purchasing and dealer interest by means of short term activities  Direct marketing: directly links manufacturers or intermediaries with the ultimate consumer 25 Module 11: Operations Management Article: Beat China on Cost  idea that China is the number one threat for western manufacturers  but every era has had its economic bogeyman, is China just overhype?  Ex. Gildan has done well making tshirts  Now gildan is going into the retail market o Gildan has been able to ensure that it can ship duty free anywhere in north America, the EU, and Australia o Use location to advantage Article: Lean Manufacturing’s Next Life  Lean manufacturing model Toyota created now defines world-class manufacturing practices around the world Video: Digital Domain  “I want to see something I’ve never seen before”  Provides a highly specialized service  How to plan in the future? –operations management  Facility location o Got to live where movies are made; los Angeles  Facility layout o Raw industrial design gives artistic look o Geared toward economic resource; its employees  Quality control o Reputation is based on quality  Just-in-time o Production needs are variable, have to bring in people on different days  Lean manufacturing o Pre-visualization: ability to see moving storyboards, do pre shoots so that they save money on the actual shoot  Mass customization o Don’t have to start from scratch for some projects, learn new things with each project  Computer aided design  Operations management has helped make digital domain one of the top companies 26 Chapter 10: Producing World Class G&S Canada Today  One of the largest producers of forest products in the world  Difficulties: o Inadequate education and retraining programs o Increased global competition from US/Japan etc. o Inadequate education and retraining programs o “branch plant economy” because not enough money into R&D  R&D: work directed toward innovation, introduction, and improvement of products and processes; needed for economic growth Canada’s evolving Manufacturing and Services Base  How Canadian manufacturers gained their edge: o Focus on customers o Maintain close relationships with suppliers/other companies o Continuous improvement o Focus on quality o Save on costs through site selection o Relying on internet to unite companies o Adopting production techniques  From Production to Operations Mgmt o Production: creation of g&s using factors of production o Canada = service economy o Production mgmt: term used to describe all the activities that managers do to help their firms create goods o Operations mgmt: specialized area in mgmt that converts or transforms resources into g&s  Many manufacturers, turn to customer orientation and services for profit (ex. IBM, car dealerships) Operations Mgmt Planning Facility layout: process of selecting a geo location for operations, has to make it easy for consumers  For manufacturers, reasons to locate/move o Inexpensive labour o Inexpensive resources o Reducing time to market o Production facilities near supplier facilities o Get closer to customers in area (ex. Foreign country)  Outsourcing o Best quality and lowest possible costs o Increase drastically 27 o Core helps with  Canadian Auto Industry o Critical to Cdn. Manufacturing economy o US stealing many with better incentives  To the internet o Suppliers over Internet o Internet focused strategies  Facility location in the future o Developments in info tech give more flexibility for location o Incentive: tax sitch and degree of government support Facility Layout  Physical arrangement of resources (including people) in the production process  Depends on processes to be performed: for customer service or production  Move from assembly to modular layout  Also process layout and fixed-position layout Quality Control: consistently producing what the customer wants while reducing errors before and after delivery to the customer  Problems from when products completed and THEN tested: o Need to inspect o Have to correct mistake o Big issue if the customer finds mistake  Six sigma quality: a quality measure that allows only for 3.4 defects per million events  Statistical quality control (SQC): process some managers used to continually monitor all phases of production process to ensure quality is built from the beginning  Statistical process control (SPC): process of taking statistical samples of product components at each stage of the production process and plotting these results on a grap  Quality aware from NQI: The Canada awards for excellence  ISO: International Organization for Standardization: worldwide federation of national standard bodies, 140 + countries, sets global measure for quality of included products  ISO 9000: Common name given to quality mgmt and assurance standards  ISO 14000: collection of the best practices for managing an organizations impact on the environment  ISO 26000: social responsibility  Logistics: activities that focus on getting the right amount of right product/service to the right place at the right time at the lowest possible cost  Supply chain: sequence of firms that perform activities required to create and deliver a g/s to consumers or industrial users 28  Supply chain mgmt: integration of organization of info and logistics activities across firms in a supply chain for the purpose of creating and delivering g/s that provide value to customers Operations Mgmt in the Service Sector  All about creating a good experience for those who use the service  Measuring quality in the service sector o No measures for quality improvement o But when new info systems are developed to measure quality improvements, productivity increases  Services go interactive Ope
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