Marketing Finance

& Personnel
Finance



Kiran Kothare
Syllabus

Scheme of Assessment


Marketing Finance 50M


Personnel Finance 50M

Marketing Finance


Impact of marketing policies on a firms working capital
Credit policy, credit rating, credit recovery & overall receivables
management
Finished stock policy, stock out & loss of profit, optimal stock holding
Break Even Analysis and Marketing decisions like pricing, product mix,
expansion etc
Marketing Cost Control & analysis
Marketing Investment Appraisal using DCF techniques
Appraisal of Distribution channels, Advertisement strategies
Marketing Performance Evaluation
Leasing & Bill Discounting concepts
Brand Valuation
Job Evaluation as the basis of Wage and Salary Administration
Financial implication of wage terms negotiated with Unions
Cost of living index linked
Incentives wages system and their financial implications
Payment of commission based on profits
Payment of bonus under Bonus Act
Determining optimal fringe benefits and salary of executives in relation to profitability
and size of operations of a company using DCF techniques
Developing superannuation benefit schemes and early voluntary benefit schemes
Cost analysis for areas such as labour and executives turnover, cost of recruitment
training and development, cost of employment programmes
Cost of committee management
Cost of strikes, lockouts and gheraos
Human resources accounting
Motivational Accounting
Developing Personnel Budget
Personnel Cost Audit
Personnel Finance

Marketing Perspective
Understanding Terminology in Marketing
Markets
Traditionally market is a physical place where
buyers & sellers gather to buy & sell goods.
Economist describe a Market as collection of
buyers & sellers who transact over a particular
product.
Buyer buys goods in the market to satisfy his needs
/ wants.
Seller hands over the goods to the buyer for some
monetary consideration.



Marketing
Marketing in simplest form is meeting needs profitably.
Marketing deals with identifying & meeting human & social
needs.
As per social definition Marketing is a societal process by
which individuals / groups obtain what they need & want
through creating, offering & freely exchanging products &
services of value with others.
As per formal definition of American Marketing association
Marketing is an organizational function and a set of
processes for creating, communicating & delivering
value to customers and for managing customer relationships
in ways that benefit the organization & its stake holders.

Marketing Core concepts
Basic concept in Marketing is exchange.
Exchange is the process of obtaining a desired product from
someone by offering something in return.
When two parties engaged in exchange reach an agreement,
a transaction takes place.
A transaction is a trade of values between two or more
parties.
To make successful exchange, marketer analyzes what each
party expects from the transaction. He seeks to elicit a
behavioral response from another party called the prospect.
Marketing - Core Concepts contd.
Marketer must try to understand the target markets needs, wants &
demands.
Needs are the basic human requirements.
Needs become wants when they are directed to specific objects
that might satisfy the need.
Food is the need of every person.
Wants of Mumbai youth, when hungry, may be Pizza & soft
drink whereas those of village youth may be Dal , rice, roti &
vegetable.
Demands are wants for specific products backed by ability to pay.
The buyer or potential customer pays only when he gets value.
Marketers job becomes difficult if the customer is not fully
conscious of his needs & wants or is not able to articulate them
properly.
Value The foundation of Marketing
Value is the price the person pays to perform a specific
function in an efficient way.
The function of a product / material / service is the job it does.
Therefore Value = Function / cost.
Value is increased by improving the function & reducing cost.
Value can not be easily specified because it changes from
person to person & time to time.
The buyer gets the best value when he incurs the least cost
for an essential function or service with the required quality &
reliability.
The marketer endeavors to create, communicate & deliver
value to his target customer.

Process of Marketing
Wants list of a Prospect in Business Environment includes-
-Good quality product, Fair price, Timely delivery, Attractive financing
terms, Reliable parts & service

Wants list of a Marketer in the same environment includes-
- Good price for the product, On time payment. +ve word of mouth.

If there is sufficient match or overlap in the want lists, a basis for
transaction exists & may take place on mutually acceptable terms.

Win win situation is achieved for both the parties, when the solution is
found to customers needs economically & conveniently.
Process of Marketing is different from Process of Selling.
Selling concept
Selling concept aims at selling what the firm makes or produces
& is used when there is overcapacity.
It is practiced aggressively for unsought goods like insurance
policy, encyclopedia.
It presupposes that the customers who are coaxed into buying a
product will like it. If they are not happy with it, they will not
return it or bad mouth it or complain to consumer protection
organizations.
Their proponents try to sell more stuff to more people, more
often, for more money in order to make more profit.
Marketing Concept
As per this concept, Marketing job is not to hunt for the right
customers for your products, but to offer the right product to
your customers.
Marketing manager is responsible for demand management.
His strategy is to stimulate requirements of companys
products by influencing the level, timing & composition of
demand to meet the organizations objectives.
He believes that if the company is more effective than its
competitors in creating ,delivering & communicating superior
customer value to its chosen target markets, organizational
goals will be achieved by getting, keeping & growing
customer base.

Selling V/s Marketing
Selling focuses on the needs of the seller.
Marketing concentrates on the needs of the buyer.
Selling involves preoccupation with the sellers need of
converting his product into cash.
Marketing is concerned with the idea of satisfying the needs
& wants of the customer by means of the products & whole
cluster of things associated with creating, delivering & finally
consuming it.
Meeting expressed or stated needs of the customer is fairly
simple but identifying his implied needs & understanding his
latent requirements is quite complex.
Marketing Policy
Marketing Policy includes developing action plans for
- connecting with customers
- building strong brands
- shaping the market offerings
- delivering & communicating value
- capturing marketing insights & performance
- creating successful long term growth.
In short they aim at creating, communicating & delivering value
to the target customer.
Marketing Mix

For implementation of Marketing Policy, the main focus of the
Marketing manager is on organizing value enhancing
marketing activities while keeping marketing costs to the
minimum.
Traditionally marketing activities are depicted through
Marketing Mix which is defined as the set of Marketing tools
the firm uses to achieve its Marketing Objectives.
They are classified into four broad groups which are
popularly known as four Ps of Marketing. Viz. Product, Price,
Promotion & Place .
Marketing Tools
Four P components of the Marketing Mix & variables under each P
are-
Product
Variety, Quality, Design, Features, Brand Name, Packaging, Sizes,
Services, Warranties, Returns.
Price
List price, Discounts, Allowances, Payment period, Credit terms.

Promotion
Sales promotion, Advertising, Sales Force, Public Relations, Direct
marketing.
Place
Channels, Coverage, Assortments, Locations, Inventory, Transport
Buyers Perspective
From a marketers perspective, the four Ps
represent the marketing tools available for
influencing buyers.
From Buyers point of view, each Marketing tool is
designed to deliver a benefit to the customer.
Against each P of the marketer there is a
corresponding C which provides Value to the
customer & influences his buying decision.
Parameters in Transaction

Marketer Customer

Product ( Variety, Quality, Design, Features, Brand name,
Packaging, Sizes, Services, warranties, returns)
Customer Solution
Price ( List price, Discounts, Allowances, Payment
Period, Credit terms, )
Customer Cost
Promotion ( sales promotion, Advertising, ,sales Force,
Public relations, Direct Marketing )
Communication
Place ( Channels, coverage, Assortments, Locations,
Inventory, Transport)
Convenience
Finance Perspective
Impact of Marketing policy on Working
Capital
Marketing Policy & Working Capital
Analyze each variable in four Ps or Marketing Tools to
identify its impact on Working Capital.
The relevant constituents of Working Capital & functions
responsible for their management & control are
- Debtors ( Marketing )
- Stocks
( R.M. - Materials,
W.I.P. Manufacturing,
F.G. - Marketing )
- Cash - ( Operations)
- Creditors - Materials
The Working Capital Cycle
Cash in bank
Receive money
Debtors
Sales
Finished goods
stock
Production
Conversion
costs
Labour
Raw material
stock
Pay and
goods arrive
Creditors
Purchase
goods
Management of Working Capital

The major constituents of Gross Working Capital are Debtors &
Stocks.
Marketing Policy is the chief determinant of Debtors & FG stocks.
Short term financing is called the management of working capital
(current assets less current liabilities).
One of the main aims is to reduce the amount of short-term finance
that is needed to borrow for day to day operations.
The more money that is tied up in current assets, the more capital is
needed to finance those current assets.
Essentially a company uses short-term borrowings to finance its
stock, debtors or cash needs.

Overview of Working Capital
Management
Compon
ents
Cash Debtors Stock Stock
Control
Measure
- Debtors
Collectio
n Model

EOQ &
Through
put cycle
time
Just in
- time
Internal Financing
Efficiently managed companies try to minimize their
levels of working capital so as to avoid short-term
borrowings.
Each element or constituent of working capital needs to
be monitored & controlled closely.
Working capital largely depends on the section of
industry the firm operates in.
For restaurants, supermarkets, malls etc. where
customer has to pay before he leaves the premises, the
working capital requirement may be negative &
correspondingly the internal financing needs may be near
zero.
Cash
Cash is the lifeblood of a business.
Business needs cash to survive and will try to keep enough
cash to manage its day-to-day operations (e.g. purchase
stock and pay creditors), but not to maintain excessive
amounts of cash.
Cash budgets are prepared which enable to forecast the
levels of cash needed to finance the operations.
Liquidity and quick ratios are used to assess the level of cash
requirement.
Despite careful cash management if the short-term cash
requirements are insufficient then the business will have to
borrow.
Debtors
For control of working capital debtors management is a key activity.
It is often called credit control.
Debtors result from the sale of goods on credit.
Careful monitoring of the receipts from debtors is essential to see
that they are received in full and on time.
The debtors management involves -
-establishing credit limits for new customers,
-monitoring the age of debts by drawing up a debtors age
schedule
-chasing up bad debts
In short marketing has to profile the age of the debts and old debts
need to be quickly identified before they turn bad.
Marketing Perspective
Out of 4 marketing tools, two have direct bearing
on Current Assets or Gross Working Capital.
Second P ( Price ) from Marketing Mix is
primarily responsible for Debtors.
Here the term Price is used in generic manner
& encompasses all its variables like discounts,
credit period, payment terms.
Fourth P ( Place ) from Marketing Mix is
responsible for stocks or inventory.
Price
Price is the major determinant of a buyers choice.
Although non price factors are also quite important at
times, price by far remains the most important factor in
determining sales and profitability.
Pricing gets modified by discounts, credit terms,
payment period etc. because of
- Competitive pressures.
- Consumer and middle men behavior.
- Short term orientation of the companies.
- Sales promotion activities.
Price contd.
Each price leads to a different level of demand and
therefore has a different impact on a companys
marketing objectives.
The marketers draw demand curves to show relation
between alternative prices and the resulting current
demand.
In the normal case, demand and price are inversely
related i.e. the higher the price the lower the demand.
The slope of the demand curve depends upon the
elasticity (responsiveness ) of demand w,r,t, price.
Inelastic demand
Rs. 10
Rs. 15
100 105
Quantity demand per period
P
r
i
c
e

Elastic demand
Rs. 10
Rs. 15
50 150
Quantity demand per period
P
r
i
c
e

Price Elasticity of Demand
The demand curve having a very steep slope shows inelastic
behavior of Demand w.r.t. price. Demand for essential
commodities is less price sensitive or inelastic.
Demand for luxury ( non essential ) goods is largely
dependent on or over responsive to price changes i.e. highly
elastic.
The company wants to charge a price that covers its cost of
producing, distributing, and selling the product, including a
fair return for its effort and risk.
To price intelligently management needs to know how its
costs vary with different levels of production.
Price determinants
The price demand curve provides the range within which the price
needs to be fixed.
Three Cs are the most important determinants of price.
1) Customers demand schedule
- Assessment of the unique features of the product establishes the
price ceiling .
2) Cost
- The cost function sets the floor to the price. When the company
tries to recover the full cost , the net result is not necessarily the
highest profitability.
3) Competitors prices
- Competitors prices and the price of substitutes provide an
orienting point.
Ideally the price is based on the value perceived by the customer.
Perceived Value Pricing
The key to perceived value pricing is to deliver more value
than the competitor and to demonstrate this to prospective
buyers.
Company has to deliver the value promised by its value
proposition & the customer must perceive this value.
It uses other marketing mix elements like advertising, sales
force, discounts, credit period, payment terms etc. to
communicate & enhance perceived value in buyers mind.
Perceived value is made up of several elements such as the
buyers image of the product performance, the channel
deliverables, the warranty quality, customer support, & other
softer attributes such as suppliers reputation,
trustworthiness, & esteem.
Perceived Value Pricing (contd)

Each potential customer places different weights on these different
elements.
The company stratifies the customers as per their response into
price buyers, value buyers, and loyal buyers.
Company uses different price strategies for these three groups.
For price buyers it offers stripped down products and reduced
services.
For value buyers it must keep innovating new value and
aggressively reaffirming their value.
For loyal buyers it must invest in relationship building and customer
intimacy.
Basically the company must understand the decision making
process of the buyer.
Finance Perspective
Constituents of Current Assets & their
control.
Management of debtors & stocks.
Debtors Collection Model
It is a technique designed to maintain the efficient level of debtors.
Debtors collection model balances the extra revenue generated by
increased sales with the increased costs associated with extra
sales. (i.e. credit control costs, bad debts and the delay in receiving
money).
The model assumes that the more credit granted, greater are the
sales.
However, these extra sales are offset by increased bad debts as
the company sells to less trustworthy customers.
Whether the delay in receipts means that the business receives
less interest or pays out more interest depends on whether or not
the bank account is overdrawn.
Usually the cost of capital (i.e. effectively the companys borrowing
rate) is used to calculate the financial costs of delayed receipts.
Stocks & Inventory
For many businesses especially for manufacturing
companies, stock is often an extremely essential asset.
From the view point of production function, stock is needed
to -
- create a buffer against excess demand,
- protect against rising prices
- safeguard against a potential shortage of raw materials
- balance sales and production.
Marketing function needs FG stocks to-
- avoid loss of Sales due to stock out situation.
- prevent the potential customer from approaching the
competitor.

Inventory Valuation & Control
Inventory valuation is done by either
- FIFO
- LIFO
- Moving Average Price ( MAP ) method.
During inflationary growth period FIFO results into deflated cost of
production & sales with resultant higher margins but inflated stock
valuation.
During recessionary decline phase LIFO tends to give the same
effect.
MAP seeks the middle ground between these two extremes.
Stock control is concerned with protecting the sock physically and
ensuring that the optimal level is held.
Two common techniques associated with efficient stock control are
the economic order quantity model and just-in-time ( JIT ) stock
management.

Economic Order Quantity (EOQ)

This stock control measure falls within the domain of materials or
Supply chain management function.
The EOQ model seeks to determine the optimal order quantity
needed to minimize the costs of ordering and holding stock.
These costs are the costs of placing the order and carrying costs.
Carrying costs are those costs incurred in keeping an item in stock,
such as insurance, obsolescence, interest on borrowed money or
clerical / security costs.
The costs associated with ordering stocks are mainly the clerical
costs, receiving & inspection costs.
The EOQ can be determined either graphically or algebraically.
A key assumption underpinning the EOQ model is that the stock is
used in production at a steady rate.
Just in-Time
It seeks to minimize stock holding costs by the careful timing
of deliveries and efficient organization of production
schedules.
At its best, just-in-time works by delivering stock just before it
is used. The amount of stock is thus kept to a minimum and
stock holding costs are also minimized.
In order to do this, there is a need for a very streamlined and
efficient production and delivery service.
Taken to its logical extreme, just-in-time means that no
stocks of raw materials are needed at all.
One potential problem with just-in-time is that if stock levels
are kept at a minimum there is no stock buffer to deal with
unexpected emergencies.
External Financing
Cash
Company needs to borrow if it does not generate enough cash from
selling.
Bank overdraft or loan are the most common methods of borrowing.
Banks provide overdraft facility for a business as long as they are
sure the business is viable. Overdrafts are more flexible.
A bank overdraft is more flexible. It is a good way to tackle the
fluctuating cash flows experienced by many businesses.
An alternative to a bank overdraft is a Bank loan.
Generally a loan is for a set period of years.
The interest rate for a loan is normally lower than that of a bank
overdraft.
Loans may be secured on specific business assets, such as stock or
motor vehicles.
External Financing (contd)
b) Debtors
Since debtors are an asset, it is possible
to raise money against them. This is done
by debt factoring or invoice discounting.


External Financing (contd)
i. Debt factoring
Debt factoring is in effect the subcontracting of
debtors. Many department stores, for example,
find it convenient to subcontract their credit
sales to debt factoring companies. The
advantage to the business is twofold.
It does not have to employ staff to chase up the
debtors
It receives an advance of money from factoring
organization

External Financing (contd)
There are however potential problems with
factoring
The debt factoring company will charge a fee, for
example 4% of sales, for its services. In addition
the debt factoring company will charge interest on
any cash advances to the company.
Finally the company will lose the management of
its customer database to an external party.
External Financing (contd)
ii. Invoice discounting
Invoice discounting in effect is a loan secured on
debtors.
The financial institution will grant an advance (for
example 75%) on outstanding sales invoices (i.e.
debtors). Invoice discounting can be a one-off, or a
continuing, arrangement.
An important advantage of invoice discounting over debt
factoring is that the credit control function is not
contracting out.
The company therefore keeps control over its records of
debtors.
External Financing (contd)
The aim of debtors management is simply to
collect money from debtors as soon as possible .
For an optimal cash balance, with no
considerations of fairness, a business will benefit
if it can accelerate its receipts and delay its
payments. Receipts from customers and
payments to suppliers are measured using the
debtors/creditors collection ratios.

External Financing (contd)
c) Stock
As with debtors it is sometimes possible to
borrow against stock. However the time period
is longer.
Stock needs to be sold, then the debtors need to
pay. Stock is not , therefore , such an attractive
basis for lending for the financial institutions.
However in certain circumstances financial
institutions may be prepared to buy the stock
now and then sell it back to the company at a
later date.
Sale and Buy Back of Stock
Any business where it may take such a long time for stock to
convert to cash that businesses may sell their stock to third parties.
The classic example of sale and buy back occurs in the wine and
spirit business. It takes a long time for a good whisky to mature. A
finance company may therefore be prepared to buy the stock from
the whisky distillery and then sell it back at a higher price at a future
time. In effect, there is a loan secured against the whisky
Another example might be in the construction industry. Here the
financial institution may be prepared to loan the construction
company money in advance. The money is secured on the work-in-
progress which the construction company has already completed.
The construction company repays the loan when it receives money
from the customers.
Ratios
Debtors Collection Period
This ratio seeks to measure how long customers take to pay
their debts.
Obviously the quicker a business collects and banks the
money, the better it is for the company.
This ratio can be worked out on a monthly, weekly or daily
basis.
Daily basis = Average debtors/ Credit sales pr day
=((Opening debtors + Closing debtors)/2) / (Total annual
sales/365)
It is important to note that credit sales are needed for this ratio
to be fully effective.

Ratios
Creditors Collection Period
In many ways this is the mirror image of the
debtors collection period.
It calculates how long it takes a business to pay
its creditors.
The slower a business is to pay the longer the
business has the money in the bank. As with
debtors collection period we can calculate this
ratio either monthly, weekly or daily.
Daily basis = Average creditors/Credit purchases
per day
Ratios
Cost of sales is used as the nearest equivalent to
credit purchases (cost of sales is opening
stock+purchases closing stock
It is often important to compare the debtors and
creditors ratios
It is Debtors collection period (in days) / creditors
collection period (in days)
If this ratio is less than 50% it means the firm
collects cash from debtors in 40% of the time that
it takes to pay its creditors. The management of
working capital is effective.
Ratios
Debtors and Creditors Collection period
Businesses whose debtors collection periods are much less
than their creditors collection periods are managing their
working capital well. can you think of any businesses which
might be well placed to do this?
Businesses which sell direct to customers generally for cash
would be prime examples. Pubs and supermarkets operate
on a cash basis or with short-term credit (cheques or credit
cards). Their debtor collection period is very low. However
they lay well take their time to apy their suppliers. If they have
a high turnover of goods they may collect the money for their
goods from customers before they have even paid their
suppliers.
Ratios
Stock Turnover ratio
This ratio effectively measures the speed with
which stocks move through the business.
This varies from business to business and product
to product.
Strictly this ratio compares the cost of sales to
average stock
Stock turnover ratio = Cost of sales / Average
stock = x
X should be more than 2
Ratios
Current ratio
This ratio tests whether the short term
assets cover the short term liabilities. If
they do not then there will be insufficient
liquid funds immediately to pay the
creditors.
It is current assets / current liabilities.

Ratios
Quick ratio
This is sometimes called the acid test ratio.
It is a measure of extreme short term liquidity.
Basically stock is sold turning into debtors.
When debtors pay the business gains cash.
The quick ratio excludes the stock, the least liquid of the
current assets to arrive at an immediate test of a companys
liquidity. If the creditors come knocking on the door for their
money, can the business survive?
It is current assets stock / current liabilities
If this ratio is less than1 the firm will not be able to pay its
suppliers in time.
Marketing channels & Value
Networks
Most producers do not sell their goods directly to the final
users; between them stands a set of intermediaries
performing a variety of functions. These intermediaries
constitute a marketing channel (also called a trade channel or
distribution channel).
Marketing channels are sets of interdependent organizations
involved in the process of making a product or service
available for use or consumption. They are the set of
pathways a product or service follows after production,
culminating in purchase and use by the final end user.

Marketing channels & Value
Networks (contd)
Some intermediaries such as wholesalers and retailers
buy, take title to, and resell the merchandise; they are called
merchants.
Others brokers, manufacturers representatives, sales
agents search for customers and may negotiate on the
producers behalf but do not take title to the goods; they are
called agents.
Still others- transportation companies, independent
warehouses, banks, advertising agencies- assist in the
distribution process but neither take title to goods nor
negotiate purchases or sales; they are called facilitators.
Importance of Channels
A marketing channel system is the particular set
of marketing channels employed by a firm.
Marketing channels also represent a substantial
opportunity cos. One of the chief roles of
marketing channels is to convert potential buyers
into profitable orders. Marketing channels must
not just serve market, they must also make
markets.
Importance of Channels (contd)
The channels chosen affect all other marketing
decisions. The companys pricing depends on
whether it uses mass merchandisers or high
quality boutiques. The firms sales force and
advertising decisions depend on how much
training and motivation dealers need.
In addition channel decisions involve relatively
long term commitments to other firms as well as a
set of policies and procedures.
Importance of Channels (contd)
In managing its intermediaries, the firm must
decide how much effort to devote to push versus
pull marketing.
A push strategy involves the manufacturer using
its sales force and trade promotion money to
induce intermediaries to carry, promote and sell
the product to end users.
Push strategy is appropriate where there is low
brand loyalty in a category, brand choice is made
in the store, the product is an impulse item, and
product benefits are well understood.
Importance of Channels (contd)
A pull strategy involves the manufacturer using
advertising and promotion to persuade customers
to ask intermediaries for the product, thus
inducing the intermediaries to order it.
Pull strategy is appropriate when there is high
brand loyalty and high involvement in the
category, when people perceive differences
between brands, and when people choose the
brand before they go to the store.
Channel Development
If the firm is successful it might branch into new
markets and use different channels in different
markets.
In smaller markets the firm might sell directly to
retailers;
In larger markets it might sell through distributors.
In rural areas it might work with general-goods
merchants; in urban areas with limited-line
merchants
Channel Development
In one part of the country it might grant exclusive franchises; in
another it might sell through all franchises; in another it might sell
through all outlets willing to ahndle the merchandise.
In one country it might use international sales agents; in another it
might partner with a local firm.
In short the channel system evolves in response to local
opportunities and conditions
Todays successful companies are also multiplying the number of
go-to-market or hybrid channels in any one market area.
Companies that manage hybrid channels must make sure these
channels work well together and match each target customers
preferred ways of doing business.
Role of Marketing Channels
Producers do gain several advantages by using
intermediaries:
Intermediaries bring in pooled financial resources. About 250
plus dealers help Maruti Udyog manage its capital better by
investing in inventories, facilities and trained personnel.
They help break bulk and create assortment for the
customer( imagine buying each monthly grocery item from
specialist direct marketers in bulk packs)
They are normally more cost effective due to specialization
Many small value items like candies ,chewing gum and ball
point pens with large volume ambitions cannot be sold
through direct marketing due to both assortment and cost
problems
Role of Marketing Channels
Intermediaries normally achieve superior
efficiency in making goods widely available
and accessible to target markets.
Through their contacts , experience ,
specialization and scale of operation,
intermediaries usually offer the firm more
than it can achieve on its own.
Channel functions and Flows
A marketing channel performs the work of moving goods
from producers to consumers. It overcomes the time place,
and possession gaps that separate goods and services from
those who need or want them. Members of the marketing
channel perform a number of key functions.
Marketing channels also keep changing with the evolution of
markets and the development of new technologies. As the
internet and other technologies advance, service industries
suvh as banking, insurance, travel and share trading operate
through new online channels.
Channel Design Decisions
Designing a marketing channel system
involves analyzing customer needs,
establishing channel objectives, identifying
major channel alternatives and evaluating
major channel alternatives.
Channel Design Decisions (contd)
Channel objectives vary with product characteristics.
Perishable products require more direct marketing.
Bulky products such as building materials require channels that
minimize the shipping distance and the amount of handling.
Nonstandard products such as custom built machinery and
specialized business forms are sold directly by company sales
representatives.
Products requiring installation or maintenance services such as
heating and cooling systems are usually sold and maintained by the
company or by franchised dealers.
High-unit-value products such as generators and turbines are often
sold through a company sales force rather than intermediaries.
Channel design must take into account the strengths and
weaknesses of different types of intermediaries.

Channel Design Decisions (contd)
Companies can choose from a wide variety of channels for
reaching customers from sales forces to agents, distributors,
dealers, direct mail, telemarketing and the Internet.
Each channel has unique strengths as well as weaknesses.
Sales forces can handle complex products and transactions, but
they are expensive. The Internet is much less expensive, but t
cannot handle complex products.
Distributors can create sales but the company loses direct contact
with customers
The problem is further complicated by the fact that most companies
now use a mix of channels.
Each channel hopefully reaches a different segment of buyers and
delivers the right products to each at the least cost.
Understanding Pricing
Price is the major determinant of a buyers choice.
Although non price factors have become quite
important price still remains an important factor in
determining sales ad profitability.
Competitive pressures together with consumer
and middle men behavior and short term
orientation of the companies have resulted in a
marketplace characterized by heavy discounting
and sales promotion.
Each price will lead to a different level of
demand and therefore have a different
impact on a companys marketing
objectives. The relation between alternative
prices and the resulting current demand is
captured in a demand curve.
In the normal case, demand and price are
inversely related :the higher the price the
lower the demand.
Inelastic demand
Rs. 10
Rs. 15
100 105
Quality demand per period
P
r
i
c
e

Elastic demand
Rs. 10
Rs. 15
50 150
Quality demand per period
P
r
i
c
e

Price Elasticity of Demand
Demand sets a ceiling on the price the company can charge
for its product.
Costs set the floor.
The company wants to charge a price that covers its cost of
producing, distributing, and selling the product, including
afair return for its effort and risk.
Yet when companies price products to cover full costs the net
result is not always profitability.
To price intelligently management needs to know how its
costs vary with different levels of production.
Within the range of possible prices determined by market
demand and company costs, the firm must take consider the
nearest competitors price.
Given the three Cs the customers demand schedule, the
cost function, and competitors prices the company is now
ready to select a price.
Costs set a floor to the price.
Competitors prices and the price of substitutes provide an
orienting point.
Customers assessment of unique features establishes the
price ceiling.
Perceived Value Pricing
Companies base their price on the customers
perceived value.
They must deliver the value promised by their
value proposition and the customer must perceive
this value.
They use other marketing-mix elements such as
advertising and sales force, to communicate and
enhance perceived value in buyers minds
Perceived Value Pricing (contd)
Perceived value is made up of several elements such as the
buyers image of the product performance, than channel
deliverables, the warranty quality, customer support, and softer
attributes such as the suppliers reputation, trustworthiness, and
esteem.
Furthermore each potential customer places different weights on
these different elements with the result that some will be price
buyers, others will be value buyers, and still others will be loyal
buyers.
Companies need different strategies for these three groups.
For price buyers companies need to offer stripped down products
and reduced services. For value buyers companies must keep
innovating new value and aggressively reaffirming their value. For
loyal buyers companies must invest in relationship building and
customer intimacy.
Perceived Value Pricing (contd)
The key to perceived value pricing is to
deliver more value than the competitor and
to demonstrate this to prospective buyers.
Basically a company needs to understand
the customers decision making process

Personnel Finance
Integration of the Accounting & Financial
concepts with those of
1)Personnel Management ( Traditional
Approach )
2) Human Resource Management ( Modern
Approach )
Personnel Management An overview
Personnel Management is a set of activities focusing on the
effective use of human resources in an organization.
The Personnel Department operates in an auxiliary, advisory
or facilitative relationship to other departments in the
organization.
It is concerned with acquiring, developing, rewarding &
maintaining human resources to meet the organizations
economic & social objectives.
It plans, develops & administers policies & programs
designed to make expeditious use of an organizations
human resources.
It deals with relationships of people at work within the
organization.

P.M. Coverage
Personnel Management encompasses the activities of
- Recruitment & employment
-Man power planning
-Employee training & management development
- Wage & salary administration
- Health & Safety
-Benefits & services
-Union management Relations
-Applied human resource behavior areas like motivation,
morale , communication etc.



P. M. Objectives, Functional areas
Objectives -
Effective utilization of human resources
Desirable working relationships among all members of the
organization
Maximum individual development.
Major Functional Areas -
Planning
Staffing
Employee development
Employee maintenance
The focus is to provide an adequate number of employees competent
with the skills , abilities, knowledge & experience to further the
organizational goals.
P. M. - Responsibilities
Responsibilities assigned to personnel function depend upon
the size, goals, philosophies, & structure of the organization.
Even small organizations also have to perform the basic
personnel functions of hiring, training , compensation &
benefits, record keeping etc.
With the increase in size & complexity of the organization, the
requirement of people with different skill sets & competencies
goes up. The expectations from Personnel Department
become more demanding. To meet this challenge, this
function also tends to branch out into different specialized
areas with different responsibilities.
P.M. - Major functions.
1)Manpower Planning
2)Job Analysis
3)Staffing
4)Selection
5)Orientation
6)Training & Development
7) Performance Appraisal
8) Career Planning
9)Compensation
10) Fringe Benefits
11)Labour Relations
12)Employee Record Keeping
13)Personnel Research
P. M. - Major functions contd.
1) Manpower Planning -
Deals with determination of number & type of employees
needed to accomplish organizations objectives.
Here the basic work is staffing & employee development.
2) Job Analysis -
It is the process of describing the nature of a job & specifying
the human requirements like skill, competencies,
experience, knowledge required to perform it.
Job Analysis process leads to Job Description which spells out
work duties & activities of the employee. Job content has
great influence on personnel programs & practices.

P.M. Major Functions contd.
3) Staffing
Includes recruitment & selection of the human resources.
Human resource Planning precedes the actual selection of
people for positions in the organization. The emphasis is on
attracting qualified applicants to fill job vacancies.
4) Selection -
Most qualified applicants are selected for hiring from among
those applications. Here the personnel function is involved in
developing & administering methods that enable the
functional manager to decide which applicants to be rejected
& which are to be considered for the given job.

P.M. - Major Functions contd.
5) Orientation -
It is the first step towards helping a new employee adjust himself to the
new job & the employer. It involves acquainting the new employee
with company rules, regulations & expectations, working hours,
grades, rewards, salary & other facilities as well as benefits.
6) Training & Development -
The objective of T & D function is to impart the skills & knowledge to
the employee to perform his job effectively. It includes-
- providing training to new or inexperienced employees,
- re training experienced employees whose jobs are undergoing
change or are being job rotated,
- preparing employees for higher level responsibilities.
T & D is essential to ensure that the employees are capable of doing
their jobs / performing their duties at acceptable levels.

P.M. - Major Functions contd.
7) Performance Appraisal
Personnel function monitors employee performance to ensure
that it is at acceptable level. Personnel function is responsible
for developing & administering performance appraisal
system. ( Actual appraisal is done by concerned function as
per the guidelines laid down in P.A. system by Personnel
department) P.A. system is essential for fair rewards &
penalties as a motivational & performance improvement tool.
8) Career Planning -
It deals with assessing individual employees potential for
growth & advancement in the organization.


P.M. - Major Functions contd.
9) Compensation
Provision of a rational method for determining the payment for
different types of jobs is one of the sensitive aspect of
personnel function.
Pay structure is a major consideration in planning &
maintenance of the human resources.
It is a major cost to many organizations.
It directly affects staffing function ( inadequate compensation
leads to high turnover of people.)
It is the most important incentive at lower & middle levels of the
employees for motivating them to higher levels of job
performance & to shoulder greater responsibilities.
P.M. - Major Functions contd.
10) Benefits
They are another form of compensation to
employees other than the direct pay.
They include legally required items as well as those
offered at employers discretion.
Since they provide for many basic employee needs,
they are primarily related to the maintenance
area.
However the cost of (fringe) benefits have risen to
such an extent that they become an important
consideration in human resource planning.
P.M. - Major Functions contd
11)Labour Relations -
It refers to interactions with employees who are
represented by a trade union.
Unions are organizations of employees who join
together to obtain more voicein decision affecting
wages, benefits, working conditions, & other
aspects of employment.
Here the responsibility of personnel function is
primarily involved in negotiation with the union
regarding wages, service conditions, & to resolve
disputes & grievances.
P.M. - Major Functions contd
12) Employee Record Keeping
This is the oldest & the most basic personnel function.
It involves recording, maintaining & retrieving employee related
information for a variety of purposes.
Employee records cover the entire spectrum of the inputs right
from job application to retirement stage.
They include family background, educational qualifications,
employment history ( experience) , medical & health reports,
& records of all job related parameters like skills,
competencies, training, attendance, output, leave, rewards ,
promotions, penalties etc.
P.M. - Major Functions contd
13) Personnel Research -
Research in personnel related issues is essential to prevent
fires rather than putting them out. The objective is to get the
facts & information about personnel related issues through
pre-planning & post reviewing.
In fact any survey on any of the personnel policies & practices is
a good research.
The most common subjects for attitude survey or employee
opinion include wages & salaries, promotions, welfare
services, working conditions, job security, leadership,
industrial relations, recruitment, employee turnover, training,
terminations etc.
Human Resource Management
Human resource management is basically an approach to
the management of people.
Though it is an outgrowth of older & traditional process, it is
much more than its parent discipline viz. Personnel
Management & behavioral sciences.
Unlike its parent it is more proactive rather than reactive.
It is a scientific process of continuously enabling the
employees to improve their competency & capability to play
their present as well as future expected roles so that the
goals of the organization are achieved fully and at the same
time the needs of the employees are also met to an adequate
extent.
PM & HRM
The traditional approach of Personnel
Management is non strategic, separate from the
business, reactive, & of short term.
It is constrained by the limited definition of its role
as dealing with mostly unionized & low level
employees.
PM is curative while HRM is preventive.
HRM essentially emphasizes & incorporates
those expectations which are not being fulfilled by
the traditional approach.