Understanding Business Finance & Marketing Strategies
Sources of Finance for Businesses
Businesses can obtain money through various internal and external sources.
Internal Sources
- Owner’s Investment: Money from the owner’s savings. This is a long-term source that doesn’t require repayment or interest, but the amount is limited.
- Retained Profits: Profits reinvested back into the business. This is a medium to long-term source without repayment or interest, but businesses may not have enough profit to reinvest.
- Sale of Fixed Assets: Money from selling assets like machinery. A good way to raise finance from unneeded assets, but it can be slow.
External Sources
- Bank Loan: Money borrowed at an agreed interest rate over a set period. This is a medium to long-term source with set repayments, good for budgeting, but with expensive interest payments.
- Partnership: Partners contribute extra capital without repayment or interest, but control and profit are shared.
- Share Issue: Issuing shares is a long-term source with no repayments or interest, but profits are shared as dividends with more shareholders.
Users of Financial Information
Internal Users
- Management: Analyze performance and position, taking measures to improve results.
- Employees: Assess profitability and its impact on future remuneration and job security.
- Owners: Analyze investment viability and profitability, determining future actions.
External Users
- Tax Authorities: Determine the credibility of tax returns.
- Investors: Analyze the feasibility of investing and potential returns.
- Customers: Assess the financial position of suppliers for supply stability.
Financial statements cater to these diverse users, assisting them in making sound financial decisions.
Marketing Mix: Edrington Case Study
Product Mix
A product is an item or service satisfying the needs of specific groups. Companies need the right product in demand, requiring market research.
Advantages of a Good Product Mix
- Brand Awareness: Consistency for customers.
- Focus: On the core business.
- Customer Loyalty: Built through meeting needs.
Product Mix Dimensions
- Width: Number of different product lines.
- Length: Total number of items within product lines.
- Depth: Number of versions offered for each product.
- Consistency: How closely related product lines are in terms of end use.
Promotion Mix
Activities undertaken to present products and induce purchase.
Edrington’s Promotional Activities
- Personal Selling: Sales representatives meet potential clients, e.g., training for bars.
- Digital Promotion: Marketing using digital technologies.
- Corporate Image: Building a positive brand image.
Place (Distribution)
Edrington uses a selective distribution approach, understanding segment differences for profitability.
Price
Edrington charges premium prices, requiring customers to perceive products as worth the higher cost.
Market Research
Essential for making informed business decisions, reducing risk, understanding customers, and identifying new opportunities.
Understanding Demand and Supply
Demand refers to the amount of a product desired by buyers, influenced by factors like customer expectations, number of buyers, income, and substitute prices.
Concepts of Demand
- Price Elasticity of Demand: Measures the relationship between quantity demanded and price changes. Elastic products experience large demand changes with small price changes, while inelastic products show little demand change with large price changes.
- Income Elasticity of Demand: Measures the relationship between quantity demanded and changes in real income. Luxurious brands are income elastic, meaning demand changes significantly with income changes.
Supply refers to the amount of a product available for buyers.
Government Intervention
Regulatory actions that interfere with decisions made by companies and individuals.
Examples of Government Intervention
- Minimum Prices: Suppliers cannot legally sell below a set price, reducing negative externalities like heavy alcohol consumption.
- Subsidies: Support offered to producers and consumers, helping poorer families and protecting jobs.
- Taxes: Increase supply costs, reducing the amount supplied at each price level (e.g., alcohol tax).
Partnerships: Advantages and Disadvantages
Partnerships offer advantages like increased capital, flexibility, growth potential, and shared responsibility. However, they also present challenges such as profit sharing, potential disagreements, and differing management styles.
Organizational Goals and Managerial Effectiveness
Organizational goals are the company’s mission, established by senior management and communicated throughout the organization. Objectives are set to achieve these goals, and policies facilitate their accomplishment.
Managerial effectiveness is crucial for overall organizational effectiveness. It involves clear communication of goals and objectives, aligning actions with values, and achieving financial performance.