MBA Here I come !

in the global trade environment

2007-06-23T22:30:00.000-05:00

Chapter 3 -- vocabulary

preferential trade agreement -- a mechanism that confers special treatment on select trading partners
free trade area (FTA) -- formed when two or more countries agree to eliminate tariffs and other barriers that restrict trade
free trade agreement -- the ultimate goal of which is the rare duties on goods that cross borders between the partners
rules of origin -- used to discourage the importation of goods into the member country
customs union -- represents the logical evolution of a free trade area
common external tariffs (CETs) -- When a goup of countries form a customs union they must introduce a common external tariff. The same customs duties, quotas, preferences or other non-tariff barriers to trade apply to all goods entering the area, regardless of which country within the area they are entering. It is designed to end re-exportation
common market -- Where two or more countries agree to form a customs union between themselves and a common external tariff against goods and commodities imported from other countries
economic union -- builds upon the elimination of the internal tariff barriers, the establishment of common external barriers, and the free flow of factors. It seeks to coordinate harmonize economic and social policy within the union to facilitate the free flow of capital, labor, and goods and services from country to country

in the global trade environment

2007-06-23T17:57:00.000-05:00

Chapter 3 -- summary

The multilateral World Trade Organization, created in 1995 as the successor to the General Agreement on Tariffs and Trade, provides a forum for settling disputes among member nations and tries to set policy for world trade. The world trading environment is also characterized by preferential trade agreements among smaller numbers of countries on the regional and some regional basis. These agreements can be conceptualized on a continuum of increasing economic integration. Free trade areas such as the one created by the North American Free Trade Agreement (NAFTA) represent the lowest level of economic integration. The purpose of a free trade area is to eliminate tariffs and quotas.

Rules of origin are used to verify the country from which the goods are shipped. A customs union represents a further degree of integration in the form of common external tariffs. And a common market such as the Central American Integration System (SICA), restrictions on the movement of labor and capital are based in an effort to further increase integration. In an economic union, such as the European Union (EU), the highest level of economic integration is achieved by unification of economic policies and institutions. Other important call Thracian agreements include the Association of Southeast Asian Nations (ASEAN) and Quad ration Council for the Arab States of the Golf (GCC). In Africa, the two main cooperation agreements are the Economic Community of West African States (ECOWAS) and the South African Development and community (SADC).

the global economic environment

2007-06-22T03:11:00.000-05:00

Chapter 2 -- vocabulary

market capitalism -- an economic system in which individuals and firms allocate resources and production resources are privately owned. Consumers decide what goods they desire and firms determined what and how much to produce
Centrally planned socialism -- the state has broad powers to serve the public interest as it sees fit. State planners may decisions about what goods and services are produced and in what quantities; consumers spend their money on what is available. Government ownership of entire industries, as well as individual enterprises
centrally planned capitalism and economic system in which command resource allocation is utilized extensively in an environment of private resource ownership
market socialism -- Mark allocation policies are permitted within an overall environment of state ownership
G-7 -- Group of 7 -- high income countries, the United States, Japan, Germany, France, Britain, Canada, and Italy. Finance ministers, central bankers, and heads of state from the seven nations have worked together for a quarter of a century in an effort to steer the global economy in the direction of prosperity and to ensure monetary stability
Organization for Economic Cooperation and Development (OECD) -- institution comprised of high income countries, the 30 nations that belong to the OECD believe in market allocation economic systems and pluralistic democracy
The Triad -- Japan, Western Europe, and the United States. These three regions, represent the dominant economic centers of the world. Today, nearly 75% of the world income is located in the Triad
purchasing power parity (PPP) --Model of exchange rate determination stating that the price of a good in one country should equal the price of the same good in another country, exchanged at the current rate
economic exposure -- impact of currency fluctuations on the present by you of the companies expected future cash flows
transaction exposure -- arises when the companies activities result in sales or purchases denominated in foreign currencies
hedging --Reducing exposure to risk of loss resulting from fluctuations in exchange rates, commodity prices, interest rates etc
forward market -- a mechanism for buying and selling currencies and a preset price for future delivery

the global economic environment

2007-06-22T03:02:00.000-05:00

Chapter 2 -- summary

The economic environment is a major determinant of global market potential and opportunity. In today's global economy, capital movements are the key driving force, production has become uncoupled from employment, and capitalism has vanquished communism. Based on patterns of resource allocation and ownership, the world's national economies can be categorized as market capitalism, centrally planned capitalism, centrally planned socialism, and market socialism. The final years of the 20th century were marked by a transition toward market capitalism in many countries that had been centrally controlled. However, there still exists a great disparity among the nations of the world in terms of economic freedom.

Countries can be categorized in terms of their stage of economic development: low income, lower -- middle income, upper -- middle income, and high income. Countries in the first two categories are sometimes known as less developed countries (LDCs). Upper middle income countries with high growth rates are often called newly industrializing economies (NIEs). Several of the world's economies are notable for their fast growth; the big emerging markets (BEMs) include China and India (low income), Poland, Turkey, and Indonesia (lower middle income), Argentina, Brazil, Mexico, and South Africa (upper middle income), and South Korea (high income). The group of seven (G7) and Organization for Economic Cooperation and Development (OECD) represent two initiatives by high income nations to promote democratic ideals and free-market policies throughout the rest of the world. Most of the world's income is located in the Triad, which is comprised of Japan, the United States, and Western Europe. Companies with global aspirations generally have operations in all three areas. Market potential for a product can be evaluated by determining product saturation levels in light of income levels.

A countries balance of payments is a record of its economic transactions with the rest of the world; this record shows whether a country has a trade surplus (value of exports exceeded by you of imports) or a trade deficit (by you of imports exceeds value of exports). Trade figures can be further divided into merchandise trade and services trade accounts; a country can run a surplus in both accounts, a deficit in both accounts, or a combination of the two. The US merchandise trade deficit was 549 billion in 2003. However, the US enjoys an annual service trade surplus. Overall, the United States is a debtor; Japan enjoys an overall trade surplus and serves as a creditor nation.

Foreign exchange provides a means for settling accounts in different currencies. The dynamics of international finance can have a significant impact on the nation's economy as well as the fortunes of individual companies. Currencies can be subject to evaluation as a result of actions taken by a countries central banker. Currency trading by international speculators can also lead to evaluation.

When a country's economy is strong or when demand for its goods is high, its currency tends to appreciate in value. When currency bodies fluctuate, firms face various types of economic exposure. These include transaction exposure and operating exposure. Firms can manage exchange-rate exposure by hedging, for example, by buying and selling currencies and the forward market.

introduction to global marketing

2007-06-22T02:44:00.000-05:00

Chapter 1 -- vocabulary

Global marketing -- involves an understanding of specific concepts, considerations, and strategies that must be skillfully applied in conjunction with Universal marketing fundamentals to ensure success in global markets
value chain -- The set of activities required to design, procure, produce, market, distribute, and service a product or service
value equation -- value = benefits/price (money, time, effort, etc.)
competitive advantage -- The benefit for consumers and/or customers which competitors may find difficult or uneconomic to replicate
global industry -- competitive advantage can be achieved by integrating and leveraging operations on a worldwide scale
focus -- the concentration of attention on a core business or competence
global marketing strategy (GMS) --
global market participation -- the extent to which a company has operations in major world markets
ethnocentric orientation -- person/persons who assumes that his or her home country is superior to the rest of the world
polycentric orientation -- an attitude or outlook that describes management belief or assumption that each country in which he company does business is unique
regiocentric and geocentric orientations -- a re-geocentric focuses on a region and geocentric views the entire world as a potential market and strives to develop integrated world market strategies

introduction to global marketing

2007-06-22T02:15:00.000-05:00

Chapter 1

A company that engages in global marketing focuses its resources on global marketing opportunities and threats. Successful global marketers such as Nestlé, Coca-Cola, and Honda use familiar marketing mix elements (the four P's) to create global marketing programs. Marketing, R&D, manufacturing, and other activities comprise a firm's value chain; firms can figure these activities to create superior customer value on a global basis. Global companies also maintain strategic focus while relentlessly pursuing competitive advantage. The marketing mix, value chain, competitive advantage, and focus are universal in their applicability, irrespective of whether a company does business only in the home country or has a presence in many markets around the world. However, in a global industry, companies that fail to pursue global opportunities risk being pushed aside by stronger global competitors.

A firm's global marketing strategy (GMS) can enhance its worldwide performance. The GMS addresses several issues. First is the nature of the marketing program in terms of the balance between a standardization (extension) approach to the marketing mix elements in the localization (adaptation) approach that is responsive to country or regional differences. Second is the concentration of marketing activities in a few countries or the dispersal of such activities across many countries. Third, the pursuit of global marketing opportunities requires cross-border coordination of marketing activities. Finally, a firm's GMS will address the issue of global market participation.

The importance of global marketing today can be seen in the company rankings compiled by the Wall Street Journal, Fortune, financial Times, and other publications. Whether ranked by revenues, market capitalization, or some other measure, most of the world's major corporations are active regionally or globally. The size of global markets for individual industries or product categories helps explain why companies "go global." Global markets for some product categories represent hundreds of billions of dollars in annual sales; other markets are much smaller. Whenever the size of the opportunity, successful industry competitors find that increasing revenues and profits means seeking markets outside the home country.

Company management to be classified in terms of its orientation toward the world: ethnocentric, polycentric, regiocentric, or geocentric. An ethnocentric orientation characterized as domestic and international companies;international companies pursue marketing opportunities outside the market by extending various elements of the marketing mix. A polycentric worldview predominates at a multinational company, where the marketing mix is adapted by country managers operating at autonomously. Managers at global and transnational companies are regio centric or geocentric in their orientation and pursue both extension and adaptation strategies in global markets.

Global marketings importance today is shaped by the dynamic interplay of several driving and restraining forces.

Driving forces include:

needs and wants
technology
transportation and communication improvements
product costs
quality
world economic trends
opportunity recognition to develop leverage by operating globaly

restraining forces include:

market differences
management myopia
organizational culture
national controls such as non-tariff barriers

unit 4 summary

2007-06-09T03:09:00.000-05:00

Marketing Data Analysis

Marketing research is a systematic process used to identify and solve marketing-related problems and issues. Addressing the research questions or hypotheses, however, requires that the researcher engage in data analysis. We begin our focus on analysis by examining basic analytical procedures, variance and covariance analysis, correlation and regression, and discriminant analysis.

Data Analysis

Researchers typically conduct a preliminary analysis of the data before conducting in-depth data analysis. Such analysis helps to provide a basic understanding of and insight into the data. In fact, many marketing research projects do not go beyond basic data analysis. Basic analysis helps us understand data distribution and allows us to test for differences or associations between two means or two medians, but what happens if our research involves multiple variables of interest? The standard statistical tests for differences between more than two means are analyses of variance and covariance.

Analysis of Variance and Covariance

Analysis of variance (ANOVA) and analysis of covariance (ANCOVA) are used to examine the differences in the mean values of the dependent variable associated with the effect of the controlled independent variables. Essentially, ANOVA is used as a test of means for two or more populations. The null hypothesis, typically, is that all means all equal. For example, suppose a researcher was interested in examining whether heavy, medium, light, or non-users of cereals differed in their preference for Cereal A, measured on a nine-point scale. The null hypothesis that the four groups were not different in preference could be tested using ANOVA.

If the set of independent variables, however, consisted of both categorical and metric variables, a researcher is likely to employ ANCOVA. For example, ANCOVA is useful if a researcher wanted to examine the preference of product use groups and loyalty groups, taking into account the respondents¡¦ attitudes towards nutrition and the importance they attached to breakfast as a meal. The last two variables can be measured on a Likert scale (metric), but both product use and brand loyalty represent categorical variables.

Correlation and Regression

Regression analysis is widely used to explain variation in market share, sales, brand preference, and other marketing results. In fact, we are often interested in summarizing the strength of association between two metric variables, as in the following situations:

1. How strongly are sales related to advertising expenditures?

2. Is there an association between market share and the size of the sales force?

3. Are consumers' perceptions of quality related to their perception of prices?

The single most commonly used test of association between two metric variables is the Pearson product moment correlation, which demonstrates the strength of the linear relationship between the tested variables. Understanding the product moment correlation is critical in that it acts as the foundation for all correlation testing, including multiple regression techniques. Regression analyses are powerful and flexible procedures to analyze associative relationships between a metric dependent variable and one or more independent variables.

Discriminant Analysis

Finally, discriminant analysis is a technique for analyzing data for which the criterion or dependent variable is categorical, but the predictors or independent variables are interval in nature. In fact, examples of discriminant analysis abound in marketing research. This technique can be used to answer questions such as:

1. In terms of demographic characteristics, how do customers who exhibit store loyalty differ from those who do not?

2. Do the various market segments differ in their media consumption habits?

3. What are the distinguishing characteristics of consumers who respond to direct mail solicitations?

discriminant analysis

2007-06-09T02:52:00.000-05:00

Chapter 18

Discriminate analysis is useful for analyzing data when the criterion or dependent variable is categorical and a predictor or independent variables are interval scaled. When the criterion variable has two categories, the technique is known as two-group discriminate analysis. Multiple discriminate analysis refers to the case when three or more categories are involved.

Conducting discriminate analysis is a five step procedure:

first, formulating the discriminate problem requires identification of the objectives and the criterion and the predictor variables. The sample is divided into two parts. One part, the analysis sample, is used to estimate the discriminate function. The other part, the holdout sample, is reserved for validation.
Estimation, the second step, involves developing a linear combination of the predictors, called discriminate functions, said that the groups differ as much as possible on the predictor values.
Determination of statistical significance is the third step. It involves testing the null hypothesis that, in the population, the means of all discriminate functions in all groups are equal. If the null hypothesis is rejected, it is meaningful to interpret the results.
The fourth step, the interpretation of discriminate weights or coefficients, it's similar to that in multiple regression analysis. Given the multicollinearity in the predictor variables, there is no unambiguous measure of the relative importance of the predictors and discriminating between the groups. However, some idea of the relative importance of the variables may be obtained by examining the absolute magnitude of the standardize discriminate function coefficients and by examining the structure correlations or discriminate loadings. These simple correlations between each predictor and the discriminate function represent the variance at the predictor shares with the function. Another aide to interpreting discriminate analysis results is to develop a characteristic profile for each group, based on the group means for the predictor variables.
Validation, the fifth step, involves developing the classification matrix. The discriminate weights estimated by using the analysis sample are multiplied by the values of the predictor variables in the holdout sample to generate discriminate scores for the cases in the holdout sample. The cases are then assigned to groups based on their discriminate scores and an appropriate decision role. The percentage of cases correctly classified as determined and compared to the rate that would be expected by chance classification.

Two broad approaches are unavailable for estimating the coefficients. The direct method involves estimating the discriminate function so all the predictors are included simultaneously. An alternative is a stepwise method, in which the predictor variables are entered sequentially, based on their ability to discriminate among groups.

In multiple discriminate analysis, if there are G groups and k predictors, it is possible to estimate up to the smaller of G - 1 or k discriminate functions. The first function has the highest ratio of between group to within group sums of squares. The second function, uncorrelated with the first, has the second highest ratio, and so on.

Discriminate analysis -- a technique for analyzing marketing research data when the criterion or dependent variable is categorical and the predictor or independent variables are interval in nature
discriminate functions -- the linear combination of independent variables developed by discriminate analysis that will best discriminate between the categories of the dependent variable
two-group discriminate analysis -- discriminate analysis technique where the criterion variable has two categories
multiple discriminate analysis -- discriminate analysis technique where the criterion variable involves three or more categories
discriminate analysis model -- the statistical model on which discriminate analysis is based
analysis sample -- part of the total sample that is used for estimation of the discriminate function
validation sample -- that part of the total sample used to check the results of the estimation sample
direct method -- an approach to discriminate analysis that involves estimating the discriminate function so that all the predictors are included simultaneously
stepwise discriminate analysis -- discriminate analysis in which the predictors are entered sequentially based on their ability to discriminate between the groups
characteristic profile -- an aide to interpreting discriminate analysis results by describing each group in terms of the group means for the predictor variables
hit ratio -- the percentage of cases correctly classified by the discriminate analysis
territorial map -- a tool for assessing discriminate analysis results that plots the group membership of each case on a graph
Mahalanobis procedure -- a stepwise procedure used in discriminate analysis to maximize a generalized measure of the distance between the two closest groups

correlation and regression

2007-06-09T02:32:00.000-05:00

Chapter 17

The product moment correlation coefficient, r , measures the linear association between two metric (interval or ratio scaled) variables. It's square,r2, measures the proportion of variation and one variable explained by the other. The partial correlation coefficient measures the association between two variables after controlling, or adjusting for, the affects of one or more additional variables. The order of the partial correlation indicates how many variables are being adjusted or controlled. Partial correlations can be very helpful for detecting spurious relationships.

Bivariate regression derives a mathematical equation between a single metric criterion variable and a single metric predictor variable. The equation is derived in the form of a straight line by using the least squares procedure. When the regression is run on standardized data, the intercept assumes a value of 0, and the regression coefficients are called beta weights. The strength of association is measured by the coefficient of determination, r2, which is obtained by computing a ratio of SSreg to SSy. The standard error of estimate is used to access the accuracy of prediction and may be interpreted as a kind of average error made in predicting Y from the regression equation.

Multiple regression involves a single dependent variable and to a more independent variables. The partial regression coefficient, b1 , represents the expected change in Y when X1 is changed by one unit and X2 through Xk are held constant. The strength of association is measured by the coefficient of multiple determination, R2. The significance of the overall regression equation may be tested by the overall F test. Individual partial regression coefficients may be tested for significance using the t test or the incremental F test. Scattergrams of the residuals, in which the residuals are plotted against the predicted values, time, or predictor variables, are useful for examining the appropriateness of the underlying assumptions and the regression model fitted.

In stepwise regression, the predictor variables are entered or renewed from the regression equation 1 at a time for the purpose of selecting a smaller subset of predictors that account for most of the variation in the criterion variable. Multicollinearity, or very high intercorrelations among the predictor variables, can result in several problems. Because the predictors are correlated, regression analysis provides no unambiguous measure of relative importance of the predictors. Cross validation examines whether the regression model continues to hold true for comparable data not used in estimation. It is a useful procedure for evaluating the regression model.

Nominal or categorical variables may be used as predictors by coding them as dummy variables. Multiple regression with dummy variables provide a general procedure for the analysis of variance and covariance.

Product moment correlation (r) -- a statistic summarizing the strength of association between two metric variables
covariance -- a systematic relationship between two variables in which a change in one implies a corresponding change in the other
partial correlation coefficient -- a measure of the association between two variables after controlling or adjusting for the effects of one or more additional variables
part correlation coefficient -- a measure of the correlation between Y and X when the linear affects of the other independent variables have been removed from X but not from Y
nonmetric correlation -- a correlation measure for two nonmetric variables that relies on rankings to compute the correlation
regression analysis -- a statistical procedure for analyzing associative relationships between a metric dependent variable and one or more independent variables
bivariate regression -- a procedure for deriving a mathematical relationship, in the form of an equation, between a single metric dependent variable in a single metric independent variable
least-squares procedure -- a technique for fitting a straight line to a scattergram by minimizing the square of the vertical distances of all the points from the line
multiple regression -- a statistical technique that simultaneously developed a mathematical relationship between two or more independent variables and on interval scale dependent variable
multiple regression model -- an equation used to explain the results of multiple regression analysis
residual -- the difference between the observed value of Yi and the value predicted by the regression equation ,Yi
stepwise regression -- a regression procedure in which the predictor variables enter or leave the regression equation when a time
multicollinearity -- a state of very high is intercorrelations among independent variables
Cross validation -- a test of validity that examines whether a model holds on comparable data not used in the original estimation
double cross validation -- a special form of validation in which the sample is split into halves. One half serves as the estimation sample in the other as a validation sample. The roles of the estimation and validation halves and then reversed, and the cross validation process repeated

analysis of variance and covariance

2007-06-09T02:05:00.000-05:00

Chapter 16

In ANOVA and ANCOVA, the dependent variable is metric in the independent variables are all categorical, or combinations of categorical and metric variables. One way ANOVA involves a single independent categorical variable. Interest lies in testing the null hypothesis that the category means are equal in the population. The total variation and the dependent variable is decomposed into two components: variation related to the independent variable and variation related to error. The variation is measured in terms of the sum of squares corrected for the mean (SS). The mean square is obtained by dividing the SS by the corresponding degrees of freedom (df). The null hypothesis of equal means is tested by an F statistic, which is the ratio of the mean square related to the independent variable to the mean square related to error.

N-way analysis of variance involves a simultaneous examination of two or more categorical independent variables. A major advantage is that the interactions between the independent variables can be examined. The significance of the overall effect, interaction terms, and main effects of individual factors are examined by appropriate F tests. It is meaningful to test the significance of main effects only of the corresponding interaction terms are not significant.

ANCOVA includes at least one categorical independent variable and at least one animal or metric independent variable. The metric independent variable, or covariate, is commonly used remove extraneous variation from the dependent variable.

When the analysis of variance is conducted on two or more factors, interactions can arise. And interaction occurs when the effective one independent variable on the dependent variable is different for different categories or levels of another independent variable. If the interaction is significant, it may be ordinal or disordinal. Disordinal an action may be of a non-crossover or crossover type. In balanced designs, the relative importance of factors in explaining the variation in the dependent variable is measured by omega squared. Multiple comparisons in the form of a priori or a posteriori contrasts can be used for examining differences among specific means.

And repeated measures analysis of variance, observations on each subject are obtained under each treatment condition. This design is useful for controlling the differences in subjects that exist prior to the experiment. Not metric analysis of variance involves examining the differences in the central tendencies of two or more groups when the dependent variable is measured on a ordinal scale. Multivariate analysis of variance (MANOVA) involves two or more metric dependent variables.

Analysis of variance (ANOVA) -- a statistical technique for examining the differences among means for two more populations
factors -- categorical independent variables. The independent variables must be all categorical (nonmetric) to use ANOVA
treatment -- in ANOVA, a particular combination of factor levels or categories
one-way analysis of variance -- an ANOVA technique in which there is only one factor
n-way analysis of variance -- an ANOVA model where two or more factors are involved
analysis of covariance (ANCOVA) -- an advanced analysis of variance procedure in which the effects of one or more metric scaled extraneous variables are renewed from the dependent variable before conducting the ANOVA
covariate -- and metric independent variable used in ANOVA
decomposition of the total variation -- in one-way ANOVA, separation of the variation observed in the dependent variable into the variation due to the independent variables plus the variation due to error
interaction -- when assessing the relationship between two variables, and interaction occurs if the effects of X1 depends on the level of X2, and vice versa
significance of the overall effect -- a test that some differences exist between some of the treatment groups
significance of interaction effect -- a test of the significance of the interaction between two or more independent variables
significance of the main effect -- a test of the significance of the main effect for each individual factor
ordinal interaction -- and interaction where the rank order of the effects attributable to one factor does not change across the levels of the second factor
disordinal interaction -- a change in the rank order of the effects of one factor across the levels of another
omega squared -- a measure indicating the proportion of the variation in the dependent variable explained by a particular independent variable or factor
contrasts -- in ANOVA, a method of examining differences among two or more means of the treatment groups
a priori contrasts -- contrasts that are determined before conducting the analysis, based on the researcher's theoretical framework
a postpriori contrasts -- contrast made after the analysis. These are generally multiple comparison tests
multiple comparison test -- a postpriori contrast that enable the researcher to construct generalized confidence intervals they can be used to make pairwise comparisons of all treatment means
repeated measures ANOVA -- an ANOVA technique used when respondents are exposed to more than one treatment condition and repeated measurements are obtained
nonmetric ANOVA -- an ANOVA technique for examining the difference in the central tendencies of more than two groups when the dependent variable is measured on an ordinal scale
k-sample median test -- non-parametric test that is used to examine differences among groups when the dependent variable is measured on an ordinal scale
Kruskal-Wallis one-way analysis of variance -- a nonmetric ANOVA test that uses the rank value of each case, not merely its location relative to the median
multivariate analysis of variance (MANOVA) -- an ANOVA technique using two or more metric dependent variables

frequency distribution, cross tabulation, and hypothesis testing

2007-06-09T00:34:00.000-05:00

Chapter 15

Basic data analysis provides viable insights and guides the rest of the data analysis as well as the interpretation of the results. A frequency distribution should be obtained for each variable in the data. This analysis produces a table of frequency counts, percentages, and cumulative percentages for all the values associated with that variable. It indicates the extent of out of range, missing, or extreme values. The mean, mode, and median of a frequency distribution are measures of central tendency. The variability of the distribution is described by the range, the variants or standard deviation, coefficient of variation, and interquartile range. Skewness and kurtosis provide an idea of the shape of the distribution.

Cross tabulations are tables that reflect the joint distribution of two or more variables. In cross tabulation, the percentages can be computed either column wise, based on column totals, or row wise, based on row totals. The general rule is to compete the percentages in the direction of the independent variable, across the dependent variable. Often the introduction of a third variable can't provide additional insights. The Chi Square statistic provides a test of the statistical significance of the observed association in a cross tabulation. The phi coefficient, contingency coefficient, Cramer's V, and the lambda coefficient provide measures of the strength of association between the variables.

Parametric and non-parametric tests are available for testing hypothesis related to differences. And the parametric case, the t test is used to examine hypotheses related to the population mean. Different forms of the t test are suitable for testing hypotheses based on one sample, two independent samples, or paired samples. In the nonparametric case, popular one sample tests include the Kolmogorov-Smirnov, chi-square, runs test, and the binomial test. For two independent nonparametric samples, the Mann-Whitney U test, median test and the Kolmogorov-Smirnov test can be used. For paired samples, the Wlicoxon matched-pairs signed-ranks test and assign tests are useful for examining hypotheses related to measures of location.

frequency distribution -- a mathematical distribution whose objective is to obtain a count of the number of responses associated with different values of one variable and to express these counts in percentage terms
measures of location -- a statistic that describes a location within a data set. Measures of central tendency described the center of the distribution
mean -- the average; that value obtained by summing all elements in a set and dividing by the number of elements
mode -- a measure of central tendency given as the value that occurs the most in a sample distribution
median -- a measure of central tendency given as the value above which half of the values fall and below which half of the values fall
measures of variability -- a statistic that indicates the distributions dispersion
range -- the difference between the largest and smallest values of distribution
interquartile range -- the range of distribution income passing the middle 50% of the observations
variants -- the mean squared deviation of all the values from the mean
standard deviation -- the square root of the variance
coefficient of variation -- a useful expression in sampling theory for the standard deviation as a percentage of the mean
skewness -- a characteristic of a distribution that assesses its symmetry about the mean
kurtosis -- a measure of the relative peakedness or flatness of the curve defined by the frequency distribution
null hypothesis -- a statement in which no difference or effect is expected. If the null hypothesis is not rejected, no changes will be made
alternative hypothesis -- a statement that some difference or effect is expected. Excepting the alternative hypothesis will lead to changes in opinions or actions
one tailed test -- a test of the null hypothesis where the alternative hypothesis is expressed directionally
two tailed test -- a test of the null hypothesis where the alternative hypothesis is not expressed directionally
test statistic -- a measure of how close the sample has come to the null hypothesis. It often follows a well-known distribution, such as the normal, t, or chi- squared distribution
type I error -- also known as Alpha error, occurs when a sample results lead to the rejection of a null hypothesis that is in fact true
level of significance -- the probability of making a type 1 error
type II error -- also known as beta error, occurs when the sample results lead to the non-rejection of a null hypothesis that is in fact false
power of a test -- the probability of rejecting the null hypothesis when it is in fact false and should be rejected
Cross tabulation -- a statistical technique that describes two or more variables simultaneously and results in tables that reflect the joint distribution of two or more variables that have a limited number of categories or distinct values
contingency table -- a cross tabulation table. It contains a cell for every combination of categories of the two variables
chi-square statistic -- the statistic used to test the statistical significance of the observed association and cross tabulation. It assists us in determining whether a systematic association exists between the two variables
chi-square distribution -- a skewed distribution and shape depends solely on the number of degrees of freedom. As the number of degrees of freedom increases, the chi-square distribution becomes more symmetrical
phi coefficient -- a measure of the strength of Association and the special case of a table with two rows and two columns
contingency coefficient (C) -- a measure of the strength of association in a table of any size
Cramer's V -- a measure of the strength of association used in tables larger than 2 x 2
asymmetric lambda -- a measure of the percentage improvement in predicting the value of the dependent variable, given the value of the independent variable and contingency table analysis. Lambda also varies between zero and one
symmetric lambda -- the symmetric lambda does not make an assumption about which variable is dependent. It measures the overall improvement when production is done in both directions
tau b -- test statistic that measures the association between two ordinal-level variables. It makes adjustment for ties and is most appropriate when the table of variables is square
tau c -- test statistic that measures the association between two ordinal-level variables. It makes adjustment for ties and is most appropriate when the table of variables is not square but a rectangle
Gamma -- test statistic that measures the association between two ordinal-level variables. It does not make an adjustment for ties
parametric tests -- hypothesis testing procedures that assume that the variables of interest are measured on at least an interval scale
non-parametric tests -- hypothesis testing procedures that assume that the variables are measured on a nominal or ordinal scale
t test -- a univariate hypothesis test using the t distribution, which is used in the standard deviation is unknown and the sample size is small
t statistic -- a statistic that assumes that the variable has a symmetric bell shaped distribution in the mean is known (or assumed to be known) and the population variants is estimated from the sample
t distribution -- symmetric bell shaped distribution that is useful for small sample testing
z test -- a univariate hypothesis test using the standard normal distribution
independent samples -- to samples that are not experimentally related. The measurement of one sample has no effect on the values of the second sample
f test -- a statistical test of the equality of the variances of two populations
f statistic -- the f statistic is computed as the ratio of two sample variances
f distribution -- a frequency distribution that depends on two sets of degrees of freedom -- the degrees of freedom in the numerator and the degrees of freedom in the denominator
paired samples -- and hypothesis testing, the observations are paired so that two sets of observations relate to the same respondents
paired samples t test -- a test for differences in the means of paired samples
Kolmogorov-Smirnov one-sample test - A one sample nonparametric goodness of fit test that compares the cumulative distribution function for a variable with a specified distribution
runs test -- a test of randomness for a dichotomous variable
binomial test -- a goodness of fit statistical test for dichotomous variables. It tests the goodness of fit of the observed number of observations in each category to the number expected under a specified binomial distribution
Mann-Whitney U test -- a statistical test for the variable measured on an ordinal scale comparing the difference in the location of two populations based on observations from two independent samples
two-sample median test -- non-parametric test statistic that determines whether two groups are drawn from populations with the same median. This test is not as powerful as the Mann- Whitney U
Kolmogorov-Smirnov two-sample test -- nonparametric test statistic that determines whether to his divisions are the same. It takes into account any differences in the two distributions including median, dispersion, and skewness
Wilcoxon matched-pairs signed-ranks test -- a nonparametric test that analyzes the differences between the paired observations, taking into account the magnitude of the differences
sign test -- a nonparametric test for examining differences in the location of two populations, based on paired observations, that compares only the signs of the differences between pairs of variables without taking into account the magnitude of the differences

Sampling and Data Collection Summary

2007-05-30T16:07:00.000-05:00

Sampling

The objective of most marketing research projects is to obtain information about the characteristics or parameters of a population. Such information may be obtained by taking either a census or sample. Budget and time limits, large population size, and small variance in the characteristic of interest most often favor the use of a sample. How is sampling performed?

The sampling design process includes five steps which are closely interrelated and relevant to all aspects of the marketing research project, from problem definition to the presentation of the results. These five steps are: defining the target population; determining the sample frame; selecting a sampling technique; determining the sample size; and executing the sampling process. Let us look at each of these more closely.

1. Defining the Target Population: The target population is the collection of elements or objects that possess the information sought by the researcher, and about which inferences are to be made

2. Determining the Sample Frame: A sample frame is a representation of the elements of the target population

3. Selecting a Sampling Technique: Selecting a sampling technique involves several decisions, such as whether to use a Bayesian or traditional sampling approach, sample with or without replacement, and use nonprobability or probability sampling

4. Determining the Sample Size: Determining the sample size involves several qualitative and quantitative considerations, such as the importance of the decision; the nature of the research; the number of variables involved; the costs involved in execution; the nature of the analysis, completion rates, statistical power, and confidence intervals

5. Executing the Sampling Process: Execution of the sampling process requires a detailed specification of how the sampling decisions are to be implemented with respect to the population; sampling frame; sampling unit; sampling technique; and sample size

Data Collection

Marketing researchers often use questionnaires to obtain quantitative primary data. A questionnaire is a set of questions, which are very carefully and purposely designed to capture as much of the information necessary for addressing the research question(s) and for minimizing response error.

Regardless of form (for example, questionnaire, structured interview, and so forth), researchers have two major options for collecting data: developing their own organizations, or contracting with field-work agencies. In either case, data collection involves the use of a field force. In projects demanding direct contact between field workers and respondents, all field workers should be trained in important aspects of the data collection process, including making the initial contact; asking the questions; probing; recording the answers; and terminating the interview. Supervision of field workers involves quality control and editing; sampling control; checks for cheating; central office control; and validity and reliability measures.

Data Preparation

The data must be prepared before any analysis can be performed. Data preparation is a meticulous process. Each questionnaire must be checked for completeness and accuracy. Incomplete, ambiguous, and inconsistent responses cannot be utilized in the analysis. The data must be coded; that is, a numeric or alphanumeric code is assigned to specific responses to each specific question. The coded data is then entered into a computer system and further treated for missing values. Options available for treating missing responses include substitution of a neutral value, such as the arithmetic mean; substitution of an imputed response; casewise deletion; and pairwise deletion. Data can also be statistically adjusted in an effort to enhance the quality of data analysis. Adjustment procedures include weighting, variable respecification, and scale transformations.

data preparation

2007-05-30T15:33:00.001-05:00

Chapter 14

Data preparation begins with a preliminary check of all questionnaires for completeness and interviewing quality. Then more thorough editing takes place. Editing consists of screening questionnaires to identify illegible, incomplete, inconsistent, or ambiguous responses. Such responses may be handled by returning questionnaires to the field, assigning missing values, or discarding the unsatisfactory respondents.

The next step is coding. A new work will or alphanumeric code is assigned to represent a specific response to a specific question, along with the column position that code will occupy. It is often helpful to prepare a codebook containing decoding instructions and the necessary information about the variables in the data set. The coded data are transcribed into disks or magnetic tapes were entered into computers via key punching. Mark sense forms, optical scanning, or computerized sensory analysis may also be used.

Cleaning the data requires consistency checks and treatment of missing responses. Options are available for treating missing responses include substitution of a neutral value such as the mean, substitution of an imputed response, case lies deletion, and pairwise deletion. Statistical adjustments such as weighting, variable re-specification, and scale transformations often and enhance the quality of data analysis. The selection of a data analysis strategy should be based on the earlier steps of the marketing research process, known characteristics of the data, properties of statistical techniques, and a background in philosophy of the researcher. Statistical techniques may be classified as univariate or multivariate.

Before analyzing the data in international marketing research, the researcher should ensure that the units of measurement are comparable across countries or cultural units.
The data analysis could be conducted at three levels:

individual
within country or cultural unit (intercultural analysis)
across countries or cultural units: pancultural or cross cultural analysis

Several ethical issues are related to data processing, particularly the discarding of unsatisfactory responses, violation of the assumptions underlying the data analysis techniques, and evaluation in interpretation of the results. The Internet and computers play a significant role in data preparation and analysis.

Editing -- a review of the questionnaires with the objective of increasing accuracy and precision
coding -- the assignment of a code to represent a specific response to a specific question along with the data record and column position that code will occupy
fixed-field codes -- a code in which the number of records for each respondent are the same, and the same data appear in the same columns for all respondents
codebook -- a book containing coding instructions and the necessary information about variables in the data set
data cleaning -- thorough and extensive checks for consistency and treatment of missing responses
consistency checks -- a part of the data cleaning process that identifies data that is out of range, logically inconsistent, or have extreme values. Data with values not defined by the coding scheme is inadmissible
missing responses -- values of a variable that are on men, as these respondents did not provide unambiguous answers to the question
casewise deletion -- a method for handling missing responses in which cases or respondents with any missing responses are discarded from the analysis
pairwise deletion -- a method of handling missing values in which all cases, or respondents, with any missing values are not automatically discarded, rather, for each calculation only the cases or respondents with complete responses are considered
weighting -- a statistical adjustment to the data in which each case or respondents in the database is assigned a weight to reflect its importance relative to other cases or respondents
variable respecification -- the transformation of data to create new variables or the modification of existing variables set that they are more consistent with the objectives of the study
dummy variables -- a respecification procedure using variables that take aren't only two values, usually zero or one
scale transformation -- and manipulation of scale values to ensure comparability with other scales or otherwise make the data suitable for analysis
standardization -- the process of correcting data to reduce them to the same scale by subtracting the sample mean and dividing by the standard deviation
univariate techniques -- statistical techniques appropriate for analyzing data when there is a single measurement of each element in the sample or, if there are several measurements on each element, each variable is analyzed in isolation
multivariate techniques -- statistical techniques suitable for analyzing data when there are two or more measurements on each element in the variables are analyzed simultaneously. Multivariate techniques are concerned with the simultaneous relationships among two or more phenomena
metric data -- data that is interval or ratio in nature
nonmetric data -- data derived from a nominal or ordinal scale
Independent -- the samples are independent if they are drawn randomly from different populations
paired -- the samples are paired when the data for the two samples relate to the same group of respondents
dependence techniques -- multivariate techniques appropriate when one or more of the variables can be identified as dependent variables and the remaining as independent variables
interdependence techniques -- multivariate statistical techniques that attempt to group data based on underlying similarity, and does allow for interpretation of the data structures. No distinction is made as to which variables are dependent and which are independent
intracultural analysis -- within country analysis of international data
pancultural analysis -- across countries analysis in which the data for all respondents from all the countries are pooled and analyzed
cross-cultural analysis -- a type of a cross countries analysis in which the data could be aggregated for each country and these aggregate statistics analyzed

data collection: fieldwork

2007-05-30T15:28:00.000-05:00

data collection, preparation, analysis, and reporting -- Chapter 13 -- fieldwork

Researchers have two major options for collecting data: developing their own organizations or contracting with fieldwork agencies. In either case, data collection and involves the use of a field force. Field workers should be healthy, outgoing, creative, pleasant, educated, and experienced. They should be trained in important aspects of fieldwork, including making the initial contact, asking the questions, probing, recording the answers, and terminating the interview.

Supervision of field workers and involves quality control and editing, sampling control, control of cheating, and central office control. Validation of fieldwork can be accomplished by calling 10 to 25% of those who have been identified as interviewees and inquiring whether the interviews took place. Field workers should be evaluated on the basis of cost and time, response rates, quality of interviewing, and quality of data collection.

The selection, training, supervision, and evaluation of field workers is even more critical in international marketing research, as local fieldwork agencies are not available in many countries. Ethical issues include making the respondents feel comfortable in the data collection process so that their experience is positive. Every effort must be undertaken to ensure that the data is of high quality. The Internet and computers can greatly facilitate and improve the quality of fieldwork.

Probing -- a motivational technique used when asking survey questions to induce the respondents to enlarge on, clarify, or explain their answers and to help the respondents to focus on the specific content of the interview
sampling control -- an aspect of supervision that ensures that the interviewers strictly follow the sampling plan rather than select sampling units based on convenience or accessibility

sampling: final and initial sample size determination

2007-05-30T15:15:00.000-05:00

Chapter 12

The statistical approaches to determining sample size are based on confidence intervals. These approaches may involve the estimation of the mean or proportion. When estimating the mean, determination of sample size using a confidence interval approach requires a specification of precision level, confidence level, and population standard deviation. In the case of proportion, the precision level, confidence level, and an estimate of the population proportion must be specified. The sample size determined statistically represents the final or net sample size that must be achieved. In order to achieve this final sample size, a much greater number of potential respondents have to be contacted to account for reduction in response due to incidence rates and completion rates.

Non-response error arises when some of the potential respondents included in the sample did not respond. The primary causes of low response rates are refusals and not-at-homes. Refusal rates may be reduced by prior notification, motivating the respondents, incentives, proper questionnaire design and administration, and follow-up. The percentage of not-at-homes can be substantially reduced by callbacks. Adjustments for non-response can be made by subsampling non-respondents, replacement, substitution, subjective estimates, trend analysis, weighting, and imputation.

The statistical estimation of sample size is even more complicated in international marketing research, as the population variance may differ from one country to the next. A preliminary estimation of population variance for the purpose of determining the sample size also has ethical ramifications. The Internet and computers can assist in determining the sample size and adjusting it to a count for expected incidence and completion rates.

Sampling distribution -- the distribution of the values of a sample statistic computed for each possible sample that could be drawn from the target population under a specified sampling plan
statistical inference -- the process of generalizing the sample results to the population results
normal distribution -- a basis for classical statistical inference that is bell shaped and symmetrical and appearance. Its measures of central tendency are all identical
standard error -- the standard deviation of the sampling distribution of the mean or proportion
z values -- the number of standard errors in point is away from the mean
incidence rate -- the rate of occurrence of persons eligible to participate in a study expressed as a percentage
completion rate -- the percentage of qualified respondents to complete the interview. It enables researchers to take into account anticipated refusals by people who qualify
substitution -- a procedure that substitutes for nonrespondents other elements from the sampling frame that are expected to respond
trend analysis -- a method of adjusting for nonrespondents in which the researcher tries to discern a trend between early and late respondents. This trend is projected to nonrespondents to estimate their characteristic of interest
weighting -- statistical procedure that attempts to account for non-response by assigning differential weight to the data depending on the response rate
imputation -- a method to adjust for non-response by assigning to characteristic of interest to the nonrespondents based on the similarity of the variables available for both nonrespondents and respondents

sampling: design and procedures

2007-05-30T02:39:00.000-05:00

Chapter 11

Information about the characteristics of a population may be obtained by conducting either a sample or a census. Budget and time limits, large population size, and small variants and a characteristic of interest favor the use of a sample. Sampling is also preferred when the cost of sampling error is low, the cost of non-sampling error is high, the nature of measurement is destructive, and attention must be focused on the individual cases. The opposite set of conditions favor the use of a census.

Sampling begins by defining the target population in terms of:

elements
sampling units
extent
time

Then a sampling frame should be determined. A sampling frame is a representation of the elements of the target population. It consists of a list of directions for identifying the target population. At this stage, it is important to recognize any sampling frame errors that may exist. The next steps involve selecting a sampling technique and determining the sample size. In addition to quantitative analysis, several qualitative considerations should be taken into account in determining the sample size. Finally, execution of the sampling process requires detailed specifications for each step in the sampling process.

Sampling techniques may be classified as non-probability and probability techniques. Nonprobability sampling techniques rely on the researcher's judgment. Consequently, they do not permit an objective evaluation of the precision of the sample results, and the estimates obtained are not statistically projectable to the population.

The commonly used the non-probability sampling techniques include:

convenience sampling
judgmental sampling
quota sampling
snowball sampling

In probability sampling techniques, sampling units are selected by chance. Each sampling unit has any nonzero chance of being selected in the researcher can pre-specify every potential sample of a given size that could be drawn from the population, as well as the probability of selecting each sample. It is also possible to determine the precision of the sample estimates and inferences and make projections to the target population.

Probability sampling techniques include:

simple random sampling
systematic sampling
stratified sampling
cluster sampling
sequential sampling
double sampling

The choice between probability and non-probability sampling should be based on the nature of the research, the degree of error tolerance, the relative magnitude of sampling and non-sampling errors, the variability in the population, and statistical and operational considerations.

When conducting international marketing research, it is desirable to achieve comparability and sample composition and representativeness even though this may require the use of different sampling techniques in different countries. It is unethical and misleading to treat nonprobability samples as probability samples and project the results to the target population. The Internet and computers can be used to make the sampling design process more effective and efficient.

Population -- the aggregate of all the elements, sharing some common set of characteristics, that comprises the universe for the purpose of the marketing research problem
Census -- a complete enumeration of the elements of the population or study objects
sample -- a subgroup of the elements of the population selected for participation in the study
target population -- the collection of elements or objects that possesses the information sought by the researcher and about which inferences are to be made
element -- objects that possess the information sought by the researcher and about which inferences are to be made
sampling unit -- the basic unit containing the elements of the population to be sampled
sampling frame -- a representation of the elements of the target population. It consists of a list or set of directions for identifying the target population
Bayesian approach -- a selection method with the elements are selected sequentially. This approach explicitly incorporates prior information about population parameters as well as costs and probabilities associated with making wrong decisions
sampling with replacement -- a sampling technique in which an element can be included in the sample more than once
sampling without replacement -- a sampling technique in which an element cannot be included in the sample more than once
sample size -- the number of elements to be included in the study
nonprobability sampling -- sampling techniques that do not use chance selection procedures. Rather, they rely on a personal judgment of the researcher
probability sampling -- a sampling procedure in which each element of the population has a fixed probabilistic chance of being selected for the sample
convenience sampling -- a nonprobability sampling technique that attempts to obtain a sample of convenient elements. The selection of sampling units is left primarily to the interviewer
judgmental sampling -- a form of convenience sampling in which the population elements are purposively based on the judgment of the researcher
quota sampling -- and nonprobability sampling technique that is a two-stage restricted judgmental sampling. The first stage consists of developing control categories or quotas of population elements. In the second stage, sample elements are selected based on convenience or judgment
Snowball sampling -- and nonprobability sampling technique in which an initial group of respondents is selected randomly. Subsequent respondents are selected based on the referrals or information provided by the initial respondents. This process may be carried out in ways by obtaining referrals from referrals
simple random sampling (SRS) -- a probability sampling technique in which each element in the population has a known and equal probability of selection. Every element is selected independently of every other element and the sample is drawn by a random procedure from a sampling frame
systematic sampling -- a probability sampling technique in which the sample is chosen by selecting a random starting point and then picking every ith element in succession from the sampling frame
stratified sampling -- a probability sampling technique that uses a two step process to partition the population into subpopulations, or strata. Elements are selected from each stratum by a random procedure
cluster sampling -- first, the target population is divided into mutually exclusive and collectively exhaustive subpopulations called clusters. Then, a random sample of clusters is selected based on a probability sampling technique such as simple random sampling. For each selected cluster, either all the elements are included in the sample or a sample of elements is drawn probabilistically
area sampling -- a common form of cluster sampling in which the clusters consist of geographic areas such as countries, housing tracts, block, or other area descriptions
probability proportionate to size sampling -- a selection method with the clusters are selected with probability proportional to size and a probability of selecting a sampling unit and a selected cluster varies inversely with the size of the cluster
sequential sampling -- a probability sampling technique in which the population elements are sampled sequentially, data collection and analysis are done at each stage, and a decision is made as to whether additional population elements should be sampled
double sampling -- a sampling technique in which certain population elements are sampled twice

questionnaire and form design

2007-05-30T01:44:00.000-05:00

Chapter 10

To collect quantitative primary data, the researcher must design a questionnaire or an observation form. A questionnaire has three objectives.

It must translate the information needed into a set of specific questions the respondents can and will answer.
It must motivate respondents to complete the interview.
It must minimize response error.

designing a questionnaire is an art rather than a science. The process begins by specifying:

the information needed
the type of interview method
decide on the content of individual questions
questions must overcome the respondents inability and unwillingness to answer
decide on question structure
determine the wording of each question
ordering of the questions
determine form and layout of the questions
determined reproduction methods
pre-test

Respondents may be unable to answer if they are not informed, cannot remember, or cannot articulate the response. The unwillingness of the respondents to answer must also be overcome. Respondents may be unwilling to answer if the question requires too much effort, is asked in a situation or context deemed inappropriate, does not serve a legitimate purpose, or solicits sensitive information. Then comes the decision regarding the question structure. Questions can be unstructured (open ended) or structured to a varying degree. Structured questions include multiple-choice, dichotomous questions, and scales.

Determining the wording of each question involves defining the issue, using ordinary words, using unambiguous words, and using dual statements. The researcher should avoid leading questions, implicit alternatives, implicit assumptions, and generalizations and estimates. Once the questions have been worded, the order in which they will appear in the questionnaire must be decided. Special consideration should be given to opening questions, type of information, difficult questions, and the effect on subsequent questions. The questions should be arranged in a logical order.

The stage is now set for determining the form and layout of the questions. Several factors are important in reproducing the questionnaire.
These include:

appearance
use of booklets
fitting an entire question on a page
response category format
avoiding overcrowding
placement of directions
color coding
easy to read format
cost

Last but not least is pretesting. Important issues are:

extent of pretesting
nature of respondents
type of interviewing method
type of interviewers
sample size
protocol analysis and debriefing
editing and analysis

The design of observational forms requires explicit decisions about what is to be observed and how that behavior is to be recorded. It is useful to specify the who, what, when, where, why, and way of the behavior to be observed.

The questionnaire should be adapted to the specific cultural environment and should not be biased in terms of any one culture. Also, the questionnaire may have to be suitable for ministration by more than one method as different interviewing methods may be used in different countries. Several ethical issues related to the researcher respondent relationship and the researcher client relationship may have to be addressed. The Internet and computers can greatly assist the researcher in designing sound questionnaires and observational forms.

Questionnaire -- a structured technique for data collection that consists of a series of questions, written or verbal, that respondent answers
double-barreled question -- a single question that attempts to cover two issues. Such questions can be confusing to respondents and result in ambiguous responses
filter questions -- an initial question in a questionnaire that screens potential respondents to ensure they meet the requirements of the sample
telescoping -- a psychological phenomenon that takes place when an individual telescopes or compress time by remembering an event as occurring more recently than actually occurred
unstructured questions -- open-ended questions that respondent answer in their own words
structured questions -- questions that pre-specify the set of response alternatives and the response format. A structured question could be multiple choice, dichotomous, or a scale
order or position bias -- a respondents tendency to check an alternative merely because it occupies a certain position or is listed in a certain order
dichotomous question -- a structured question was only two response alternatives, such as yes and no
leading question -- a question that gives a respondent a clue as to what answer is desired or leave the responded to answer in a certain way
implicit alternative -- an alternative that is not explicitly expressed
classification information -- socioeconomic and demographic characteristics used to classify respondents
identification information -- a type of information obtained in a questionnaire that includes name, address, and phone number
funnel approach -- a strategy for ordering questions in a questionnaire in which the sequence starts with the general questions that are followed by progressively specific questions, in order to prevent specific questions from biasing general questions
branching questions -- question used to guide an interviewer through a survey of directing the interviewer to different spots on the questionnaire depending on the answer given
pre-coding -- and questionnaire design, assigning a code to every conceivable response before data collection
pretesting -- the testing of the questionnaire on a small sample of respondents for the purpose of improving the questionnaire by identifying and eliminating potential problems

measurement and scaling -- noncomparative scaling techniques

2007-05-19T03:37:00.000-05:00

chapter 9

In noncomparative scaling, each object is scaled independently of the other objects in the stimulus set. the resulting data is generally assumed to be interval or ratio scale. noncomparative rating scales can be either continuous or itemized. The itemized rating scales are further classified as Likert, semantic differential, or Stapel scales. When using noncomparative itemized rating scales, the researcher must decide on the number of scale categories, balanced verses unbalanced scales, odd or even number of categories, forced versus non-forced scales, nature and degree of verbal description, and a physical form or configuration.

Multi-item scales consist of a number of rating scale items. The scale should be evaluated in terms of reliability and validity. Reliability refers to the extent to which a scale produces consistent results if repeated measurements are made. Approaches to assessing reliability include test -- retest, alternative forms, and internal consistency. Validity, or accuracy of measurement, may be assessed by evaluating content validity, criterion validity, and construct validity.

The choice of particular scaling techniques in a given situation should be based on theoretical and practical considerations. As a general rule, the scaling technique used should be the one that will yield the highest level of information feasible. Also, multiple measures should be obtained.

An international marketing research, special attention should be debated to determining equivalent verbal descriptors in different languages and cultures. The researcher has a responsibility to both the client and the respondents to insure the applicability and usefulness of the scales. The Internet and computers are useful for developing and testing continuous and itemized rating scales, particularly multi-item scales.

Non-comparative scale -- 1 of two types of scaling techniques in which each stimulus object is scaled independently of the other objects in the stimulus set
continuous rating scale -- also referred to as graphic rating scale, this measurement scale has the respondents rate the objects by placing a market the appropriate position on a line that runs from one extreme of the criterion variable to the other
itemized rating scale -- a measurement scale having numbers and/or brief descriptions associated with each category. The categories are ordered in terms of scale position
Likert scale -- a measurement scale of five response categories ranging from strongly disagree to strongly agree, which requires the respondents to indicate a degree of agreement or disagreement with each of a series of statements related to the stimulus objects
semantic differential -- a seven-point rating scale with endpoint associated with bipolar labels that have semantic meaning
Stapel scale -- a scale for measuring attitudes that consists of a single objective in the middle of an even numbered range of values, from negative five to positive five, without a neutral point (zero)
balanced scale -- a scale with an equal number of favorable and unfavorable categories
forced rating scales -- a reading scale that forces the respondents to express an opinion because "no opinion" or "no knowledge" option is not provided
measurement error -- the variation in the information sought by the researcher and the information generated by the measurement process employed
true score model -- a mathematical model that provides a framework for understanding the accuracy of measurement
systematic error -- systematic error affects the measurement in a constant way and represents stable factors that affect the observed score in some way each time the measurement is made
random error -- measurement error that arises from random changes or differences and respondents were measurement situations
reliability -- the extent to which a scale produces constant results if repeated measurements are made on the characteristic
test-retest reliability -- an approach for assessing reliability in which respondents are administered identical sets of scale items at two different times under a nearly equivalent conditions as possible
alternative forms reliability -- an approach for assessing reliability that requires to equivalent forms of the scale to be constructed and then the same respondents are measured at two different times
internal consistency reliability -- an approach for assessing the internal consistency of the set of items when several items are summated in order to form a total score for the scale
split- half reliability -- a form of internal consistency reliability and which the items constituting the scale are divided into two halves and the resulting half scores are correlated
coefficient alpha -- it's a measure of internal consistency reliability that is the average of all possible split half coefficients resulting from different splitting of the scale items
validity -- the extent to which differences and observe scale scores reflect true differences among objects on the characteristic being measured, rather than systematic or random errors
content validity -- a type of validity, sometimes called face validity, that consists of a subjective but systematic evaluation of the representativeness of the content of a scale for the measuring task at hand
criterion validity -- a type of validity that examines whether the measurement scale performs as expected in relation to other variables selected as meaningful criteria
construct validity -- a type of validity that addresses the question of what construct or characteristic the scale is measuring. An attempt is made to answer theoretical questions of why a scale works and what deductions can be made concerning the theory underlying the scale
convergent validity -- a measure of construct validity that measures the extent to which the scale correlates positively with other measures are the same construct
discriminant validity -- a type of construct validity that accesses the extent to which a measure does not correlate with other constructs from which it is supposed to differ
nomological validity -- a type of validity that assesses the relationship between theoretical constructs. It seeks to confirm significant correlations between constructs as predicted by theory
generalizability -- the degree to which a study based on a sample of applies to a universe of generalization

measurement and scaling

2007-05-19T03:22:00.001-05:00

Chapter 8

Measurement is the assignment of numbers or other symbols to characteristics of objects according to set rules. Scaling and involves the generation of a continuum upon which measured objects are located.

The four primary skills of measurement are:

nominal
ordinal
interval
ratio

Of these, the nominal scale is the most basic and that the numbers are used only for identifying or classifying objects. In the ordinal scale, the next higher level scale, the numbers indicate the relative position of the objects but not the magnitude of difference between them. The interval scale permits a comparison of the differences between the objects. However, as it has an arbitrary zero point, it is not meaningful to calculate ratios of scale values on an interval scale. The highest level of measurement is represented by the ratio scale in which the zero point is fixed. The researcher can compute ratios of scale values using the scale. The ratio scale it incorporates all the properties of the lower level scales.

Scaling techniques can be classified as comparative or non-comparative. Comparative scaling and involves a direct comparison of stimulus objects.

Comparative scales include:

paired comparisons
rank order
constant sum
Q-sort properties

Respondents in many developed countries, due to higher education and consumer sophistication levels, are quite used to providing responses on interval and ratio scales. However, in developing countries, preferences can be best measured by using ordinal scales. Ethical considerations require that the appropriate type of skills be used in order to get the data needed to answer the research questions and test the hypotheses. The Internet, as well as several specialized computer programs, are unavailable to implement the different types of scales.

Measurement -- the assignment of numbers or other symbols to characteristics of objects according to certain pre-specified rules
scaling -- the generation of a continuum upon which measured objects are located
nominal scale -- a scale whose numbers serve only as labels or tags for identifying and classifying objects with a strict one-to-one correspondence between the numbers in the objects
ordinal scale -- a ranking scale in which numbers are assigned to objects to indicate the relative extent to which some characteristic is possessed. Thus it is possible to determine whether an object has more or less of a characteristic and some other object
interval scale -- a scale in which the numbers are used to great objects such numerically equal distances on the scale represent equal distances in the characteristic being measured
ratio scale -- the highest scale. It allows the researcher to identify or classify objects, rank order the objects, and compare intervals or differences. It is also meaningful to compute ratios of scale values
comparative scales -- 1 or two types of scaling techniques in which there is direct comparison of stimulus objects with one another
non-comparative scales -- 1 of two types of scaling techniques in which each stimulus object is scaled independently of the other objects in the stimulus that
paired comparisons scaling -- a comparative scaling technique in which he respond it is presented with two objects at a time and asked to select one object in the pair according to some criterion. the data obtained are ordinal in nature
transitivity of preference -- an assumption made in order to convert paired comparison data to rank order data
rank order scaling -- a comparative scaling technique in which respondents are presented with several objects simultaneously and asked to order or rank them according to some criterion
constant sum scaling -- a comparative scaling technique in which respondents are required to allocate a constant sum of the units such as points, dollars, stickers, or chips among a set of stimulus objects with respect to some criterion
Q-sort scaling -- a comparative scaling technique that uses a rank order procedure to sort objects based on similarity with respect to some criterion

experimentation

2007-05-19T02:41:00.000-05:00

Chapter 7

The scientific notion of causality implies that we can never prove that X causes Y. At best, we can only infer that X is one of the causes of Y in that it makes the occurrence of Y probable.

Three conditions must be satisfied before casual inferences can be made:

concomitant variation, which implies that X and Y must vary together in a hypothesized way
timed order of occurrence of variables, which implies that X must precede Y
a lemon nation of other possible casual factors, which implies that competing explanations must be ruled out

Experiments provide the most convincing evidence of all three conditions. An experiment is formed when one or more independent variables are manipulated or controlled by the researcher, and their affect on one or more dependent variables is measured.

In designing an experiment, it is important to consider internal and external validity. Internal validity refers to whether the manipulation of the independent variables actually cause the effects of the dependent variables. External validity refers to the realizability of experimental results.

For the experiment to be valid, the researcher must control the threats imposed by extraneous variables, such as:

history
maturation
testing (main and interactive testing effects)
instrumentation
statistical regression
selection bias
mortality

There are four ways of controlling extraneous variables:

randomization
matching
statistical control
design control

Experimental designs may be classified as:

pre-experimental
true experimental
quasi-experimental
statistical

An experiment may be conducted in a laboratory environment or under actual market conditions in real-life settings. Only casual designs income passing experimentation are appropriate for inferring cause and effect relationships.

Although experiments have limitations in terms of time, cost, and administration, they are becoming increasingly popular in marketing. Test marketing is an important application of experimental design.

The internal and external validity of field experiments conducted overseas is generally lower in the United States. The level of development in many countries is lower, and the researcher lacks control over many of the marketing variables. The ethical issues involved in conducting casual research include describing the purpose of the experiment. Debriefing can be used to address some of these issues. The Internet and computers are very useful in the design and implementation of experiments.

Causality -- when the occurrence of X increases the probability of the occurrence of Y
concomitant variation -- a condition for inferring causality that requires the extent to which a cause,X, and an effect,Y, occurred together or buried together is predicted by the up office this under consideration
independent variables -- variables that are manipulated by the researcher and whose effects are measured and compared
test units -- individuals, organizations, or other entities whose response to independent variables or treatments is being studied
dependent variables -- variables that measure the effect of the independent variables on the test units
extraneous variables -- variables, other than the independent variables, that influence the response of the test units
experiment -- the process of manipulating one or more independent variables and measuring their effect on one or more dependent variables, while controlling for the extraneous variables
experimental design -- a set of experimental procedures specifying:

the test units and sampling procedures
independent variables
dependent variables
how to control the extraneous variables

Internal validity -- a measure of accuracy of an experiment. It measures whether the manipulation of the independent variables, or treatments, actually cause the effects on the dependent variables
external validity -- a determination of whether the cause and effect relationships found in the experiment can be generalized
history (H) -- specific events that are external to the experiment but occur at the same time as the experiment
maturation (MA) -- an extraneous variable attributable to changes in the test units themselves that occur with the passage of time
Main testing effect (MT) -- an effect of testing occurring when a prior observation affects a later observation
interactive testing effect (IT) -- an effect in which a prior measurement affects the testing its response to the independent variable
instrumentation (I) -- an extraneous variable involving changes in the measurable instrument or in the observers were scores themselves
statistical regression (SR) -- an extraneous variable that occurs when testing its with extreme scores move closer to the average score during the course of the experiment
selection bias (SB) -- an extraneous variable attributable to the improper assignment of test units to treatment conditions
mortality (MO) -- an extraneous variable attributable to the loss of test units while the experiment is in progress
confounding variables -- synonymous with extraneous variables, used to illustrate that extraneous variables can confound the results by influencing the dependent variable
randomization -- 1 method of controlling extraneous variables that involves randomly assigning test units to experimental groups by using random numbers. Treatment conditions are also randomly assigned to experimental groups
matching -- 1 method of controlling extraneous variables that involves matching test units on a set of key background variables before assigning them to the treatment conditions
statistical control -- 1 method of controlling extraneous variables by measuring the extraneous variables and adjusting for their effects through statistical methods
design control -- 1 method of controlling extraneous variables that involves using specific experimental designs
pre-experimental designs -- designs that do not control for extraneous factors by randomization
true experimental designs -- experimental designs distinguished by the fact that the researcher can randomly assigned test units to experimental groups and also randomly assigned treatments to experimental groups
quasi-experimental designs -- designs that apply part of the procedures of true experimentation but lack full experimental control
statistical design -- designs that allow for the statistical control and analysis of external variables
one-shot case study -- a pre-experimental design in which a single group of test units is exposed to treatment X, and then a single measurement on the dependent variable is taken
one group pre-test - posttest design -- a pre-experimental design in which a group of test units is measured twice
static group -- a pre-experimental design in which there are two groups: the experimental group (EG), which is exposed to the treatment, and the control group (CG). Measurements on both groups are made only after the treatment, and test units are not assigned at random
pre-test - posttest control group design -- a true experimental design in which the experimental group is exposed to the treatment at the control group is not. Pre-test and posttest measurements are taken on both groups
posttest only control group design -- a true experimental design in which the experimental group is exposed to the treatment but the control group is not and no pretest measure is taken
Solomon four-group design -- a true experimental design that explicitly controls for interactive testing effects, in addition to controlling for all the other extraneous variables
time series design -- a quasi-experimental design that involves periodic measurements on the dependent variable for a group of test units. Then, the treatment is administered by the researcher or occurs naturally. After the treatment, periodic measurements are continued in order to determine the treatment effect
multiple time series design -- a time series design that includes another group of test units to serve as a control group
randomized block design -- a statistical design in which to test units are blocked on the basis of on external variable to ensure that the various experimental and control groups are matched closely on that variable
Latin square design -- a statistical design allows for the statistical control of two non-interacting external variables in addition to the manipulation of the independent variable
factorial design -- a statistical experimental design that is used to measure the effects of two or more independent variables at various levels and to allow for interactions between variables
laboratory environment -- an artificial setting for experimentation in which the researcher conducts the desired conditions
field environment -- an experimental location set in the actual market conditions
demand artifacts -- the respondents attempt to guess the purpose of the experiment and respond accordingly
test marketing -- an application of a controlled experiment done in limited, but carefully selected, test markets. It involves a replication of the planned national marketing program for a product in the test markets
test markets -- a carefully selected part of the marketplace that is particularly suitable for testmarketing
standard test market -- a test market in which the product is sold through regular distribution channels. For example, no special considerations are given to product simply because they are being testmarketed
controlled test market -- a testmarketing program conducted by an outside research company in field experimentation. The research company guarantees distribution of the product and retail outlet that represent a predetermined percentage of the market
simulated test market -- a quasi-test market in which respondents are preselected, then interviewed and observed on their purchases and attitudes toward the product
debriefing -- after the experiment, informing test subjects with the experiment was about and how they experimental manipulations were performed

survey and observation

2007-05-19T01:37:00.000-05:00

Chapter 6

The two basic means of obtaining primary quantitative data and descriptive research our survey and observation. Survey involves a direct questioning of respondents, where is observation entails recording responded behavior.

Surveys involve the administration of a questionnaire and may be classified, based on the method or mood of administration, as:

traditional telephone interviews
CATI
in-home personal interviews
Mall intercept interviews
CAPI
Mail surveys
Mail panels
e-mail surveys
Internet surveys

Of these methods, traditional phone interviews and CATI are the most popular. However, each method has some general advantages and disadvantages.

The various methods may be compared in terms of:

flexibility of data collection
diversity of questions
use of physical stimuli
sample control
control of the data collection environment
control of field force
quantity of data
social desirability
obtaining sensitive information
potential for interviewer bias
response rate
perceived anonymity
speed
cost

Although these data collection methods are usually thought of as distinct and competitive, they should not be considered mutually exclusive. It is possible to employ them productively in combination.

Observational methods may be classified as structured or unstructured, disguised or on disguised, and natural or contrived.

The major methods are:

personal observation
mechanical observation
audit
content analysis
trace analysis

As compared to surveys, the relative advantages of observational methods are:

they permit measurement of actual behavior
there is no reporting bias
there is less potential for interviewer bias

The relative disadvantages of observation are:

very little can be inferred about motives, beliefs, attitudes, and preferences
there is potential for observer bias
most methods are time-consuming and expensive
it is difficult to observe some forms of behavior
potential for being unethical

Observation is rarely used as the sole method of obtaining primary data, but it can be usefully employed in conjunction with survey methods.

In collecting data from different countries, it is desirable to use survey methods with equivalent levels of reliability, rather than in same method. Respondents anonymity should be protected and their names should not be turned over to the clients. People should not be observed without consent for research in situations were they would not expect to be observed life in public. Internet and computers are used extensively and survey research. They also facilitate observation methods, particularly content analysis, audits, and trace analysis.

survey method -- a structured question near given to respondents and designed to elicit specific information
structured data collection -- use of a formal questioning or that presents questions in a prearranged order
fixed alternative questions -- questions that require respondents to choose from a set of predetermined answers
CAPI -- computer assisted personal interviewing
Mail panel -- a large and nationally representative sample of households who have agreed to periodically participate in mail questionnaires and product tests
sample control -- the ability of the survey measured to reach the units specified in the sample effectively and efficiently
sampling frame -- a representation of the elements of the target population. It consists of a list or set of directions for identifying the target population
random digit dialing (RDD) -- a technique used to overcome the bias of on published in a recent telephone numbers by selecting all telephone number digits at random
random digit directory designs -- a research design for telephone surveys in which a sample of numbers is drawn from the telephone directory and modified to allow on published numbers a chance of being included in the sample
Field force -- the field force is made up of both the actual interviewers and the supervisors involved in data collection
response rate -- the percentage of the total attempted interviews that are completed
non-response bias -- the actual respondents differ from those to refuse to participate
critical request -- the target behavior that is being researched
perceived anonymity -- the respondents perception that their identities will not be discerned by the interviewer or the researcher
social desirability -- the tendency of the respondents to give answers that may not be accurate but that may be desirable from a social standpoint
observation -- the recording of behavioral patterns of people, objects, and events in a systematic manner to obtain information about the phenomenon of interest
structured observation -- observation techniques or the researcher clearly defines the behaviors to be observed and the methods by which they will be measured
unstructured observation -- observation that involves a researcher monitoring all aspects of the phenomenon without specifying the details in advance
natural observation -- observing behavior as it takes place in the environment
contrived observation -- the behavior is observed in an artificial environment
personal observation -- an observational research strategy in which human observers record the phenomenon being observed as it occurs
mechanical observation -- an observational research strategy in which mechanical devices, rather than human observers, record the phenomenon being observed
psychologicalvanometer -- an instrument that measures a respondents galvanic skin response
galvanic skin response (GSR) -- changes in the electrical resistance of the skin that relate to a respondents affected state
voice pitch analysis -- measurement of emotional reactions through changes in the respondents voice
response latency -- the amount of time it takes to respond
pantry audit -- a type of audit where the researcher inventories the brands, quantities, and package sizes of products in the consumer's home
content analysis -- the objective, systematic, and quantitative description of the manifest content of any communication
trace analysis -- an approach in which data collection is based on physical traces, or evidence, of past behavior

qualitative research

2007-05-19T01:12:00.000-05:00

Chapter 5

qualitative and quantitative research should be viewed as complementary. Qualitative research methods may be direct or indirect. Indirect methods, respondents are able to discern the true purpose of the research, whereas indirect methods disguise the purpose of the research. The major direct methods are focus groups and debt interviews. Focus groups are conducted in a group setting, whereas depth interviews are done one-on-one. Focus group interviews are the most widely used quantitative research technique.

The indirect techniques are called projective techniques as they ain't to project the respondents motivations, beliefs, attitudes, and feelings onto ambiguous situations. The projective techniques may be classified as association (word association), completion (sentence completion, paragraph completion, story completion), construction (picture response, cartoon tests), and expressive (role-playing, third person) techniques. Projective techniques are particularly useful when respondents are unwilling or unable to provide the required information by direct methods.

Qualitative research can reveal the salient differences between the domestic and foreign markets. Whether focus groups or depth interview should be conducted and how the findings should be interpreted depends heavily on the cultural differences. When conducting qualitative research, the researcher and the client must respect the respondents. This should include protecting the anonymity of respondents, honoring all statements in promises used to ensure participation, and conducting research and a way not to embarrass or harm the respondents. Focus groups, depth interviews, and project of techniques can also be conducted via the Internet. Microcomputers and mainframes can be used to select and screen respondents, and encoding and analyzing qualitative data.

qualitative research -- an unstructured, exploratory research methodology based on small samples that provides insights and understanding of the problems setting
quantitative research -- a research methodology that seeks to quantify the data and, typically, apply some form of statistical analysis
direct approach -- 1 type of qualitative research in which the purposes of the project are disclosed to the respondent are obvious, given the nature of the interview
indirect approach -- a type of qualitative research in which the purpose of the project is disguised from the respondents
focus group -- an interview conducted by a trained moderator among a small group of respondents in on structured and natural manner
depth interview -- and on structured, direct, personal interview in which a single respondent is probed by a highly skilled interviewer to uncover underlying motivations, beliefs, attitudes, and feelings on a topic
laddering -- a technique for conducting depth interviews in which a line of questioning proceeds from product characteristics to user characteristics
hidden issue questioning -- a type of depth interview that attempts to locate personal sore spots related to deeply felt personal concerns
symbolic analysis -- a technique for conducting depth interviews in which the symbolic meaning of objects is analyzed by comparing them with their opposites
projective technique -- an on structured and indirect form of questioning that encourages the respondents to project their underlying motivations, beliefs, attitudes, or feelings regarding the issues of concern
Association techniques -- a type of projective technique in which the respondent is presented with a stimulus and asked to respond with the first thing that comes to mind
Word Association -- a projective technique in which respondents are presented with a list of words, one at time. After each word, they are asked to give the first word that comes to mind
completion techniques -- a projective technique that requires respond to complete an incomplete stimulus situation
sentence completion -- a projective technique in which respondents are presented with a number of incomplete sentences and asked to complete them
story completion -- a productive technique in which the respondents are provided with part of the story and required to give the conclusion in their own words
construction technique -- a projected technique in which the respondent is required to construct a response in the form of a story, dialogue, or description
picture response technique -- a projected technique in which the respondent shown a picture and asked to tell a story describing it
cartoon tests -- cartoon characters are shown in a specific situation related to the problem. The respondents are asked to indicate the dialogue that one cartoon character might make in response to the comments of another character
expressive techniques -- projected techniques in which the respondent is presented with a verbal or visual situation and asked to relate the feelings and attitudes of the other people in the situation
role-playing -- respondents are asked to assume the behavior of someone else
third person technique -- a projected technique in which the respondent is presented with a verbal or visual situation and asked to relate the beliefs and attitudes of a third person to the situation

research design formulation - secondary data

2007-05-19T00:53:00.006-05:00

chapter 4

In contrast to primary data, which originate with a researcher for the specific purpose of the problem hand, secondary data is data originally collected for other purposes. Secondary data can be obtained quickly and is relatively inexpensive. However, they have limitations and should be carefully evaluated to determine the appropriateness for the problem at hand. The evaluation criteria consist of specifications, error, currency, objectivity, nature, and dependability.

A wealth of information exists in the organization for which the research is being conducted. This information constitutes internal secondary data. External data is generated by sources outside the organization. This data exists in the form of published material, online, Internet, and off-line databases, or information made available by syndicated services. Published external sources may be broadly classified as general business data or government data. General business sources comprise guides, directories, indexes, and statistical data. Government sources may be broadly categorized as census data and other data. Computerized databases may be online, Internet, or off-line. These databases may be further classified as bibliographic, numeric, full text, directory, or specialized databases.

Syndicated sources are companies that collect and sell common pools of data designed to serve a number of clients. Syndicated sources can be classified based on the unit of measurement (households/consumers or institutions). Household/consumer data may be obtained via surveys, purchased in media panels, or a chronic skin or services. When institutions are the unit of measurement, the data may be obtained from retailers, wholesalers, or industrial firms. It is desirable to combine information obtained from different secondary sources.

There are several specialized sources of secondary data useful for conducting international marketing research. However, the evaluation of secondary data becomes even more critical as the usefulness and accuracy of the data can vary widely. Ethical dilemmas that can arise include the unnecessary collection of primary data, they use of only secondary data one primary data is needed, they used a secondary data that is not applicable, and the use a secondary data that has been gathered through morally questionable means. the Internet and computers can be used to access, analyze, and store information available from secondary sources.

Primary data -- data originated by the researcher for the specific purpose of addressing the research problem
secondary data -- data collected for some purpose other than the problem hand
volume tracking data -- scanner data that provides information on purchases by Brion, size, price, and flavor or formulation
internal data -- internal data is data available within the organization for which the research is being conducted
external data -- data that originates externally from the organization
database marketing -- database marketing involves the use of computers to capture and track customer profiles and purchase details
online databases -- databases, stored in computers, which require a telecommunications network to access
Internet databases -- Internet databases can be accessed, searched, and analyzed over the Internet. It is also possible to download data from the Internet and store them in the computer storage device
off-line databases -- databases that are available on diskette, CD-ROM, or portable media
bibliographic databases -- databases composed of citations to articles and journals, magazines, newspapers, marketing research studies, technical reports, government documents, and the like. They often provide summaries or abstracts of the material cited the
numeric databases -- numeric databases contain numerical and statistical information that may be important sources of secondary data
fulltext databases -- databases containing the complete text of secondary source documents comprising the database
directory databases -- directory databases provide information on individuals, organizations, and services
specific purpose databases -- data bases that contain information on a specific nature, example -- data on a specialized industry
syndicated services -- information services offered by marketing research organizations that provide information from a common database to different firms that subscribe to their services
surveys -- interviews with a large number of respondents using a predesigned question here
psycho geographics -- quantified psychological profiles of individuals
lifestyles -- a lifestyle may be defined as a distinctive pattern of living that is described by the activities people engage in, the interests they have, and the opinions they hold of themselves and the world around them
purchase panels -- a data gathering technique in which respondents record their purchases online or in a diary
media panels -- a data gathering technique that is comprised of samples of respondents whose television viewing behavior is automatically recorded by electronic devices, supplementing the purchase information recorded online or in a diary
scanner data -- data obtained by passing merchandise over a laser scanner that reads the UPC code from the packages
scanner panels -- scanner panel members are identified by an ID card, allowing each pay no members purchase is to be stored with respect to his or her identity
scanner panels with cable TV -- the combination of scanner panel with manipulations of the advertising that is being broadcast by cable television companies
audit -- a data collection process derived from physical records or performing inventory analysis. Data is collected personally by the researcher or by representatives of the researcher, and the data at is based upon counts usually a physical objects other than people
industry services -- provide syndicated data about industrial firms, businesses, and other institutions
single source data -- an effort to combine data from different sources by gathering integrated information on household and marketing variables applicable to the same set of respondents
computer mapping -- maps that solve marketing problems are called thematic maps. They combine geographer he lives demographic information and accompanies sales data or other proprietary information and are generated by a computer

Marketing Research Proposal

2007-05-14T01:34:00.000-05:00

executive summary -- the proposal should begin with a summary of the major points from each of the other sections, presenting an overview of the entire proposal
background -- the background of the problem, including the environmental context, should be discussed
problem definition/objectives of the research -- normally a statement of the problem, including the specific components, should be presented. If this statement has not been developed (in the case of problem identification research), the objectives of the marketing research project should be clearly specified
approach to the problem -- at a minimum, a review of the relevant academic and trade literature should be presented, along with some kind of analytical model. If research questions and hypotheses have been identified, then he should be included in the proposal
research design -- the research designed adopted, whether exploratory, descriptive, or casual, should be specified.
fieldwork/data collection -- the proposal should discuss how the data will be collected and he will collect it. If the field work is to be subcontracted to another supplier, this should be stated. Control mechanisms to ensure the quality of data collected should be described
data analysis -- the kind of data analysis that will be conducted and how the results will be interpreted should be described
reporting -- the proposal should specify whether intermediate reports will be presented and at what stages, what will be the form of the final report, and whether a formal presentation of the results will be made
cost and time -- the cost of the project and a time schedule, broken down by phases, should be presented. A CPM or PERT chart might be included. In large projects, a payment schedule is also worked out in advance
appendices -- any statistical or other information that is of interest to only a feed people should be contained in appendices

research design

2007-05-14T01:11:00.000-05:00

Chapter 3

A research design is a framework or blueprint for conducting a market research project. It specifies the details of how the project should be conducted. Research designs may be broadly classified as exploratory or conclusive. The primary purpose of exploratory research is to provide insights into the problem. Conclusive research is conducted to test specific hypotheses and examine specific relationships. The findings from conclusive research are used as input into managerial decision-making. Conclusive research may be either descriptive or casual.

The major objective of descriptive research is to describe market characteristics or functions. A descriptive design requires a clear specification of the two, what, when, where, why, and way of the research. Descriptive research can be further classified into cross-sectional and longitudinal research. Cross-sectional designs involve the collection of information from a sample of population elements and a single point in time. In contrast, in longitudinal designs repeated measurements are taken on a fixed sample. Casual research is designed for the primary purpose of obtaining evidence about cause and effect (casual) relationships.

A research design consists of six components. Error can be associated with any of these components. The total error is composed of random sampling error and nonsampling error. Non-sampling error consists of non-response and response errors. Response error encompasses errors made by researchers, interviewers, and respondents. A written marketing research proposal including all the elements of the marketing research process should be prepared. In formulating a research design when conducting international marketing research, considerable effort is required to ensure the equivalence and comparability of secondary and primary data obtained from different countries.

In terms of ethical issues, the researchers must a sure that the research design utilized will provide the information sought, and that the information sought is the information needed by the client. The client should have the integrity not to misrepresent the project, should describe the situation at the researcher must operate within, and should not make unreasonable demands. Every precaution should be taken to ensure the respondents were subjects right to safety, right to privacy were right to choose. The Internet and computers can be usefully employed to aid the process of formulating a research design.

Research design -- a framework or blueprint for conducting a marketing research project. It specifies the details of the procedure necessary for attaining the information needed to structure and/or solve marketing research problems
exploratory research -- 1 type of research design, which has as its primary objective to a provision of insights into, and comprehension of, the problem situation confronting the researcher
conclusive research -- research designed to assist the decision-maker in determining, evaluating, and selecting the best course of action to take in a given situation
descriptive research -- a type of conclusive research that has its major objective the description of something -- usually marketing characteristics or functions
Cross sectional design -- a type of research design involving the collection of information from any given sample of population elements only once
single cross-sectional design -- a cross-sectional design in which one sample of respondents is drawn from the target population and information is obtained from this sample once
multiple cross-sectional design -- a cross-sectional design in which there are two or more samples of respondents and information from each sample is obtained only once
cohort analysis -- a multiple cross-sectional design consisting of a series of surveys conducted at the appropriate time intervals. The cohort refers to the group of respondents who experience the same event within the same time interval
longitudinal design -- a type of research design involving a fake sample of population elements that is measured repeatedly. The sample remains the same over time, thus providing a series of pictures which, when viewed together, portray a vivid illustration of the situation and the changes that are taking place over time
panel -- a sample of respondents who have agreed to provide information at specified intervals over on extended period
casual research -- a type of conclusive research where the major objective is to obtain evidence regarding cause-and-effect relationships
total error -- the variation between the true mean value in the population of the variable of interest in the observed mean value obtained in the marketing research project
random sampling error -- the error due to the particular sample selected being an imperfect representation of the population of interest. It may be defined as the variation between the true meaning value for the sample and the true mean value of the population
non-sampling error -- non-sampling errors are errors that can be attributed to sources other than sampling, they can be random or nonrandom
nonresponse error -- a type of non-sampling error that occurs when some of the respondents included in the sample did not respond. This error can be defined as the variation between the true mean value of the variable and the original sample and a true mean value in the net sample
response error -- a type of non-sampling error arising from respondents who do you respond to give inaccurate answers, or their answers are misreported or mis-analyzed. It may be defined as the variation between the training value of the variable and the net sample and the observed mean value obtained in the marketing research project
budgeting and scheduling -- management tools needed to help ensure the marketing research project is completed within the available resources
critical Path method (CPM) -- management technique of dividing a research project into component activities, determining the sequence of these components and the time each activity will require
program evaluation and review technique (PERT) -- a more sophisticated critical Path method that accounts for the uncertainty in project completion times
graphical evaluation and review technique (GERT) -- a sophisticated critical Path method that accounts for both the completion probabilities and the activity costs
marketing research proposal -- the official layout of the planned marketing research activity for management. It describes the research problem, the approach, the research design, data collection methods, data analysis methods, and reporting methods

defining the market research problem and developing an approach

2007-05-13T22:11:00.000-05:00

Chapter 2

Defining the market research problem is the most important step in a research project. It is a difficult step, because frequently manage and it has not determined the actual problem or has only a vogue nation about it. The researchers role is to help management identify and isolate the problem.

The tasks involved in formulating the marketing research problem include discussions with management, including the key decision-makers, interviews with industry experts, analysis of secondary data, and qualitative research. These tasks should lead to an understanding of the environmental context of the problem. The environmental context of the problem should be analyzed and certain essential factors evaluated. These factors include past information and forecasts about the industry and the firm, objectives of the DM, buyer behavior, resources and constraints of the firm, the legal and economic environment, and marketing and technological skills of the firm.

Analysis of the environmental context should assist in the identification of the management decision problem, what should be translated into a marketing research problem. The management decision problem asks what the DM needs to do, whereas the marketing research problem ass what information is needed and how it can be obtained effectively and efficiently. The researcher should avoid defining the marketing research problem either too broadly or too narrowly. An appropriate way of defined the market research problem is to make a broad statement of the problem and then identify its specific components.

Developing an approach to the problem is the second step in the marketing research process. The components of an approach consists of objective/theoretical framework, analytical models, research questions, hypotheses, and specification of information needed. It is necessary that the approach developed be based on objective or empirical evidence and be grounded in theory. The relevant variables and their interrelationships may be neatly summarized via an analytical model. The most common kinds of model structures are verbal, graphical, and mathematical. The research questions are refined statements of the specific components of the problem that asked what specific information is required with respect to the problem components. Research questions may be further refined into hypotheses. Finally, given the problem definition, research questions, and hypotheses, the information needed should be specified.

When defining the problem in international marketing research, the researcher must isolate and examined the impact of the self reference criterion (SRC), or the unconscious reference to one's own cultural values. Likewise, when developing an approach, the differences in the environment prevailing in the domestic market and the foreign markets should be carefully considered. Several ethical issues that have an impact on the client and the researcher can arise at this stage but can be resolved by adhering to the seven C's. The Internet and computers can be useful in the process of defining the problem in developing an approach.

The seven C's
communication
cooperation
confidence
candor
closeness
continuity
creativity

Problem definition -- a broad statement of the general problem and identification of the specific components of the marketing research problem
problem audit -- a comprehensive examination of a marketing problem to understand its origin and nature
DM -- abbreviation for decision-maker
secondary data -- data collected for some purpose other than the problem at hand
primary data -- data originated by the researcher specifically to address the research problem
qualitative research -- an unstructured, exploratory research methodology based on small samples intended to provide insight and understanding of the problem setting
environmental context of the problem -- consists of the factors that have an impact on the definition of the marketing research problem, including pass information and forecasts, resources and constraints of the firm, objectives of the decision maker, buyer behavior, legal environment, economic environment, and the marketing and technological skills of the firm
objectives -- goals of the organization and of the decision-maker must be considered in order to conduct successful marketing research
buyer behavior -- a body of knowledge that tries to understand and predict consumers reactions based on an individual's specific characteristics
legal environment -- regulatory policies and norms within the organizations must operate
economic environment -- the economic environment consists of income, prices, savings, credit, and general economic conditions
management decision problem -- the problem confronting the decision-maker. It asks what the decision maker needs to do
marketing research problem -- a problem that entails determining what information is needed and how it can be obtained in the most feasible way
broad statement -- the initial statement of the marketing research problem that provides an appropriate perspective on the problem
specific components -- the second part of the marketing research problem definition. The specific components focus on the key aspects of the problem and provide clear guidelines on how to proceed further
theory -- a conceptual scheme based on foundational statements, that are assumed to be true
objective evidence -- on biased evidence that is supported by empirical findings
analytical model -- an explicit specification of a set of variables and their interrelationships designed to represent some real system or process in whole or in part
verbal models -- analytical models that provide a written representation of the relationships between variables
graphical models -- analytical models that provide a visual picture of the relationships between variables
mathematical models -- analytical models that explicitly describe the relationships between variables, usually an equation form
research questions -- research questions are refined statements of the specific components of the problem
hypothesis -- an unproven statement or proposition about a factor or phenomenon that is of interest to the researcher
self reference criterion -- the unconscious reference to ones own cultural values

introduction to marketing research

2007-05-08T04:58:00.000-05:00

Chapter 1

Problem identification research -- research that is undertaking to help identify problems and are not necessarily apparent on the surface and yet exist or are likely to arise in the future
problem-solving research -- research undertaken to help solve specific marketing problems

marketing research process -- a set of six steps that defines the tasks to be accomplished in conducting a marketing research study. These include:

problem definition
development of an approach to the problem
research design formulation
fieldwork
data preparation and analysis
report preparation and presentation.

internal supplier -- marketing research departments located within a firm
external suppliers -- outside marketing research companies hired to supply marketing research data
full service suppliers -- companies that offer the full range of marketing research activities
syndicated services -- companies that collect and sell common pools of data designed to serve information needs shared by a number of clients
standardize services -- companies that use standardized procedures to provide marketing research to various clients
customized services -- companies that tailor the research procedures to best meet the needs of each client
Internet services -- companies that have specialized in conducting marketing research on the Internet
Limited service suppliers -- companies that specialize in one or a few phases of the marketing research project
Field services -- companies whose primary service offering is their expertise in collecting data for research projects
coding and data entry services -- companies whose primary service offering is their expertise in converting completed surveys or interviews into a usable database for conducting statistical analysis
analytical services -- companies that provide guidance in the development of the research design
data analysis services -- firms whose primary service is to conduct statistical analysis of quantitative data
branded marketing research products -- specialized data collection and analysis procedures developed to address specific types of marketing research problems
marketing information system (MIS) -- a formalized set of procedures for generating, analyzing, storing, and distributing pertinent information to marketing decision-makers on an ongoing basis
decision support systems (DSS) -- information systems that enable decision-makers to interact directly with both databases and analysis models. The important components of a DSS include hardware and a communications network, database, model-based, software base, and DSS users (decision-makers)

Marketing research involves the identification, collection, analysis, dissemination, and use of information. It is a systematic and objective process designed to identify and solve marketing problems. The us, marketing research can be classified as problem identification research and problem solving research. The marketing research process consists of six steps that must be followed systematically. The role of marketing research is to access information needs and provide relevant information in order to improve marketing decision making.

Marketing research may be conducted internally or may be purchased from external suppliers referred to as the marketing research industry. Full service suppliers provide the entire range of marketing research services from problem definition to report preparation and presentation. The services provided by the suppliers can be classified as syndicated, standardize, customized, or Internet services. Limited service suppliers specialize in one or a few phrases of the marketing research project. Services offered by the suppliers can be classified as field services, coding and data entry, data analysis, analytical services, or branded products.

Due to the need for marketing research, attractive career opportunities are available with marketing research firms, businesses and nonbusiness firms, agencies with marketing research departments, and advertising agencies. Information obtained using marketing research becomes an integral part of the MIS and DSS. Marketing research contributes to the DSS by providing research data to the database, marketing models and analytical techniques to the model base, and specialized marketing research programs to software base. International marketing research is much more complex than domestic research as a researcher must consider the environment prevailing in the international markets that are being researched.

The ethical issues in marketing research involve four stakeholders:
the marketing researcher
the client
the respondent
the public.

The Internet and micro computers can be used at every step of the marketing research process.

Managing a holistic marketing organization

2007-04-22T02:51:00.001-05:00

creating successful long-term growth -- Chapter 22 -- summary

The modern marketing department has evolved to the years from a simple sales department to an organizational structure were marketing personnel work mainly on cross disciplinary teams.

Modern marketing departments can be organized in a number of ways. Some companies are organized by functional specialization, while others focus on geography and regionalization. Still others emphasize product and brand management or market segment management. Some companies established a matrix organization consisting of both product and market managers. Finally, some companies have strong corporate marketing, others have limited corporate marketing, and still others place marketing only in the divisions.

A fact of modern marketing organizations are marked by a strong cooperation and customer focus among the company's departments:

marketing
research and development
engineering
purchasing the line manufacturing
operations
finance
accounting
credit etc.

Companies must practice social responsibility through their legal, ethical, and social words and actions. Cause marketing can be a means for companies to productively linked social responsibility to consumer marketing programs. Social marketing is done by a nonprofit or government organization to directly address essential problem or cause.

A brilliant strategic marketing plan counts for little if it is not implemented properly. Implementing marketing plans calls for skills in recognizing and diagnosing a problem, assessing the company level where the problem exists, implementation skills, and skills in evaluating the results.

The marketing department has to monitor and control marketing activities continuously. Efficiency control focuses on finding ways to increase the efficiency of the sales force, average rising, sales promotion, and distribution. Strategic control entails a periodic reassessment of the company and its strategic approach to the marketplace using the tools of the marketing effectiveness and marketing excellence reviews, as well as the marketing audit.

Managing personal communications: direct marketing a personal selling

2007-04-22T02:46:00.001-05:00

communicating value -- Chapter 19 -- summary

Direct marketing is an interactive marketing system that uses one or more media to effect a measurable response or transaction at any location. Direct marketing, especially electronic marketing, is showing explosive growth.

Direct marketers plan campaigns by deciding on objectives, target markets and prospects, offers, and prices. This is followed by testing and establishing measures to determine the campaign success.

Major channels for direct marketing and include face-to-face selling, direct mail, catalog marketing, telemarketing, interactive TV, websites, and mobile devices.

Interactive marketing provides marketers with opportunities for much greater interaction and individualization through well-designed websites as well as online ads and permissions.

Sales personnel serve as a companies linked to its customers. The sales rep is the company to many of its customers, and it is the rep who brings back to the company much-needed information about the customer.

Designing the salesforce requires decisions regarding objectives, strategy, structure, size, and compensation. Objectives may include prospecting, targeting, communicating, selling, servicing, information gathering, and allocating. Determining strategy requires choosing the most effective mix of selling approaches. Choosing the salesforce structure and tails dividing territories by geography, product, or market (or some combination of these). Estimating how large the salesforce needs to be involves estimating the total workload and how many sales hours will be needed. Compensating the salesforce and tails determining what types of salaries, commissions, bonuses, expense accounts, and benefits to give, and how much weight customer satisfaction should have in determining total compensation.

There are five steps involved in managing the salesforce:

recruiting and selecting sales Representatives
training the representatives and sales techniques and in the Company's products, policies, and customer satisfaction orientation
supervising the salesforce in helping reps to use their time efficiently
motivating the salesforce and balancing quotas, monetary rewards, and supplementary motivators
evaluating individual and group sales performance

Effective salespeople are trained in the methods of analysis and customer management, as well as they are of sales professionalism. No approach works best in all circumstances, but most trainers agree that selling is a seven step process:

prospecting and qualifying customers
pre-approach
approach
presentation and demonstration
overcoming objections
closing
follow-up and maintenance

Managing mass communications

2007-04-22T02:40:00.001-05:00

communicating value -- Chapter 18 -- summary

Advertising and any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor. Advertisers include not only business firms but also charitable, nonprofit, and government agencies.

Developing an advertising program is a five step process:

set advertising objectives
establish a budget
she is the advertising message and creative strategy
decide on the media
evaluate communication and sales effect

Sales promotions consists of a diverse collection of incentive tools, mostly short term, designed to stimulate quicker or greater purchase of particular products or services by consumers or the trade. Sales promotion includes tools for consumer promotion, trade promotion, and business and salesforce promotion. In using sales promotion, a company must establish its objectives, select the tools, develop the program, pre-test the program, implement and control it, and evaluate the results.

Events and experiences are a means to become part of special and more personally relevant moments in consumers lives. Involvement with events can broaden and deepen the relationship of the sponsor with its target market, but only if managed properly.

Public relations (PR) involves a variety of programs designed to promote or protect a company's image or its individual products. Many companies today use marketing public relations (MPR) to support the marketing department in corporate or product promotion and image making. MPR can affect public awareness at the fraction of the cost of advertising, and is often much more credible. The main tools of PR are publications, events, news, speeches, public service activities, and identity media.

Designing and managing integrated marketing communications

2007-04-21T14:46:00.000-05:00

communicating ideas -- Chapter 17 -- summary

Modern marketing calls for more than developing a good product, pricing it attractively, and making it accessible to target customers. Companies must also communicate with present and potential stakeholders, and with the general public.

The marketing communications mix consists of six major modes of communication:

advertising
sales promotion
public-relations and publicity
events and experiences
direct marketing
and personal selling

The communications process consists of nine elements:

sender
receiver
message
media
encoding
decoding
response
feedback
and noise

To get their messages through, marketers must encode their messages in a way that takes into account how the target audience usually decode the message. They must also transmit the message through efficient media that reach the target audience and develop feedback channels to monitor response to the message. Consumer response to a communication can be often modeled in terms of a response hierarchy and "learned -- feel -- do" sequence.

Developing effective communications involves eight steps:

identify the target INS
determine the communications objectives
design the communications
select the communications channels
establish the total communications budget
decide on the communications mix
measure the communications results
manage the integrated marketing communications process

In identifying the target audience, the marketer needs to close any gap that exists between current public perception in the image sought. Communications objectives may involve category need, brand awareness, brand attitude, or brand purchase intention.

Formulating the communication requires solving three problems:

message strategy -- what to say
creative strategy -- how to say it
message source -- who should say it

Communications channels may be:

personal -- advocate, expert, and social channels
nonpersonal -- media, atmospheres, and events

The objective and task method of setting the promotion budget, which calls upon marketers to develop their budgets by defining specific objectives, is the most desirable.

In deciding on the marketing communications mix, marketers must examine the distinct advantages and cost of each communication tool and the company's market rank. They must also consider the type of product market in which they are selling, how ready customers are to make a purchase, and the product stage in the product lifecycle. Measuring the effectiveness of the marketing communications mix involves asking members of the target odd he and its whether they recognize or recall the communication, how many times a solid, what points they recall, how they felt about the communication, and their previous and current attitudes toward the product and the company.

Managing and coordinating the entire communications process calls for integrated marketing communications (IMC) marketing communications planning that recognizes the added value of a comprehensive plan and a bodyweight sister teaching roles of a variety of communications disciplines and combines these disciplines to provide clarity, consistency, and maximum impact to the seamless integration of discrete messages.

Managing retailing, wholesaling, and logistics

2007-04-21T14:34:00.000-05:00

Delivering value -- Chapter 16 -- summary

Retailing includes all the activities involved in selling goods or services directly to final consumers for personal, non-business use. Retailers can be understood in terms of store retailing, non-store retailing, and retail organizations.

Like products, retail store types passed through stages of growth and decline. As existing stores offer more services to remain competitive, costs and prices go up, which opens the door to new retail forms offer a mix of merchandise and services at lower prices.

The major types of retail stores are:
specialty stores
Department stores
supermarkets
convenience stores
discount stores
off-price retailers -- factory outlets, independent off-price retailers, warehouse clubs
superstores
catalog showrooms

Although most goods and services are sold through stores, nonstore retailing has been growing.

The major types of nonstore retailing are:
direct selling
multilevel network marketing
direct marketing -- e-commerce and Internet retailing
automatic vending
buying services

Although many retail stores are independently owned, an increasing number are falling under some form of corporate retailing. Retail organizations achieve many economies of scale, such as greater purchasing power, wider brand recognition, and better trained employees.

The major types of corporate retailing are:
corporate chain stores
voluntary chains
retailer cooperatives
consumer cooperatives
franchise organizations
merchandising conglomerates

Like all marketers, retailers must prepare marketing plans that include decisions on target markets, product assortment and procurement, services and store atmosphere, price, promotion, and place. These decisions must take into account major trends, such as the growth of private labels, new retail forms and combinations, growth of intertype retail competition, competition between store based and nonstore-based retailing, growth of giant retailers, decline of middle market retailers, growing investment in technology, and global presence of major retailers.

Wholesaling includes all the activities involved in selling goods or services to those who buy for resale or business use. Wholesalers can perform functions better and more cost effectively than the manufacturer can. These functions include selling and promoting, buying and assortment building, balk breaking, warehousing, transportation, financing, risk bearing, dissemination of market information, and provision of management services and consulting.

There are four type of wholesalers:
merchant wholesalers
brokers and agents
Manufacturers and retailers sales branches and purchasing offices
miscellaneous wholesalers such as agricultural assemblers and auction companies

Catholic retailers, wholesalers must decide on target markets, product assortment and services, price, permission, and place. The most successful wholesalers are those who adapt their services to meet suppliers and target customers needs.

Producers of physical products and services must decide on marketing logistics -- the best way to store and move goods and services to direct destinations; to coordinate the activities of suppliers, purchasing agents, manufactures, marketers, channel members, and customers. Major gains in a logistical efficiency have come from advances in information technology.

Managing value networks and channels

2007-04-21T14:22:00.001-05:00

Delivering value -- Chapter 15 -- summary

Most producers do not sell their goods directly to final users. Between producers and final users stands one or more marketing channels, a host of marketing intermediaries performing a variety of functions.

Marketing channel decisions are among the most critical decisions facing management. The company's chosen channels profoundly affect all other marketing decisions.

Companies use intermediaries when they lack the financial resources to carry out direct marketing, when direct marketing is not feasible, and when they can earn more by doing so. The most important functions performed by intermediaries are information, permission, negotiation, ordering, financing, risk-taking, physical possession, payment, and title.

Manufacturers have many alternatives for reaching a market. They can sell direct or use 1, 2, or three level channels. Deciding which types of channel to use calls for analyzing customer needs, establishing channel objectives, and identifying and evaluating the major alternatives, including the types and numbers of intermediaries involved in the channel.

Effective channel management calls for selecting intermediaries and training and motivating them. The goal is to build a long-term partnership that will be profitable for all channel members.

Marketing channels are characterized by continuous and sometimes dramatic change. Three of the most important trends are the growth of vertical marketing systems, horizontal marketing systems, and multichannel marketing systems.

All marketing channels have the potential for conflict and competition resulting from such sources as goal incompatibility, poorly defined roles and rights, perceptual differences, and interdependent relationships. Companies can manage conflict by striving for subordinate goals, exchanging people among two or more channel levels, co-opting the support of leaders in different parts of the channel, and encouraging joint membership in and between trade associations.

Channel arrangements are up to the company, but there are certain legal and ethical issues to be considered with regards to practices such as exclusive dealing were territories, tying agreements, and dealers right.

E-commerce has grown in importance as companies have adopted "brick and click" channel systems. Channel integration must recognize the distinctive strengths of online and off-line selling and maximize their joint contributions.

Marketing Communications

2007-04-21T10:52:00.000-05:00

Marketing communications is one of the four major elements of the company's marketing mix. Marketers must know how to use advertising, sales promotion,direct marketing, public relations, and personal selling to communicate the product's existence and value to the target customers.

The communication process itself consists of nine elements:

sender,
receiver,
encoding,
decoding,
message,
media,
response,
feedback,
and noise.

Marketers must know how to get through to the target audience in the face of the audience's tendencies toward selective attention, distortion, and recall.

Developing the promotion program involves eight steps:

1. Identify the target audience and its characteristics
2. Define the communication objective
3. Design a message containing an effective content, structure, format, and
source.
4. Select both personal and non personal communication channels
5. Establish the total promotion budget
6. Divide the promotion budget among the main promotional tools
7. Monitor to see how much of the market becomes aware of the product, tries it, and is satisfied in the process. Finally,
8. Manage and coordinate all communications for consistency, good timing, and cost effectiveness.

There are several methods to developing a communication budget, to include:

revenue/sales goals
percent of sales
competitive parity

Sadly, often small firms cut back on communication budgets when sales slide, which is exactly the opposite of what should happen. When entering new geographic markets, companies must allocate enough to make their presence known, or else possibly fail. EuroDisney had a difficult time during its early years, until it repositioned itself and understood the European consumer better.

How does a company decide between expenditures in advertising or in public relations?

The company must be cognizant of: (1) its goals, and (2) its opportunities for publicity and PR. In a multinational or global situation, it must also be conscious of the social norms. In the US, there is now an expectation that large companies give back to the communities, to the country, and engage in opportunities for the betterment of the societies in which they are doing business. In the US, advertising has lower credibility than publicity.

When operating outside the US, research must be conducted to understand the expectations of the consumer, of the various governments, of the norms, as well as understanding what the competition is doing, and whether it is best to take a different path, or to achieve parity by following the actions of those competitors.

Also, goals in terms of awareness, interest, evaluation, trial, and adoption need to be articulated and evaluated. The most effective and efficient route to goal achievement should be selected.

Marketing Logistics

2007-04-21T10:51:00.000-05:00

Retailing and wholesaling consists of many organizations designed to bring goods and services from the point of production to the point of use. Retailing includes all the activities involved in selling goods or services directly to final consumers for their personal, nonbusiness use. Retailers can be classified in terms of store retailers, nonstore retailing, and retail organizations.

Wholesaling includes all the activities involved in selling goods or services to those who are buying for the purpose of resale or for business use. Wholesalers help manufacturers deliver their products efficiently to the many retailers and industrial users across the nation. Wholesalers perform many functions, including selling and promoting, buying and assortment-building, bulk-breaking, warehousing, transporting, financing, risk bearing, supplying market information, and providing management services and counseling.

The marketing concept calls for paying increased attention to marketing logistics, an area of potentially high cost savings and improved customer satisfaction. When order processors, warehouse planners, inventory managers, and transportation managers make decisions, they affect each other's costs and demand-creation capacity. The physical-distribution concept calls for treating all these decisions within a unified framework. The task becomes that of designing physical-distribution arrangements that minimize the total cost of providing a desired level of customer service.

Retail Channel Changes

2007-04-21T10:49:00.000-05:00

During the past few decades, we have seen:

Shortening channels (i.e., fewer channel members)
More vertical marketing systems (VMS)
More vertical and horizontal integration
More direct marketing
More power retailing (e.g., Toys R Us; Walmart)
More “category killers” (i.e., stores with classification dominance in a particular product category (e.g., Toys R Us= toys; Barnes and Noble = books; Office Max and Office Depot = business supplies; Home Depot and Lowes = do-it-yourself merchandise)
Greater price competition at all levels
Proliferation of off-price and outlet malls

The next decades will be interesting. At a minimum, we will have:

Increased use of technology
Continued intense competition and industry shake-outs
Continued use of self-selection and supermarket technologies (i.e., grid layout, scanner coding, shopping carts, few employees per square foot)
Continued use of high service and narrow target marketing to differentiate to a small niche
Continued shrinking of inventories and warehouse space

Marketing Channel Management

2007-04-21T10:47:00.000-05:00

Value network and marketing channel decisions are among the most complex and challenging decisions facing the firm. Each channel system creates a different level of sales and costs. Once a particular marketing channel is chosen, the firm usually must adhere to it for a substantial period.

Marketing channels are characterized by continuous and sometimes dramatic change, especially with the changes brought by the growth of the Internet as a major marketing tool and channel of distribution. For example, the new competition in retailing no longer involves competition between individual firms but rather between retail systems. Three of the most significant trends are the growth of vertical, horizontal, and multichannel marketing systems. All channel systems have a potential for vertical, horizontal, and multichannel conflict stemming from such sources as goal incompatibility, unclear roles and rights, differences in perception, and high dependence.

Managing these conflicts can be sought through superordinate goals, exchange of persons, co-optation, joint membership in trade associations, diplomacy, mediation, and arbitration. Marketers should continue to explore and respond to the legal and moral issues involved in channel development decisions.

channel conflict

Channel conflict can probably never be totally avoided, as one is dealing with both organizations and individuals, each with their own idiosyncrasies and politics. However, conflict can be minimized by:
• Careful selection of channel partners
• Careful detailing and communication of expectations of each partner
• Upholding the expected standards
• Engaging in ethical decision-making

Resource Links

2007-04-21T10:44:00.001-05:00


Best Global Brands - 2001 (http://www.businessweek.com/magazine/content/01_32/b3744001.htm) Businessweek article describing the best global brands.
Pricing Strategies (http://www.economist.com/business/displayStory.cfm?story_id=1143622) Article describing what not to do when pricing products.
Superbrands - America's Top Brands - Power Brands - Top Spending Brands (http://www.brandweek.com/brandweek/features/superbrands/superbrands.jsp) Collection of top brands organized by year and catagory
A Short Introduction to Branding: BrandSolutions, Inc (http://www.brand.com/WhatIsBrand.htm) Branding introduction and examples

Pricing Strategies

2007-04-21T10:40:00.000-05:00

Price has become one of the more important marketing variables. Despite the increased role of nonprice factors in the modern marketing process, price is a critical marketing element, especially in markets characterized by monopolistic competition or oligopoly. In setting the price of a product, the company should follow a six-step procedure.

Establish a marketing objective
Determine the demand schedule
Estimate how the product's costs vary at different output levels, production levels, different marketing strategies, differing marketing offers, and target costing based on market research.
Examine competitors' prices as a basis for positioning product price.
Select a pricing method, such as markup pricing, target return pricing, perceived-value pricing, value-pricing, going-rate pricing, and sealed-bid pricing.
Select the final price.

Pricing involves the customer demand schedule, the cost function, and competitors' prices. The question is how should a company integrate cost-, demand-, and competition-based pricing considerations?

In setting a price the firm will have to consider the following cost, demand-, and competition-based pricing decisions:

Cost-based pricing decisions, using marginal analysis or break-even analysis
Demand-based pricing decisions, such as type of demand for the product, changes in buyer attitude toward price with changes in the economic environment,and the elasticity of demand. And finally,
Competition-based pricing decisions. To set prices effectively, an organization must be aware of the prices charged by competitors.

Price / Quality Mix

Generally, but not always, price is a signal of product quality. The reason is fairly straightforward. Most products and services, in reality, are priced on a cost plus markup basis. Thus, if the cost of goods is $10 and the target margin is 50%, the selling price is $15. And generally, adding quality to a product or service increases the cost of goods. For example, using leather as a seating material in an automobile is more expensive than using cloth. To be profitable, the company must increase its prices to recover the added cost of leather over cloth. In this way, historically, price has generally been a reliable signal of quality. Sears Roebuck built their entire mail order catalog business on “Good”, “Better”, and “Best” quality levels with corresponding increasing prices.

Service Strategies

2007-04-21T10:39:00.000-05:00

As the United States moves increasingly toward a service economy and beyond, marketers need to know more about marketing service products. Services are activities or benefits that one party can offer to another that are essentially intangible and do not result in ownership of anything tangible. Services are intangible, inseparable, variable, and perishable. Because services generally are intangible, customers perceive them as a more risky proposition and find evaluation more difficult. Accordingly, they tend to rely more on personal references or information sources, brand reputation, and the price and/or facilities of the service provider as an indication of quality. To overcome these risks and perceptions, marketers must reduce the complexity involved with the service, stress the positive elements of tangibility in the service, make all communications with the customer very clear and unambiguous, and focus constantly on service quality.

The evidence from the PIMS project (Profit Impact of Marketing Strategy-See The PIMS Principles, Robert D. Buzzell and Bradley T. Gale, ISBN 0-02-904430-8 for details) is absolutely clear, i.e., high quality products or services are both more profitable than lower quality products or services. On page 443, Kotler says, “Every business is a service business. Does your service put a smile on the customer’s face?” Every business should be striving to produce the highest quality products and services for their customers at all times. In real life, it is not possible to substitute a little higher quality service for a little lower quality product. Customers do not make such trade-offs.

Product and Brand Strategies

2007-04-21T10:36:00.000-05:00

Product is the first and most important element of the marketing mix. A product is anything that can be offered to a market for attention, acquisition, use, or consumption and that might satisfy a want or need. Products can be physical objects, services, people, places, organizations, and ideas. Product strategy calls for making coordinated decisions on product mixes, product lines, brands, packaging, and labeling.

Companies should develop brand policies for the individual product items in their lines. They must decide on product attributes (quality, features, design), whether to brand at all, whether to do producer or distributor branding, whether to use family brand names or individual brand names, whether to extend the brand name to new products, whether to create multiple brands, and whether to reposition any of them.

Sometimes, companies will start with a very good brand that they have invested very large sums of money into and try to “stretch” the brand to cover additional, similar or related products and/or services (also called line extension). Sometimes it can be a good idea, but sometimes it can be a very bad idea. There are no rules. When Hunt Foods, Inc. (now Conagra, Inc.) added chopped onions to their flagship brand, Hunt’s Tomato Sauce, it was a great success. But when they added tomato bits to another product, Hunt’s Tomato Sauce with Tomato Bits, they stretched the brand too far, and the product failed. Probably the best insight into this example is that housewives saw adding onions as a real benefit to themselves, but tomato bits made no difference whatsoever.

Resource Links

2007-04-21T10:35:00.001-05:00

World Trade Organization
(http://www.wto.org/)
Global international organization dealing with the rules of trade between nations

Market Segmentation and Targeting
(http://www.business.com/directory/advertising_and_marketing/segmentation_and_targeting/)
Listing of articles related to market segmentation and targeting.

Marketing Strategies
(http://www.smallbusiness-marketing-plans.com/marketing-strategies.html)
Overview of general marketing strategies

Market Segmentation
(http://www.businessplans.org/Segment.html)
Description of the differences to consider in market segmentation

Competitive intelligence

2007-04-21T10:31:00.001-05:00

Competitive intelligence tries to ensure that the organization has accurate and current information about its competitors and has a plan for using that information to its advantage. Competitive intelligence uses public sources to find and develop information on competition, competitors, and the market environment. Unlike business espionage, which develops information by illegal means like "hacking," competitive intelligence uses public information - information that can be legally and ethically identified and accessed.

Effective implementation of a competitive intelligence program requires not only information about the competitors, but also information on other environmental trends such as industry trends, legal and regulatory trends, international trends, technology developments, political developments and economic conditions.

New Market & Global Market Offerings

2007-04-21T10:29:00.001-05:00

Mature and declining products must be replaced with newer products so that the organization's life cycle can be revitalized. If the firm does not obsolete its products and create new ones, its competitors surely will! Similarly, companies cannot continue to focus only on the domestic market. The approach to global markets may require any or all of market development, product development, and diversification strategies.

Positioning

2007-04-21T10:28:00.000-05:00

Positioning is a matter of perceptions. It is how your product or service is perceived by the marketplace. Effective positioning puts you in the top of mind position among potential customers. For example, the product Nyquil was originally conceived as a daytime cough suppressant. Unfortunately, it made people drowsy. In order to recoup product development costs, the side affect of drowsiness was then transformed into a powerful positioning strategy. Nyquil became "the night time, coughing, sniffling, sneezing so you can rest" medicine. By changing its positioning, Nyquil created and owned the nighttime cold remedy market.

Finding out how consumers perceive a firm's product relative to those of competitors is essential in developing a positioning strategy. Perceptual maps can be used to try to understand consumer perceptions; a perceptual map is a two dimensional representation of the customers’ perceptions of the benefits of competitive products. However, an organization can help customers to better understand the underlying benefits of its products through the effective use of integrated marketing communications, including advertising, public relations, selling and relational behavior.

Market Segmentation and Segment Selection

2007-04-21T10:27:00.000-05:00

Market segmentation is one of the most fundamental concepts in marketing and your choice of which approach to adopt will directly affect the impact of segmentation on your business. Market segmentation, correctly applied, is about understanding the requirements of customers and, therefore, how they decide between one offer and another. This insight is used to form groups of customers who share the same or very similar value criteria. A company is then able to determine which groups of customers it is best suited to serve and which product and service offers will both meet the requirements of its selected segments and outperform any competition. Once you identify the segments, you should select the segments whose needs the organization can best satisfy and from which the organization can generate an appropriate return on its investment.

Competition

2007-04-21T10:26:00.000-05:00

Competition can be defined by the five competitive forces in business:

new entrants,
threat of substitution,
the bargaining power of buyers,
the bargaining power of suppliers,
and rivalry among current competitors.

No organization exists without competitors. Effective marketing management requires an analysis of the competitive environment and an understanding of the nature and conditions of the industry rivalry.

In a competitive analysis, you should

identify the major competitors,
review their business practices,
strengths, and weaknesses,
and look for market opportunities for your organization within those competitive gaps.

Competition can come from many sources. Customers can compete with you by deciding to make the product that they were buying from you. Suppliers can decide to bypass you in the value chain and sell directly to your customers. The most likely source of competitive pressure can come from substitutes. Products tend to be close substitutes when there are similar product performance characteristics, similar occasions for use, or they are sold in the same geographic market.

Some examples of substitutes are email for postal service mail, or when the use of one product eliminates the need for another, such as the use of better dental products eliminates the need for frequent visits to the dentist. Of course, not purchasing a product is also a substitute, as anyone who loves chocolate will understand.

Analyzing Consumer and Business Markets' Buyer Behavior

2007-04-21T10:24:00.000-05:00

In addition to a company's marketing mix and factors present in the external environment, a buyer is also influenced by personal characteristics and the process by which he or she makes decisions. A buyer's cultural characteristics, including values, perceptions, preferences, and behavior learned through family or other key institutions, is the most fundamental determinant of a person's wants and behavior.

The buyer's behavior is influenced by four major factors:

cultural,
social,
personal,
and psychological.

Business markets consist of individuals and organizations that buy goods for purposes of further production, resale, or redistribution. Businesses (including government and nonprofit organizations) are a market for raw and manufactured materials and parts, installations, accessory equipment, and supplies and services. The variables impacting the business buyer are similar to those of the consumer buyer in some ways but very different in others. In general, the business buyer is much more technical, price-oriented, educated for the job, and risk-averse than the consumer buyer. In addition, with the business-buying environment, there is more concern for the status and power of potential vendors, and persuasiveness and empathy play relatively lower roles. Consumer and business markets and buying behavior have to be understood before sound marketing plans can be developed.

Measuring Demand & Scanning the Environment

2007-04-21T10:22:00.000-05:00

All firms operate some form of marketing information system that may consist of four subsystems:

an internal records system,
a marketing intelligence system,
marketing research,
and a Marketing Decision Support System (MDSS marketing system).

These systems allow marketing managers to estimate current and future demand.

Change in the macroenvironment is the primary basis for market opportunity. Organizations/firms must start the search for opportunities and possible threats with their macroenvironment. The macroenvironment consists of all the actors and forces that affect the organization's operations and performance. They need to understand the trends and megatrends characterizing the current macroenvironment. This is critical to identify and respond to unmet needs and trends in the marketplace.

The macroenvironment consists of six major forces:

demographic,
economic,
natural,
technological,
political/legal,
and social/cultural.

Strategic Market Planning

2007-04-21T10:20:00.001-05:00

A major challenge for marketing-oriented companies as they respond to the rapidly changing marketplace is to engage continuously in market-oriented strategic planning. They must learn how to develop and maintain a viable fit among their objectives, resources, skills, and opportunities.

Corporate strategic planning involves four planning activities.

1. Develop a clear sense of the company's mission in terms of its industry scope, products and applications scope, competence scope, market segment scope, vertical scope, and geographical scope.

2. Identify the company's strategic business units (SBUs).

3. Allocate resources to the various SBUs based on their market attractiveness and business strength.

4. Expanding present businesses and develop new products to fill the strategic planning gap.

Marketing plans focus on a product/market and consist of the detailed marketing strategies and programs for achieving the product's objectives in a target market.

The marketing planning process consists of five steps:

analyzing market opportunities;
researching and selecting target markets;
designing market strategies;
planning marketing programs;
and organizing, implementing, and controlling the marketing effort.

The resulting document consists of an:

executive summary,
current market situation,
opportunity and issue analysis,
objectives,
marketing strategy,
action programs,
projected profit and loss statement,
and controls.

developing pricing strategies and programs

2007-04-18T00:40:00.001-05:00

shaping the market offerings -- Chapter 14 -- summary

Despite the increased role of nonprice factors and modern marketing, price remains a critical element of the marketing mix. Price is the only element that produces revenue; the others produce costs.

In setting pricing policy, a company follows a six step procedure.

selecting the pricing objective
estimating the demand curve
estimate how its costs vary at different levels of output, different levels of accumulated product should experience, and differentiated marketing offers
examines competitors costs, prices, and offers
selects a pricing method
then selects the final price

Companies do not usually set a single price, but rather a pricing structure that reflects variations in geographical demand and costs, market segment requirements, purchase timing, order levels, and other factors. Several price adaptation strategies are available:

geographical pricing
price discounts and allowances
promotional pricing
discriminatory pricing

After developing pricing strategies, firms often face situations in which they need to change prices. A price decrease might be brought about by excess plant capacity, declining market share, a desire to dominate the market through lower costs, or economic recession. A price increase might be brought about by cost inflation or over demand. Companies must carefully manage customer perceptions in raising prices.

Companies must anticipate competitor price changes and prepare contingent response. A number of responses are possible in terms of maintaining or changing price or quality.

The firms facing our competitors price change must try to understand the competitors and tend and the likely duration of the change. Strategy often depends on whether a firm is producing homogeneous or nonhomogeneous products. Market leaders attacked by lower-priced competitors can choose to maintain price, raise the perceived quality of their product, reduced price, increase price and improve quality, or launch a lower-priced fighter line.

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designing and managing services

2007-04-18T00:30:00.001-05:00

shaping the market offerings -- Chapter 13 -- summary

A service is any act or performance that one party can offer to another that is essentially intangible and does not result in the ownership of anything. It may or may not be tied to a physical product.

Services are in tangible, inseparable, variable, and perishable. Each characteristic poses challenges and require certain strategies. Marketers must find ways to give tangibility to intangibles; to increase the productivity of service providers; to increase and standardize the quality of the service provided; and to match the supply of services with market demand.

In the past service industries lagged behind manufacturing firms in adopting and using marketing concepts and tools, but the situation has not changed. Service marketing must be done holistically. It calls not only for external marketing but also for internal marketing community employees, and interactive marketing to emphasize the importance of both high-tech and high-touch.

Customers expectations play a critical role in their service experiences and evaluations. Companies must manage service quality by understanding the effects of each service encounter.

Top service companies excel at the following practices:

a strategic concept
history of top management commitment to quality
hi standards
self-service technologies
systems for monitoring service performance and customer complaints
emphasis on employee satisfaction

To brand a service organization effectively, the company must differentiate its brand through primary and secondary service features and develop appropriate brand strategies. Effective branding programs for services often employ multiple brand elements. They also develop brand hierarchies and portfolios and establish an image dimensions to reinforce or complement service offerings.

Even product-based companies must provide post purchase service. To provide the best support, and manufacturer must identify the services customers value most and the relative importance. The service mix includes both pre-sale services (facilitating and value augmenting services) and post sales services (customer service departments, repair and maintenance services).

Technorati Tags: management, marketing, services

setting product strategy

2007-04-18T00:17:00.001-05:00

shaping the market offerings -- chapter 12-- summary

Product is the first and most important element of the marketing mix.Product strategy calls for making coordinated decisions on product mixes, product lines, brands, and packaging and labeling.

And planting its market offering, the marketer needs to think through the five levels of the product:

the core benefit
the basic product
the expected product
the augmented product
the potential product

Products can be classified in several ways. In terms of durability and reliability, products can be non-durable goods, durable goods, or services. In the consumer goods category, products are convenience goods, shopping goods, specialty goods, or unsought goods. In the industrial goods category, products fall into one of three categories: materials and parts, capital items, or supplies and business services.

Brands can be differentiated on the basis of a number of different product or service dimensions;

product form
features
performance
conformance
durability
reliability
repair ability
style and design
service dimensions
delivery
installation
customer training
customer consulting
maintenance and repair

Most companies sell more than one product. In product mix can be classified according to wait, length, death, and consistency. These four dimensions are the tools for developing the company's marketing strategy and deciding which product lines to grow, maintain, harvest, and divest. To analyze a product line and decide how many resources should be invested in that line, product line managers need to look at sales and profits and market profile.

A company can change the product component of its marketing mix by lengthening its product via line stretching or line filling, by modernizing its products, by featuring certain products, and by pruning its products to eliminate the least profitable.

Brands are often sold or marketed jointly with other brands. Ingredient brands and co-brands can add value assuming they have equity and are perceived as fitting appropriately.

Physical products have to be packaged and labeled. Well-designed packages can create convenience value for customers and promotional value for producers. In effect, they can act as "five second commercials" for the product. Warranties and guarantees can offer further assurance to the consumer.

How to derive fresh consumer insights

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How to derive fresh consumer insights to differentiate products and services.

If companies examined customers and tire experience with a product or service -- the consumption chain -- they can uncover opportunities to position their offerings in ways that neither they nor their competitors thought possible. Here is a thought provoking list of questions marketers can use to help them identify new, customer base points of differentiation.

How do people become aware of their need for your product and service?
How do consumers find your offering?
How do consumers make their final selection?
How do consumers order and purchase your product or service?
What happens when your product or service is delivered?
How is your product installed?
How is your product or service paid for?
How is your product stored?
How is your product moved around?
What is the consumer really using your product for?
What do consumers need help with when they use your product?
What about returns or exchanges?
How is your product repaired or service?
What happens when your product is disposed of or no longer used?

Tapping into global markets

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creating successful long-term growth -- Chapter 21 -- summary

Despite the many challenges in the international arena:

shifting borders
unstable government
foreign exchange problems
corruption
technological pirating

Companies selling in global industries need to internationalize their operations. Companies cannot simply stay domestic and expect to maintain their markets.

In deciding to go abroad, a company needs to define its international marketing objectives and policies. The company must determine whether to mark and the few countries or many countries. They must decide which countries to consider. In general, the candidate countries should be rated on three criteria: market attractiveness, risk, and competitive advantage. Developing countries offer a unique set of opportunities and risks.

Once accompanied his side to a particular country, it must determine the best mood of entry. Its broad choices are indirect exporting, direct exporting, licensing, joint ventures, and direct investment. Each succeeding strategy involves more commitment, risk, control, and profit potential.

In deciding on the marketing program, a company must decide how much to adapt its marketing program (product, communications, distribution, and price) to local conditions. At the product level, firms can pursue a strategy of straight extension, product adaptation, or product invention. At the communication level, firms may choose communication adaptation or dual adaptation. At the price level, firms may encounter price escalation in gray markets. At the distribution level, firms need to take a whole channel view of the challenge of distributing products to the final users. In creating all elements of the marketing program, firms must be aware of the cultural, social, political, technological, environmental, and legal limitations they face in other countries.

Country of origin perceptions can affect consumers and businesses alike. Managing this perceptions and the most advantageous way possible is an important marketing priority.

Depending on the level of international involvement, companies manage their international marketing activity in three ways: through export departments, international divisions, or a global organization.

Introducing new market offerings

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creating successful long-term growth -- Chapter 20 -- summary

Once the company has stagnated the market, chosen its target customer groups and identified their needs, and determine its desired market positioning, it is ready to develop and launch appropriate new products. Marketing should participate with other departments and every stage of new product development.

Successful new product development requires the company to establish an effective organization for managing the development process. Companies can choose to use product managers, new product managers, new product committees, new product departments, or new product venture teams. Increasingly, companies are adopting cross functional teams and developing multiple product concepts.

Eight stages are involved in the new product development process:

idea generation
screening
concept development and testing
market strategy development
business analysis
product development
market testing
commercialization.

At each stage, the company must determine whether the idea should be dropped or move to the next stage.

The consumer adoption process is the process by which consumers learn about new products, try them, and adopt or reject them. Today many marketers are targeting heavy users and early adopters of new products, because both groups can be reached I specific media and tend to be opinion leaders. The consumer adoption process is influenced by many factors beyond the marketers control, including consumers and organizations willingness to try new products, personal influences, and the characteristics of the new product or innovation.

dealing with competition

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Chapter 11 -- summary

To prepare an effective marketing strategy, a company must study competitors as well as actual potential customers. Companies need to identify competitors strategies, objectives, strength, and weaknesses.

A company to close its competitors are they seeking to satisfy same customers and needs and making similar offers. A company should also pay attention to latent competitors,

who may offer new or other ways to satisfy the same needs. A company should identify competitors by using both the industry and market based analysis.

A market leader has the largest market share in the relevant product market. To remain dominant, the leader looks for ways to expand total market demand, attempts to protect its current market share, and perhaps tries to increase its market share.

A market challenger attacks the market leader and other competitors in an aggressive bid for more market share. Challengers can choose from five types of general attack; challengers must also choose specific attack strategies.

A market follower is a runner up firm that is willing to maintain its market share and not rock the boat. A follower can play the role of counterfeiter, cloner, imitator, or adapter.

A market nicher serves small market segment not being served by larger firms. The key to nichemanship is specialization. Nichers develop offerings to fully meet a certain group of customers needs, commanding a premium price in the process.

As important as a competitive orientation is in today's global market, companies should not ever do the emphasis on competitors. They should maintain a good balance of consumer and competitor monitoring.

crafting the brand positioning

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Chapter 10 -- summary

Deciding on positioning requires the determination of a frame of reference -- identifying the target market and the nature of the competition -- and the ideal point of parity and points of difference brand associations.to determine the proper competitive frame of reference, one must understand consumer behavior in the considerations consumers use in making brand choices.

Point of difference are those associations unique to the brand that are also strongly held and favorably evaluated by consumers.

Point of parity are those associations not necessarily unique to the brand but perhaps shared with other brands.

Category point of parity associations are associations consumer view as being necessary to a legitimate incredible product offering within a certain category.

Competitive point of parity associations are designed to negate competitors points of difference.

The key to competitive advantages product differentiation. A market offering can be differentiated along five dimensions:

product
services
personnel
Channel
image

Because economic conditions change and competitive activity varies, companies normally find it necessary to be formulate their marketing strategy several times during a product's lifecycle. Technologies, product forms, and brands also exhibit lifecycles with distinct stages. The general sequence of stages in a lifecycle is introduction, growth, maturity, and decline. The majority of products today or in the maturity stage.

Each stage of the product lifecycle calls for different marketing strategies. The introduction stage is marked by slow growth in minimal profits. If successful, the product enters a gross stage marked by rapid sales growth and increasing profits. There follows a maturity stage in which sales growth slows and profits stabilize. Finally, the product enters a decline stage. The company's task is to identify the truly weak products; develop a strategy for each one; and phase out weak products in a way that minimizes the hardship to company profits, employees, and customers.

Like products, markets evolve through four stages:

emergence
growth
maturity
decline

creating brand equity

2007-04-14T14:15:00.001-05:00

Chapter 9 -- summary

A brand is a name, term, signed, symbol, or design, or some combination of these elements, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competitors. The different components of a brand -- brand names, logos, symbols, etc. are brand elements.

Brands offer a number of benefits to customers and firms. Brands are valuable intangible assets that need to be managed carefully. The key to branding is that consumers perceive differences among brands in a product category.

Brand equity should be defined in terms of marketing affects uniquely attributed to a brand. That is, brand equity relates to the fact that different outcomes result in the marketing of a product or service because of its brand, as compared to the results if that same product or service was not identified by that brand.

Building brand equity depends on three main factors:

the initial choices for the brand elements or identities making up the brand
the way the brand is integrated into the supporting marketing program
associations and directly transferred to the brand by linking the brand to some other entity

Brand equity needs to be measured in order to be managed well. Brand audits are in-depth examinations of the health of a brand and can be used to set strategic direction for the brand. Tracking studies involve information collected from consumers on a routine basis over time and provide valuable tactical insights into the short-term effectiveness of marketing programs and activities. Brand audits measure "where the brand has been," and tracking studies measure "where the brand is now" and whether marketing programs are having the intended effect.

A branding strategy for a firm identifies which brand elements a firm chooses to apply across the various products it sells. And a brand extension, a firm uses an established brand name to introduce a new product. Potential extensions must be judged by how effectively they leverage existing brand equity to a new product, as well as how effectively the extension, in turn, contributes to the equity of the existing parent brand.

Brands can play a number of different roles within the brand portfolio. Brands may expand coverage, provide protection, extended image, or fulfill that it a variety of other roles for the firm. Each brand-name product must have a well-defined positioning. In that way, Brands can maximize coverage and minimize overlap and us optimize the portfolio.

Identifying market segments and targets

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-- Continued...

Sequential segmentation

business buyers seek different benefit bundles based on their stage in the purchase decision process.

1.first time prospects

2. Novices

3.sophisticates

One proposed segmentation scheme classifieds business buyers into three groups, each warranting a different type of selling:

1. price oriented customers (transactional selling) -- wanting value through lowest price

2.solution oriented customers (consultants selling) -- want value through more benefits and advice

3.strategic value customers (price selling) -- want value through the supplier tell investing in purchasing and the customers business

Market targeting

once the firm has identified its market segment opportunities, and it has to decide how many and which ones to target.

Effective segmentation criteria

to be useful, market segments must rate favorably on five key criteria:

Measurable -- the size, purchasing power, and characteristics of the segments can be measured

substantial -- the segments are large and profitable enough to serve

accessible -- the segments can be effectively reached and served

differentiable -- the segments are conceptually distinguishable and respond differently to different marketing mix elements and programs

actionable -- effective programs can be formulated for tracking and serving the segments

Evaluating and selecting the market segments

When evaluating different market segments, the firm must look for two factors: the segments overall attractiveness and the company's objectives and resources.

After evaluating different segments, the company can consider the five patterns of target market selection:

single segment concentration

selective specialization

product specialization

market specialization

full market coverage in paragraph

Major segmentation variables for business markets

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Major segmentation variables for business markets

Demographic

1. industry: which industries should we serve?

2. Company size: what size company should we serve?

3. Location: what geographical area should we serve?

Operating variables

4. Technology: what customer technology should be focused on?

5. User a nonuser status: should we serve heavy users, medium users, light users, or new users?

6. Customer capabilities: should we serve customers needing many or few services?

Purchasing approaches

7. purchasing function organization: should we serve companies with highly centralized or decentralized purchasing organizations?

8. Power structure: should we serve companies that are engineering dominated, financially dominant, and so on?

9. Nature of existing relationships: should we serve companies with which we have strong relationships or simply go after the most desirable companies?

10. General purchase policies: should we serve companies that prefer leasing? Service contracts? Systems purchases? Sealed bidding?

11. Purchasing criteria: should we serve companies that are seeking quality? Service? Price?

Situational factors

12. Urgency: should we serve companies that need quick and sudden delivery or service?

13. Specific application: should we focus on certain applications of our product rather than all applications?

14. Size of order: should we focus on large or small orders?

Personal characteristics

15. Buyer seller similarity: should we serve companies whose people and values are similar to ours?

16. Attitudes toward risk: should we serve risk-taking or risk avoiding customers?

17. Loyalty: should we serve companies that show high loyalty to their suppliers?

Levels of market segmentation

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Massmarketing -- seller engages in the mass production, mass distribution, and mass promotion of one product for our buyers.

Argument for massmarketing -- creates largest potential market, which leads to the lowest costs, which in turn can lead to lower prices or higher margins

argument against massmarketing -- increasing splintering of the market. Diverse advertising and distribution channels increases difficulty and expense is to reach mass audiences.

Most companies are turning to micro marketing at one of four levels:

segments
niches
local areas
individuals

Marketers do not create the segments -- the marketers task is to identify the segments and decide which ones to target.

Flexible market offering -- consists of two parts: a naked solution containing the product and service elements at all segment members value, and discretionary options that some segment members value

Market segments can be defined in many different ways.

Identify preference segments.

Homogeneous preferences -- market where all the consumers have roughly the same preferences

diffused preferences -- consumers vary greatly in their preferences

clustered preferences -- market reveals distinct preference clusters, called natural market segments

Niche marketing -- narrowly define customer group seeking a distinctive mix of benefits. Globalization has facilitated niche marketing.

Marketers usually identify niches by dividing a segment into sub segments. As marketing efficiency increases, niches that were seemingly too small may become more profitable.

Local marketing -- marketing programs tailored to the needs and wants of local customer groups such as trading areas, neighborhoods, and individual stores.

Local marketing reflects a growing trend called grassroots marketing. Marketing activities concentrate on getting as close and personally relevant to individual customers as possible. A large part of local, grassroots marketing is experimental marketing, which promotes a product or service not just by communicating its features and benefits, but also connecting it with unique and interesting experiences.

Customerization -- ultimate level of segmentation leads to segments of one, customized marketing for one-to-one marketing. Combines optionally driven mass customization with customized marketing in a way that empowers consumers to design a product and service offering of their choice.

Segmenting consumer markets

Geographic segmentation -- geographical units such as nations, states, regions, counties, cities, neighborhoods

demographic segmentation -- variables such as age, family size, family lifecycle, gender, income, occupation, education, religion, race, generation, nationality, and social class

psychographic segmentation -- the science of using psychology and demographics to better understand consumer. Buyers are divided into different groups on the basis of psychological/personality traits, lifestyle, or values

behavioral segmentation -- buyers are divided in groups on the basis of their knowledge of, attitude toward, use of, or response to product

Bases for segmenting business markets

business markets can be segmented with some of the same variables used in consumer market segmentation, but business marketers also use other variables.

cont ....

Connecting with the customer

2007-04-14T13:38:00.001-05:00

Identifying market segments and targets

Marketing concepts -- Chapter 8

Target marketing involves three activities:

market segmentation
market targeting
market positioning

Markets can be targeted at four levels:

segments -- large, identifiable groups within a market
niches -- narrowly defined groups
local areas -- grassroots marketing for treating areas, neighborhoods, and individual stores
individuals

More companies now practice individual and Mass customization. The future is likely to see more self marketing, a form of marketing in which individual consumers take the initiative and designing products and brands.

There are two bases for segmenting consumer markets:

consumer characteristics
consumer responses

Major segmentation variables for consumer markets are geographic, demographic, psychographic, and behavioral. These variables can be used singly or in combination.

Business marketers use all these variables along with operating variables, purchasing approaches, and situational factors.

To be useful, market segments must be measurable, substantial, accessible, differentiable, and actionable.

A firm has to evaluate the various segments and decide how many and which ones to target:

a single segment
several segments
specific product
a specific market
full market

If it serves the full market, it must choose between differentiated and undifferentiated marketing. Firms must also monitor segment relationships, and seek economies of scope and the potential for marketing to super segments. They should develop segment by segment and invasion plans. Marketers must choose target markets in a socially responsible manner.

marketing concepts unit 1 - summary

2007-04-09T01:10:00.001-05:00

Global Marketing Management -

Today's marketplace is driven by a variety of factors --your customers, your
competition, technology, and the market forces affecting your industry
on a global scale. To survive, you must constantly rethink and reinvent
your company's approach to and relationship with its critically
important customers.

Global Marketing Management focuses on competitive strategy,
particularly in a global context. Issues include understanding
customers, value delivery, relationship management, and communication
strategy.

Strategic Market Planning

Develop a clear sense of the company's mission in terms of its
industry scope, products and applications scope, competence scope,
market segment scope, vertical scope, and geographical scope.
Identify the company's strategic business units (SBUs).
Allocate resources to the various SBUs based on their market attractiveness and business strength.
Expanding present businesses and develop new products to fill the strategic planning gap.

Marketing plans focus on a product/market and consist of the
detailed marketing strategies and programs for achieving the product's
objectives in a target market. The marketing planning process consists
of five steps: analyzing market opportunities; researching and
selecting target markets; designing market strategies; planning
marketing programs; and organizing, implementing, and controlling the
marketing effort. The resulting document consists of and executive
summary, current market situation, opportunity and issue analysis,
objectives, marketing strategy, action programs, projected profit and
loss statement, and controls.

Measuring Demand & Scanning the Environment

Marketing information is a critical element in effective marketing
as a result of the trend toward global marketing, the transition from
buyer needs to buyer wants, and the transition from price to non-price
competition. All firms operate some form of marketing information
system that may consist of four subsystems: an internal records system,
a marketing intelligence system, marketing research, and a Marketing
Decision Support System (MDSS marketing system). These systems allow
marketing managers to estimate current and future demand.

Change in the macroenvironment is the primary basis for market
opportunity. Organizations/firms must start the search for
opportunities and possible threats with their macroenvironment. The
macroenvironment consists of all the actors and forces that affect the
organization's operations and performance. They need to understand the
trends and megatrends characterizing the current macroenvironment. This
is critical to identify and respond to unmet needs and trends in the
marketplace. The macroenvironment consists of six major forces:
demographic, economic, natural, technological, political/legal, and
social/cultural.

Analyzing Consumer and Business Markets' Buyer Behavior

In addition to a company's marketing mix and factors present in the
external environment, a buyer is also influenced by personal
characteristics and the process by which he or she makes decisions. A
buyer's cultural characteristics, including values, perceptions,
preferences, and behavior learned through family or other key
institutions, is the most fundamental determinant of a person's wants
and behavior. The buyer's behavior is influenced by four major factors:
cultural, social, personal, and psychological.

Business markets consist of individuals and organizations that buy
goods for purposes of further production, resale, or redistribution.
Businesses (including government and nonprofit organizations) are a
market for raw and manufactured materials and parts, installations,
accessory equipment, and supplies and services. The variables impacting
the business buyer are similar to those of the consumer buyer in some
ways but very different in others. In general, the business buyer is
much more technical, price-oriented, educated for the job, and
risk-averse than the consumer buyer. In addition, with the
business-buying environment, there is more concern for the status and
power of potential vendors, and persuasiveness and empathy play
relatively lower roles. Consumer and business markets and buying
behavior have to be understood before sound marketing plans can be
developed.

Analyzing business markets

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Marketing concepts -- Chapter 7 -- summary

Organizational buying is the decision-making process by which formal organizations establish the need for purchased products and services, then identify, a vitally, and choose among alternative brands and suppliers. The business market consists of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied others.

Compared to consumer markets, business markets generally have fewer and larger buyers, a closer customer supplier relationship, and more geographically concentrated buyers. Demand in the business market is derived from demand in the consumer market and fluctuates with the business cycle. Nonetheless, the total demand for many business goods and services is quite price-inelastic. Business marketers need to be aware of the role of professional purchasers and their influencers, the need for multiple sales calls, and the importance of direct purchasing, reciprocity, and leasing.

The buying center is the decision-making unit of a buying organization. It consists of:

initiators
users
influencers
deciders
approvers
buyers
gatekeepers

To influence these parties, marketers must be aware of environmental, organizational, interpersonal, and individual factors.

Business marketers must form strong bonds and relationships with their customers and provide them added value. Some customers, however, may prefer more of a transactional relationship.

The institutional market consists of schools, hospitals, nursing homes, prisons, and other institutions that provide goods and services to people in their care. Buyers for government organizations tend to require a great deal of paperwork from their vendors and to favor open bidding and domestic companies. Suppliers must be prepared to adapt their offers to the special needs and procedures found in institutional and government markets.

Analyzing consumer markets

2007-04-09T00:50:00.001-05:00

Marketing concepts -- Chapter 6 -- summary

Consumer behavior is influenced by three factors:

cultural -- culture, subculture, and social class
social -- reference groups, family, and social roles and statuses
personal -- age, stage in life cycle, occupation, economic circumstances, lifestyle, personality, and his self-concept

Research into all these factors can provide marketers with clues to reach and serve consumers more effectively.

Four main psychological processes affect consumer behavior:

motivation
perception
learning
memory

To understand how consumers actually make buying decisions, marketers must identify who makes and has input into the buying decision; people can be inhibitors, influencers, deciders, buyers, or users. Different marketing campaigns might be targeted to each type of person.

The typical buying process consists of the following sequence of events:

problem recognition
information search
evaluation of alternatives
purchase decision
post purchase behavior

The marketers job is to understand the behavior at each stage. The attitudes of others, unanticipated situational factors, and perceived risk may all affect the decision to buy, as will consumers level of post-purchase satisfaction and post purchase actions on the part of the company.

Conducting marketing research and forecasting demand

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Marketing concepts -- Chapter 4

Summary

Companies can conduct their own marketing research or hire other companies to do it for them. Good marketing research is characterized by:

the scientific method
creativity
multiple research methods
accurate model building
cost-benefit analysis
healthy skepticism
ethical focus

The marketing research process consists of:

defining the problem and research objective
developing the research plan
collecting the information
analyzing the information
presenting the findings to management
making the decisions

In conducting research, firms must decide whether to collector and data or use data of the arty exists. They must also decide which research approach and which research instruments to use.

Research approaches -- observational, focus group, survey, behavioral data, experimental

research instruments -- questionnaires, mechanical instruments

in addition, they must decide on a sampling plan or contact method.

Analysis should ensure that the company achieves the sales, profits, and other goals established in its annual plan.

The main tools are:

sales analysis
market share analysis
marketing and expense to sales analysis
financial analysis of the marketing plan

Profitability analysis seeks to measure and control the profitability of various products, territories, customer groups, trade channels, and order sizes. An important part of controlling for profitability is assigning costs and generating profit and loss statements.

There are two types of demand: market demand and company demand.

To estimate current demand, companies attempt to:

determined total market potential
area market potential
industry sales
market share

To estimate future demand:

Company survey buyer's intentions
solicit their sales force input
gather expert opinions
engage in market testing.

Mathematical models, advanced statistical techniques, and computerized data collection procedures are essential to all types of demand and sales forecasting.

Capturing market insights

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Marketing information systems (MIS) -- consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision-makers.

Components of a modern marketing information system

internal records and marketing intelligence
the order to payment cycle 
sales, inventory, and restocking information systems
databases, data warehousing, and data mining

The marketing intelligence system -- is a set of procedures and sources for managers use to obtain everyday information about developments in the marketing environment.

A company can take several steps to improve the quality of its marketing intelligence:

train and motivate the sales force to spot and report new developments
motivate distributors, retailers, and other intermediaries to pass along important intelligence
external networking
customer advisory panels
take advantage of government data resources
purchase information from outside suppliers
online customer feedback systems to collect competitive intelligence

Four main ways marketers can find relevant online information:

Independent customer goods and service review forums such as:

epinions.com

rateital.com

consumerreview.com

bizrate.com

distributor or sales agent feedback sites such as:

Amazon.com

elance.com

commerce sites offering customer reviews and expert opinions:

zdnet.com

customer complaint cites:

planetfeedback.com

complaints.com

Marketing concepts -- Chapter 3 summary

2007-04-08T22:32:00.001-05:00

To carry out their analysis, planning, implementation, and control responsibilities, marketing managers need a marketing information system (MIS). The role of the MIS is to assess the managers information needs, develop the needed information, and distribute the information in a timely manner.

An MIS has three components:

* an internal records system -- which includes information on
the order to payment cycle and sales reporting systems
* a marketing and intelligent system -- set of procedures and
sources used by managers to obtain everyday information about pertinent
developments in the marketing environment
* marketing research systems -- that allow for the systematic
design, collection, analysis, and reporting of data and findings relevant to a
specific marketing situation.

Within the rapidly changing global picture, marketers must
monitor six major environmental forces:

* demographic
* economic
* social/cultural
* natural
* technological
* political/legal

And the demographic environment, marketers must be aware of:

* worldwide population growth
* changing mixes of ages
* ethnic composition
* educational levels
* rise of nontraditional families
* large geographic shifts in population
* the steady increase in micro marketing

In the economic arena, marketers need to focus on income
distribution and levels of savings, debt, and credit availability.

And the social/cultural arena, marketers must understand
people's view of themselves, others, organizations, society, nature, and the
universe. In this market products that
correspond to society's core and secondary values, and address the needs of
different subcultures within a society.

In the natural environment, marketers need to be aware of
raw material shortages, increased energy costs and pollution levels, and the
changing role of governments and environmental protection.

In the technological arena, marketers should take account of
the accelerated pace of technological change, opportunities for innovation,
varying R&D budgets, and the increased governmental regulation brought
about by technological change.

And the political/legal environment, marketers must work
within many laws regulating business practices and with various special
interest groups.

Marketing Management - Chapter 2 - Summary

2007-04-02T18:16:00.001-05:00

Strong companies develop superior capabilities and managing core business processes such as new product realization, inventory management, and customer acquisition and retention. Managing these core processes effectively means creating a marketing network in which the company works closely with all parties in the production and distribution chain, from suppliers of raw materials to retail distributors. Companies no longer compete -- marketing networks do.

According to one view, holistic marketing maximizes value exploration by understanding the relationships between the customer's cognitive space, the company's competence space, and the collaborators resource space; maximize its value creation by identifying new customer benefits from the customer's cognitive space, utilizing core competencies from its business domain, and selecting and managing business partners from collaborated networks; and maximizes value delivery by becoming proficient at customer relationship management, internal resource management, and business partnership management.

Market oriented strategic planing is the managerial process of developing and maintaining a viable fit between the organization's objectives, skills, and resources and its changing market opportunities. The aim of strategic planning is to shape the company's businesses and products so that they yield target profits and growth. Strategic planning takes place at four levels: corporate, division, business unit, and product.

The corporate strategy establishes the framework within which the divisions and business units prepare their strategic plans. Setting a corporate strategy and tails for activities: defining the corporate mission, establishing strategic business units, assigning resources to each SBU based on its market attractiveness and business strength, and planning new businesses and downsizing older businesses.

Strategic planning for individual businesses entails the following activities: defining the business mission, analyzing external opportunities and threats, analyzing internal strengths and weaknesses, formulating goals, formulating strategy, formulating supporting programs, implementing the programs, and gathering feedback and exercising control.

Each product level within a business unit must develop a marketing plan for achieving its goals. The marketing plan is one of the most important outputs of the marketing process.

Marketing management -- Chapter 2

2007-04-02T18:15:00.001-05:00

Value creation and delivery sequence

choose the value
customer segmentation
market selection/focus
value positioning
provide the value
product development
service development
pricing
sourcing/making
distributing/servicing
communicate the value
salesforce
sales promotion
advertising

The value chain -- a tool for identifying ways to create more customer value. The value chain identifies nine strategically relevant activities that create value and cost a specific business. These nine value creating activities consist of five primary activities and four support activities.

The primary activities cover the sequence of:

inbound logistics -- bringing materials into the business
operations -- converting them into final products
outbound logistics -- shipping out final products
marketing and sales -- marketing the products
service -- ongoing service activities

The support activities are handled in certain specialized departments, these activities include:

procurement
technology development
human resource management
firm infrastructure

A firm success depends not only on how well each department performs its work, but on how well the various departmental activities are coordinated to conduct core business processes. These core business processes include:

the market sensing process -- all the activities involved in gathering market intelligence, coordinating it within the organization, and acting on information
new offering realization process -- all the activities involved in researching, developing, and launching new high-quality offerings quickly and within budget
customer acquisition process -- all the activities involved in defining target markets and prospecting for new customers
customer relationship management process -- all the activities involved in building deeper understanding, relationships, and offerings to individual customers
the fullfillment management process -- all the activities involved in receiving and approving orders, shipping the goods on time, and collecting payment

Core competency has three characteristics:

it is a source of competitive advantage in that it makes a significant contribution to perceived customer benefits
it has applications in a wide variety of markets
difficult for competitors to imitate

The holistic marketing framework is designed to address three key management questions:

value exploration -- How can a company identify new value opportunities?
Value creation -- How can a company efficiently create more promising new value offerings?
Value delivery -- How can a company used its capabilities and infrastructure to deliver the new value offerings more efficiently?

Value exploration

developing a strategy requires an understanding of the relationships and interactions among three spaces:

the customer's cognitive space -- reflects existing and latent needs and includes dimensions such as the need for participation, stability, freedom, and change
the company's competence space -- described in terms of breadth, broad versus focused scope of business; and depth, physical versus knowledge-based capabilities
the collaborators resource space -- involves horizontal partnerships, where companies choose partners based on their ability to exploit related market opportunities, and vertical partnerships, where companies choose partners based on their ability to serve their value creation

Value creation

marketers need to:

identify new customer benefits from the customers view
utilize core competencies from its business domain
select and manage business partners from its collaborative of networks

Business realignment may be necessary to maximize core competencies. It involves three steps;

(re) defining the business concept (the big idea)
(re) shaping the business scope (the lines of business)
(re) positioning the company's brand identity (how customers see the company)

Value delivery

company must become proficient at:

customer relationship management -- allows company to discover who they are, how they behave, what they need and want
internal resource management -- allows company to respond effectively, and a great major business processes, such as order processing, General ledger, payroll, production
business partnership management -- allows company to handle complex relationships with trading partners to sores, process, deliver products

Strategic planing -- calls for action in three key areas:

managing a company's businesses as an investment portfolio
assessing each business is stirring by considering the market's growth rate and companies position in that market
establishing the strategy -- developing the game plan for achieving its long-run objectives

Four main organizational levels:

corporate level
division level
business unit level
product level

Corporate headquarters -- responsible for designing a corporate strategic plan to guide the whole enterprise; decision making for allocation of resources into divisions

division level -- establishes plans covering the allocation of funds to each business unit within the division

business unit level -- develop strategic plans to carry out the business unit into a profitable future

product level -- product lines, brands, business unit develops marketing plans for achieving its objectives in the product market

Marketing plan -- the central instrument for directing and coordinating the marketing effort. The marketing plan operates at two levels: strategic and tactical.

The strategic marketing plan -- lays out the target markets and the value proposition that will be offered, based on analysis of the best market opportunities

the tactical marketing plan -- specifies the marketing tactics, including product features, promotion, merchandising, pricing, sales channels, and service.

Corporate and division strategic planning

Corporate headquarters undertake before planning activities:

defining the corporate mission
establishing strategic business units
assigning resources to each SBU
assessing growth opportunities

To define its mission, the company should address these classic questions:

what is our business?

Who is the customer?

What is of value to the customer?

What will I business be?

What should our business be?

Mission statements -- guides geographically dispersed employees to work independently and yet collectively toward realizing the organizational goals, to be shared with managers, employees and in some cases customers. Provides a shared sense of purpose, direction, and opportunity.

Good Mission statements have three major characteristics:

focus on a limited number of goals
stress the company's major policies and now use
define major competitive spheres within which the company will operate

A business can be defined in terms of three dimensions:

customer groups
customer needs
technology

Strategic business units (SBUs) have three characteristics:

it is a single business or collection of related businesses that can be planned separately from the rest of the company
it has its own set of competitors
it has a manager who is responsible for strategic planing and profit performance and controls most of the factors affecting profit

Assessing growth opportunities -- involves planning new businesses, downsizing, terminating older businesses

intensive opportunities -- further growth within current businesses

integrative opportunities -- identifying opportunities to build or acquire businesses that are related to the current business

diversification opportunities -- identifying opportunities to add attractive businesses that are on related to current businesses

Intensive growth

Market penetration strategies -- the company first considers whether it could gain more market share with its current products and their current markets

market development strategy -- company considers whether it can find or develop new markets for its current products

product development strategy -- company considers whether it can develop new products of potential interest to its current markets

diversification strategy -- company reviews opportunities to develop new products for new markets

Organization and organizational culture

organization -- consists of its structures, policies, and corporate culture

corporate culture -- the shared experiences, stories, police come and norms that characterize an organization

Scenario analysis -- consists of developing plausible representation of a firm's possible future that make different assumptions about forces driving the market and include different uncertainties

The business mission

each business unit needs to define its specific mission within the broader company mission.

External and internal opportunities and threats analysis
goal formulation
strategy formulation
program formulation
implementation
feedback and control

SWOT analysis -- but overall a violation of a company strengths, weaknesses, opportunities, and threats. It involves monitoring the external and internal marketing environment

external environment analysis -- the business unit has to monitor key macro environment forces such as:

demographic
economic
natural
technological
legal
social
cultural

micro environment actors consist of:

customers
competitors
suppliers
distributors
dealers

For each trend or development, management needs to identify the associated opportunities and threats.

Marketing opportunity -- is an area of buyer need an interest in which there is a high probability that a company can profitably satisfy that need.

There are three main sources of market opportunities:

fulfilling supply of products with high demand/short supply
supply existing products or services in a new or superior way
creating new products or services

To evaluate opportunities, companies can use the market opportunity analysis (MOA) to determine the attractiveness and probability of success:

can the benefits involved in the opportunity be articulated convincingly to a defined target market(s)?
Can the target market relocated and reached with cost-effective media and trade channels?
Does the company possess or have access to the critical capabilities and resources needed to deliver the customer benefits?
Can a company deliver the benefits better than any actual or potential competitors?
Will the financial rate of return meet or exceed the companies required threshold for investment?

Environmental threat -- challenges posed by an unfavorable trend or development that would lead, in the absence of defensive marketing action, to lower sales or profit

Internal environment analysis can identify strengths and weaknesses, performance, and importance in the areas of marketing, finance, manufacturing, and organization skills.

Goal formulation -- managers use the term goals to describe objectives that are specific with respect to magnitude and time. Most business units pursue a mix of objectives including:

profitability
sales growth
market share improvement
risk containment
innovation
reputation

The business unit sets these objectives and then manages by objectives (MBO). For an MBO system to work, the units objectives must meet for criteria:

arranged hierarchically from most to least important
objectives should be stated quantitatively whenever possible
goals must be realistic
objectives must be consistent

Trade-offs to consider --

short-term profit versus long-term growth
deep penetration of existing markets versus developing new markets
profit goals versus nonprofit goals
high growth versus low risk

Strategic formulation

Porters generic strategies

overall cost leadership
differentiation
focus on narrow market segments

Strategic alliances

product or service alliances -- 1 company licenses another to produce its product, were two companies jointly market their complementary products or new product

promotional alliances -- 1 company agrees to carry a promotion for another company's product or service

logistics alliances -- 1 company offers logistical services for another company's product

pricing collaborations -- 1 a more companies join a special pricing collaboration

Marketing plan -- is a written document that summarizes what the marketer has learned about the marketplace and indicates how the firm plans to reach its marketing objectives

Contents of the marketing plan:

executive summary and table of contents
situation analysis
marketing strategy
financial projections
implementation controls

In The value delivery process involves choosing (or identifying), providing (or delivering), and communicating with superior value. The value chain is a tool for identifying key activities that create value and costs in the specific business.

Assessing Growth Opportunities

2007-02-13T15:28:00.001-05:00

Assessing growth opportunities involves planning new businesses, downsizing, or terminating older businesses.

Intensive growth -- corporate management's first course of action should be a review of opportunities for improving existing businesses.

Integrative growth -- a businesses sales and profits may be increased through backward, former, a horizontal integration within its industry.

Diversification growth -- several types of diversification are possible -- new products, new technology, marketing synergies with existing product lines, new groups of customers, etc.

downsizing and divesting older businesses -- week businesses require a disproportionate amount of managerial attention

Organization -- consists of its structures, policies, and corporate culture

corporate culture -- the shared experiences, stories, beliefs, and norms that characterize an organization

scenario analysis -- consists of developing plausible representations of the firm's possible future to make different assumptions about forces driving the market include different uncertainties

SWOT analysis -- the overall evaluation of a company strengths, weaknesses, opportunities, and threats. It involves monitoring the external and internal marketing environment.

marketing opportunity -- an area of need or interest in which there is a high probability that a company can profitably satisfy that need.

There are three main sources of market opportunities:

supplying something that is in short supply
supplying an existing product or service in a new or superior way
creation of a totally new product or service

Opportunity examples:

hybrid products
buying process convenience
meeting information needs
product or service customization
introducing new capabilities
faster service or product delivery
offering product at lower cost

Market opportunity analysis (MOA) -- an evaluation of opportunities to determine the attractiveness and probability of success:

can the benefits involved in the opportunity be articulated convincingly to a defined target market?
Can the target market be located in reached within cost effective media and trade channels?
Does the company possessor have access to critical capabilities and resources needed to deliver the customer benefits?
Can a company deliver the benefits better than any actual or potential competitors?
Well the financial rate of return meet or exceed the companies required threshold for investment?

Environmental threat -- a challenge posed by an unfavorable trend or development that would lead, and the absence of defensive marketing action, to lower sales or profits

Goal Formulation

most business units pursue a mix of objectives including profitability, sales rose, market share improvement, risk containment, innovation, and reputation. The business unit sets these objectives and then manages by objectives (MBO).

For on MBO system to work, the unit's objectives must meet four criteria:

goals must be arranged hierarchically, from the most to the least important
objectives should be stated quantitatively whenever possible
goals should be realistic
objectives must be consistent

Other important trade-offs:

short-term profit versus long-term growth
deep penetration of existing markets versus developing new markets
profit goals versus nonprofit goals
high growth versus low risk

Strategy -- a game plan for achieving goals

strategic group -- firms pursuing the same strategy directed to the same target market

many strategic alliances take the form of marketing alliances. These fall into four major categories:

product or service alliances -- 1 company licenses another to produce its product, or two companies jointly market their complementary products or new product
promotional alliances -- 1 company agrees to Cary he promotion for another company's product or service
logistics alliances -- 1 company offers logistical services for another companies product
pricing collaborations -- 1 or more companies joined in a special pricing collaboration

Marketing plan -- a written document that summarizes what the marketer has learned about the marketplace and indicates how the firm plans to reach its marketing objectives

Contents of the Marketing Plan

executive summary and table of contents
situation analysis
marketing strategy
financial projections
implementation controls

Marketing Plan criteria

is the plan simple?
Is the plan specific?
It is the plan realistic?
Is the plan complete?

corporate and division strategic planning

2007-02-13T14:43:00.001-05:00

marketing plan -- the central instrument for directing and coordinating the marketing effort. The marketing plan operates at two levels: strategic and tactical

strategic marketing plan -- lays out the target markets in the value proposition that will be offered, based on analysis of the best market opportunities

tactical marketing plan -- specifies the marketing tactics, including product features, promotion, merchandising, pricing, sales channels, and service

All corporate headquarters undertake four planning activities:

defining the corporate mission
establishing strategic business units
assigning resources to each SBU
assessing growth opportunities

To define its mission, a company should address Peter Drucker's classic questions:

What is our business?
Who is the customer?
What is of value to the customer
what will our business be?
What should our business be?

Mission statements -- provides employees with a shared sense of purpose, direction, an opportunity. The statement guides geographically dispersed employees to work independently and yet collectively toward realizing the organization's goals

Mission statement have three major characteristics:

focus on a limited number of goals
stress the company's major policies and values
define the major competitive spheres within which the company will operate

Industry -- the range of industries in which a company will operate

products and applications -- the range of products and applications company will supply

competence -- the range of technological and other core competencies that a company will master of leverage

market segment -- the type of market or customers of the company will serve

vertical -- the number of channel levels from all material to final product and distribution in which a company will participate

geographical -- the range of regions, countries, or country groups in which a company will operate

Three dimensions to the business:

customer groups
customer needs
technology

Strategic business units (SBUs) have three characteristics:

it is a single business or collection of related businesses that can be planned separately from the rest of the company
it has its own set of competitors
it has a manager who is responsible for strategic planning and profit performance who controls most of the factors affecting profit

The core

2007-02-13T13:35:00.001-05:00

core business processes:

the market sensing process -- all the activities involved in gathering market intelligence, disseminating it within the organization, and acting on the information
the new offering realization process -- all the activities involved in researching, developing, and launching new high-quality offerings quickly and within budget
the customer acquisition process -- all the activities involved in defining target markets and prospecting for new customers
the customer relationship management process -- all the activities involved in building deeper understanding, relationships, and offerings to individual customers
the fulfillment management process -- all the activities involved in receiving and approving orders, shipping the goods on time, and collecting payment

Core competency has three characteristics:

it is a source of competitive advantage in that it makes a significant contribution to perceive customer benefits
it has applications in a wide variety of markets
it is difficult for competitors to imitate

The V's of marketing

2007-02-13T13:22:00.001-05:00

3 V's approach to marketing:

define the value segment or customers (and his/her needs)
define the value proposition
define the value network that will deliver the promised service

another view

value defining process -- market research and company self-analysis
value developing process -- new product development, sourcing strategy, and vendor selection
value delivering processes -- advertising and managing distribution

The value chain

Value chain -- a tool for identifying ways to create more customers value

Primary activities in the value chain:

inbound logistics -- bringing materials into the business
operations -- converting materials into final products
outbound logistics -- shipping out final products
marketing and sales
service

Support activities in the value chain:

procurement
technology development
human resource Management
firm infrastructure

The holistic marketing framework is designed to address three key marketing questions:

value exploration -- how can a company identify new value opportunities?
Value creation -- how can a company officially create more promising new value offerings?
Value delivery -- how can a company used its capabilities and infrastructure to deliver the new value offerings more efficiently?

Value exploration

developing a strategy requires understanding of the relationships among three spaces.

the customer's cognitive space -- reflects existing and latent needs and includes dimensions such as the need for participation, stability, freedom, and change
the company's competency space -- can be described in terms of breadth-- brought versus focused scope of business; and depth -- physical versus knowledge-based capabilities
the collaborators resource space -- involves horizontal partnerships, where companies choose partners based on their ability to exploit related market opportunities, and vertical partnerships, were companies choose partners based on their ability to serve their value creation

value creation

to exploit a value opportunity the company needs value creation skills.

Marketers need to:

identify new customer benefits from the customers view
utilize core competencies from its business domain
select and manage business partners from its collaborative networks

To craft new customer benefits marketers must understand:

what the customer thinks about
what the customer wants
what the customer does
what the customer worries about
who and what the customers admire
who and what the customers interact with
who and what influences the customers

Business realignment may be necessary to maximize core competencies. It involves three steps:

defining/redefining the business concept
shaping/reshaping the business scope
positioning/positioning the company's brand identity

Value delivery

company must become proficient at:

customer relationship management -- allows the company to discover who its customers are, how they behave, and what they need and want
internal resource management -- integrates major business processes for effective responses
business partnership management -- allows the company to handle complex relationships with its trading partners to source, process, and deliver products

Marketing management -- Chapter 2

2007-02-13T13:04:00.001-05:00

developing marketing strategies and plans

The value delivery process involves choosing (or identifying), providing (or delivering), and communicating superior value. The value chain is a tool for identifying key activities that create value and costs in a specific business.

Strong companies develop superior capabilities in managing core business processes such as new product realization, inventory management, and customer acquisition and retention. Managing these core process of effectively means creating a market network in which the company works closely with all parties in the production and distribution chain, from suppliers of raw materials to retail distributors. Companies no longer compete -- marketing networks do.

According to one view, holistic marketing maximizes value exploration by understanding the relationships between the customers cognitive space, the companies competence space, and the collaborators resource space; maximizes value creation by identifying new customer benefits from the customers cognitive space, utilizing core competencies from its business domain, and selecting and managing business partners from its collaborated networks; and maximizes value delivery by becoming proficient at customer relationship management, internal resource management, and business partnership management.

Market oriented strategic planning is the managerial process of developing and maintaining a viable fit between the organization's objectives, skills, and resources and it's changing market opportunities. The aim of strategic planning is to shape the company's businesses and products said that they yield target profit and growth. Strategic planning takes place at four levels: corporate, division, business unit, and product.

The corporate strategy establishes the framework within which the divisions and business units prepare their strategic plans. Setting a corporate strategy entails for activities: defying the corporate mission, establishing strategic business units (SBUs), assigning resources to each SBU based on its market attractiveness and business strength, and planning new businesses and downsizing older businesses.

Strategic planning for individual businesses entails the following activities:

defining the business mission

analyzing external opportunities and threats

analyzing internal strengths and weaknesses

formulating goals

implementing the program's

and gathering feedback in exercising control.

Each product level with in a business unit must develop a marketing plan for achieving its goals. The marketing plan is one of the most important outputs of the marketing process.

Marketing management -- Chapter 1

2007-02-13T01:14:00.001-05:00

defining marketing for the 21st century

Marketing -- needing needs profitably

Marketers frequently asked questions

1. How can we spot and choose the right market segments?

2. How can we differentiate our offerings?

3. How should we respond to customers who buy on price?

4. How can we compete against lower-cost, lower-priced competitors?

5. How far can we go in customizing our offering for each customer?

6. How can we grow our business?

7. How can we build stronger brands?

8. How can we reduce the cost of customer acquisition?

9. How can we keep our customers loyal for longer?

10. How can we tell which customers are more important?

11. How can we measure the payback from advertising, sales promotion, and public-relations?

12. How can we improve sales force productivity?

13. How can we establish multiple channels and yet manage channel conflict?

14. How can we get the other company departments to be more customer oriented?

Marketing management -- the art and science and choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value

exchange -- the process of obtaining a desired product from someone by offering something in return

for exchange potential to exist -- 5 conditions must be satisfied:

1. There are at least two parties

2. Each party has something that might be of value to the other

3. Each party is capable of communication and delivery

4. Each party is free to accept or reject the exchange offer

5. Each party believes it is appropriate or desirable to deal with the other party

Transaction -- a trade of values between two parties

transfer -- a shift of ownership of an item from one party to another

10 types of entities marketed

1. Goods

2. Services

3. Events

4. Experiences

5. Persons

6. Places

7. Properties

8. Organizations

9. Information

10. Ideas

Marketer -- someone who seeks a response from another party

marketplace -- physical shops and stores

market space -- Digital storefronts such as the Internet

meta market -- a cluster of complementary products and services are closely related in the minds of consumers, often spread across a diverse set of industries

The 10 rules of radical marketing

1. The CEO must own the marketing function. CEOs of radical marketers never delegate marketing responsibility.

2. The marketing department must start small and flat and stay small and flat.

3. Get face-to-face with people who matter most -- the customers.

4. Use market research cautiously. Radical marketers prefer grass-roots techniques.

5. Higher only passionate missionaries, not marketers.

6. Love and respect customers as individuals, not as numbers on a spreadsheet.

7. Create a community of consumers.

8. Rethink the marketing mix.

9. Celebrate common sense and compete with larger competitors through fresh and different marketing ideas.

10. Be true to the brand.

Relationship marketing -- building mutually satisfying long-term relationships with key parties

marketing network -- unique to each company, consists of the Company and its supporting stakeholders with him it has built mutually profitable business relationships

From a managerial point of view, marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals. Marketing management is the art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value.

Marketers are skilled at managing demand: they seek to influence the level, timing, and composition of demand. Marketers are involved in marketing many types of entities. They also operate in four different marketplaces: consumer, business, global, and nonprofit.

Businesses today faced a number of challenges and opportunities, including globalization, the affects of advances in technology, and deregulation. They have responded by changing the way they conduct marketing in very fundamental ways.

There are five competing concepts under which organization can choose to conduct their business:

1. The production concept

2. The product concept />3. The selling concept

4. The marketing concept

5. The holistic marketing concept

The holistic marketing concept is based on development, design, and implementation of marketing programs, processes, and activities that recognize their breadth and interdependencies. Holistic marketing recognizes that everything matters with marketing and that a broad, integrated perspective is often necessary. />Four components of holistic marketing are:

1. Relationship marketing

2. Integrated marketing

3. Internal marketing

4. Socially responsible marketing

Marketing management has experienced a number of shifts in recent years as companies seek marketing excellence.

The set of tasks necessary for successful marketing management includes:

developing marketing strategies and plans

connecting with customers

Building Strong Brands

shaping the market offerings

delivering and communicating value

capturing marketing insight and performance

creating successful long-term growth

unit 5 summary

2007-02-04T00:34:00.000-05:00

Management of Working Capital

Managers handle key short-term decisions facing their companies on a regular basis. Specifically, the management of working capital - or current assets, and management of short-term financing.

Management of Working Capital

Working capital is another name for current assets- assets that can be liquidated rather quickly. Examples include cash, inventory, and receivables. We also have what is called Net Working Capital (NWC); or current assets minus current liabilities. NWC is a measure of solvency and financial strength of an enterprise.

One of a manager’s main tasks is to set effective working capital policies for her/his business. Such policies set optimum levels for key current asset items such as cash, inventory and receivables. They also map out ways that such items will be financed. Finally, working capital policy helps to design and implement certain administrative actions that are necessary for the effective operation of a business such as collection actions and credit extension to new customers.

Cash Management

If there is one single management function that ties together all the short-term decisions within a given company, it is this: cash management - or more specifically, the task of preparing and implementing cash budgets. A detailed cash budget maps out the cash status (deficit or surplus) for a company during a forecast period - say over the next 12 months. By looking at a cash budget, a manager can tell how much money will be needed and when. Once this is an identified and known element, then management can start thinking about the ways future needs could be financed. Management, for example, may ask for a bank loan, issue short-term notes, or even enter into strategic partnerships with its suppliers. In short, we can see how central cash budget is to a sound working capital policy.

Receivables and Inventory

Accounts receivable and inventories are among the main balance sheet items that could tie up a company’s limited funds - funds that could be used elsewhere for more productive purposes. Given all funds have a cost; such mismanagements can certainly hurt the bottom line at any company. As such, managers need to watch such accounts very closely and take corrective actions if required. For example, one reason for inflated receivables may be due to late payment by some customers. In this case, the company’s credit policy toward late-payers needs to be re-examined and enforced or in case of inventory, just in time systems may need to be considered.

Short Term Financing

Businesses rely on short-term financing from external sources for two reasons; profits may simply not be high enough to keep up with the rate at which the company is buying new assets, and many firms would rather borrow the money at the outset and make their purchases on time rather than wait to save enough money from net profits to make their desired purchases. The most prevalent forms of short-term financing available to businesses are loans from banks and other institutions, trade credit, and commercial paper. While short-term financing is usually a cheaper option than long-term financing, it is also a riskier option. Unlike long-term financing, the loans come due soon, the lender may not be willing to renew financing on favorable terms, and short-term interest rates may rise unexpectedly.

In short, finance is important to business people and the financial decisions a manager makes about how to raise, spend, and allocate money can affect every aspect of a business. In other words, financial managers need always be aware of the organization’s long-term and short-term financial needs and make reasoned, ethical, and sound decisions to add value to the firm.

Managerial finance -- Chapter 15 -- summary

2007-02-04T00:33:00.001-05:00

Current liabilities represent an important and generally inexpensive source of financing for a firm. The level of short-term (current liabilities) financing employed by a firm affects its probability and risk. Accounts payable are on inexpensive, spontaneous source of short-term financing. They should be paid as late as possible without damaging the firm's credit rating. This strategy will shorten the firm's cash conversion cycle and reduce its investment in operations. If vendors offer cash discounts, the firm must consider the economics of giving up versus taking the discount. Accruals, another spontaneous liability, should be maximized because they represent free financing. Notes payable, which represent negotiated short-term financing, can be obtained from banks on a unsecured basis. They should be obtained at the lowest cost under the best possible terms. Large, well-known firms can obtain unsecured short-term financing through the sale of commercial paper. On a secured basis, the firm can obtain loans from banks or commercial finance companies, using either accounts receivable or inventory as collateral.

The financial manager must obtain the right quantity and form of current liabilities financing so as to provide the lowest cost funds with the least risk. Such a strategy should positively contribute to the firm's goal of maximizing the stock price.

The major spontaneous source of short-term financing is accounts payable, which result from credit purchases of merchandise. They are the primary source of short-term funds. Credit terms may differ with respect to the credit., cash discount, cash discoun period, and beginning of credit period. Cash discounts should be given up only when a firm in need of short-term funds must pay an interest rate on borrowing that is greater then the cost of giving up the cash discount.

Stretching accounts payable
Stretching accounts payable can lower the cost of giving up a cash discount. Accruals, which result primarily from wage and tax obligations, are virtually free.

Interest rates
Banks of the major source of unsecured short-term loans to businesses. The interest rate on those loans is applied to the primary of interest by a risk premium and may be fixed or floating. It should be evaluated by using the effective annual rate. Whether interest is paid when the load lecturers or in advance affects the right. Bank loans may take the form of a single payment note, a line of credit, or a revolving credit agreement.

Commercial paper
Commercial paper is on unsecured IOU issued by firms with high credit standing. International sales and purchases expose firms to exchange rate risk. Such transactions are larger and of longer maturity than domestic transactions, and they can be financed by using a letter of credit, by borrowing and the local market, or through dollar denominated linens from international banks. On transactions between subsidiaries, "netting" can be used to minimize foreign exchange fees and other transaction costs.

Secured short-term loans
Secured short-term lines are those for which the lender requires collateral -- typically, current assets such as accounts receivable or inventory. Only a percentage of the book value of acceptable collateral is advanced by the lender. These loans are more expensive than unsecured loans. Commercial banks and commercial finance companies make secured short-term loans. Both pledging and factoring involved the use of accounts receivable to obtain needed short-term funds.

Inventory
Inventory can be used as short-term loan collateral under a floating lien, a trust receipt arrangement, or a warehouse receipt loan.

Managerial finance -- Chapter 15

2007-02-04T00:22:00.000-05:00

current liabilities management
terms

Spontaneous liabilities -- financing that arises from the normal course of business; the two major short-term sources of such liabilities are accounts payable and accruals
unsecured short-term financing -- short-term financing obtained without pledging specific assets as collateral
accounts payable management -- management by the firm of the time that you lapses between its purchase of raw materials and its mailing payment to the supplier
cost of giving up a cash discount -- the implied rate of interest paid to delay payment of an account payable for additional number of days
stretching accounts payable -- paying bills as late as possible without damaging the firm's credit rating
accruals -- liabilities for services received for which payment has yet to be made
short-term, self liquidating loan -- an unsecured short-term loan in which the use to which the borrowed money is put provides the mechanism through which the loan is repaid
prime rate of interest -- the lowest rate of interest charged by leading banks on business loans to their most important business borrowers
fixed rate loan -- a loan with a rate of interest that is determined at a set increment above the prime rate and at which it remained fixed until maturity
floating-rate loan -- a loan with a rate of interest initially set at an increment above the prime rate and allowed to float or very, above prime as the prime rate varies until maturity
discount loans -- loans on which interest is paid in advance by being deducted from the amount borrowed
single payment note -- a short-term, one-time loan made to a borrower to needs funds for specific purpose for a short period
line of credit -- on agreement between a commercial bank in the business specifying the amount of unsecured short-term borrowing the bank will make available to the firm over a given period of time
operating change restrictions -- contract shall restrictions that a bank may impose on a firm's financial condition or operations as part of a line of credit agreement
compensating balance -- a required checking account balance equal to a certain percentage of the amount borrowed from a bank under a line of credit or revolving credit agreement
annual cleanup -- the requirement that for a certain number of days during the year borrowers under a line of credit carry a zero loan balance
revolving credit agreement -- a line of credit guaranteed to a borrower by a commercial bank regardless of the scarcity of money
commitment fee -- the fee that is normally charged on a revolving credit agreement; it often applies to the average on used portion of the borrower's credit line
commercial paper -- a form of financing consisting of short-term, unsecured promissory notes issued by firms with a high credit standing
letter of credit -- a letter written by a company's bank to the Company's foreign supplier, stating that the bank guarantees payment of an invoice to mount if all the underlying agreements are met
secured short-term financing -- short-term financing that has specific assets pledged as collateral
security agreement -- the agreement between the borrower and the lender that specifies the collateral held against a secured loan
percentage advance -- the percentage of the book value of the collateral that constitutes the principle of a secured loan
commercial finance companies -- lending institutions that make only secured loans -- both short-term and long-term -- to businesses
pledge of accounts receivable -- they use of a firm's accounts receivable as security, or collateral, to obtain a short-term loan
lien -- a publicly disclosed legal claim on loan collateral
nonnotification basis -- the basis on which a borrower, having pledged an account receivable, continues to collect the account payments without notifying the account customer
notification basis -- the basis on which an account customer his account has been pledged is notified to remit payment directly to the lender
factoring accounts receivable -- the outright sale of accounts receivable at a discount to a factor or other financial institution
factor -- a financial institution that specializes in purchasing accounts receivable from businesses
nonrecourse basis -- the basis on which accounts receivable are sold to a factor with the understanding that the factor accepts all credit risks on the purchased accounts
floating inventory lien -- a secured short-term loan against inventory under which the lender's claim is on the borrowers inventory in general
trust receipt inventory loan -- a secured short-term one against inventory under which the lender advances 80 - 100% of the cost of the borrowers relatively expensive inventory items in exchange for the borrowers promised to repay the lender, with accrued interest, immediately after the sale of each item of collateral
warehouse receipt loan -- a secured short-term loan against inventory under which the lender receives control of the pledged inventory collateral, which is stored by a designated warehousing company on the lender's behalf

Managerial finance -- Chapter 14 -- summary

2007-02-04T00:08:00.000-05:00

It is important for a firm to maintain a reasonable level of net working capital. To do so, it must balance the high profit and high risk associated with low levels of current assets and high levels of current liabilities against the low profit and low risk that result from high levels of current assets of low levels of current liabilities. A strategy that achieves a reasonable balance between profits and liquidity should positively contribute to the firm's value.

Similarly, the firm should manage its cash conversion cycle by turning inventory quickly; collecting accounts receivable quickly; managing mail, processing, and clearing time; and paying accounts payable slowly. The strategies should enable the firm to manage its current accounts efficiently and to minimize the amount of resources invested in operating assets.

The financial manager can manage inventory, accounts receivable, and cash receipts to minimize the firm's operating cycle investment, thereby reducing the amount of resources needed to support its business. Employing the strategies, and managing accounts payable in cash disbursements so as to shorten the cash conversion cycle, should minimize the negotiated liabilities needed to support the firm's resource requirements. Active management of the firm's working capital and current assets should positively contribute to the firm's goal of maximizing its stock price.

The cash conversion cycle
The cash conversion cycle has three components:
1. Average age of inventory
2. Average collection period
3. Average payment period
The length of the cash conversion cycle determines the amount of time resources are tied up in the firm's day-to-day operations. The firm's investment in short-term assets often consists of both permanent and seasonal funding requirements. The seasonal requirements can be financed using either an aggressive (low-cost, high risk) financing strategy or a conservative (high cost, low risk) financing strategy. The firm's funding decision for its cash conversion cycle ultimately depends on management's disposition toward risk and the strength of the firm's banking relationships. To minimize its reliance on negotiated liabilities, the financial manager seeks to:
1. Turn over inventory as quickly as possible
2. Collect accounts receivable as quickly as possible
3. Manage mail, processing, and clearing time
4. Pay accounts payable as slowly as possible.
Use of the strategies should minimize the length of the cash conversion cycle.

Inventory management
The viewpoints of marketing, manufacturing, and purchasing managers about the appropriate levels of inventory tend to cause higher inventories than those deemed appropriate by the financial manager. For commonly used techniques for effectively managing inventory to keep its level low are;
1. The ABC system
2. the economic order quantity (EOQ) model
3. The just-in-time (JIT) system
4. Computerized systems for resource control -- MRP, MRP II, and ERP.

International inventory managers place greater emphasis on making sure that sufficient quantities of inventory are delivered where and when needed, and in the right condition, then on ordering the economically optimal quantities.

Credit selection
Credit selection techniques determined which customer's creditworthiness is consistent with the firm's credit standards. Two popular credit selection techniques are the five C's of credit and credit scoring. Changes in credit standards can be evaluated mathematically by assessing the effects of a proposed change on profits from sales, the cost of accounts receivable investment, and bad debt costs.

Cash discounts
Changes in credit terms -- the cash discount, the cash discount period, and the credit. -- can be quantified similarly to changes in credit standards. Credit monitoring, the ongoing review of accounts receivable, frequently involves use of the average collection period and an aging schedule. A number of popular collection techniques are used by firms.

Float
Float refers to funds that have been sent by the payor but are not yet usable funds to the payee. The components of float our mail time, processing time, and clearing time. Float occurs in both the average collection period and the average payment period. One technique for speeding up collections to reduce collection float is a lockbox system. A popular technique for slowing payments to increase payment of float is controlled disbursing.

The goal for managing operating cash is to balance the opportunity cost of nonearning balances against the transaction cost of temporary investments. Firms commonly used depository transfer checks (DTCs) ,ACH transfers, and wire transfers to transfer lockbox receipts to their concentration banks quickly. Zero balance accounts (ZBAs) can be used to eliminate nonearning cash balances and corporate checking accounts. Marketable securities are short-term, interest-earning, money market instruments used by the firm to earn a return on temporarily idle funds. They may be government or nongovernment issues.

Managerial finance -- Chapter 14 -- terms

2007-02-03T23:36:00.000-05:00

working capital and current assets Management

Short-term financial management -- management of current assets and current liabilities
working capital -- current assets, which represent the portion of investments that circulates from one form to another in the ordinary conduct of business
networking capital -- the difference between the firm's current assets and its current liabilities; can be positive or negative
profitability -- the relationship between revenues and costs generated by using the firm's assets, both current and fixed, and productive activities
risk (of technical insolvency) -- the probability that a firm will be unable to pay its bills as they come due
technically insolvent -- describes a firm that is unable to pay its bills as they come due
operating cycle (OC) -- the time from the beginning of the production process to the collection of cash from the sale of the finished product
cash conversion cycle (CCC) -- the amount of time a firm's resources are tied up; calculated by subtracting the average payment. From the operating cycle
permanent funding requirement -- a constant investment in operating assets resulting from constant sales over time
seasonal funding requirement -- an investment in operating assets that varies over time as result of cyclic sales
aggressive funding strategy -- a funding strategy under which the firm funds at seasonal requirements was short-term debt and its permanent requirements of long-term debt
conservative funding strategy -- a funding strategy under which the firm funds both its seasonal and its permanent requirements with long-term debt
ABC inventory system -- inventory management technique that divides inventory into three groups -- A,B, and C, in descending order of importance and level of monitoring, on the basis of the dollar investments in each
two bin method -- on sophisticated inventory monitoring technique that is typically applied to C group items and involves reordering inventory when one of two bins is empty
economic order quantity (EOQ) model -- inventory management technique for determining an item's optimal order size, which is the size that minimizes the total of its order costs and carrying costs
order costs -- the fixed clerical costs of placing and receiving an inventory order
carrying costs -- the variable costs per unit of holding an item in inventory for specific period of time
total cost of inventory -- the sum of order costs and carrying costs of inventory
reorder point -- the point at which to reward her inventory, expressed as days of lead time X daily usage
safety stock -- extra inventory that is held to prevent stock outs of important items
just in time (JIT) system -- inventory management technique that minimizes inventory investment by having materials arrive at exactly the time they are needed for production
materials requirement planning (MRP) system -- inventory management technique that applies EOQ concepts and computer to compare production needs to available inventory balances in a terminal and order should be placed for various items on a product's bill of materials
manufacturing resource planning II (MRP II) -- a sophisticated computerized system that integrates data from numerous areas such as finance, accounting, marketing, engineering, and manufacturing and generates production plans as well as numerous financial and management reports
enterprise resource planning (ERP) -- a computerized system that electronically integrates external information about the firm suppliers and customers with the firm's departmental data so that information on all available resources, human and material, can be instantly obtained in a fashion that eliminates production delays and controls costs
credit standards -- the firm's minimum requirements for extending credit to a customer
five Cs of credit -- the five key dimensions -- character, capacity, capital, collateral, and conditions -- used by credit analysts to provide a framework for in-depth credit analysis
credit scoring -- a credit selection method commonly used with high-volume/small dollar credit requests; relies on a credit score determined by applying statistically derived weights to a credit applicants scores on key financial and credit characteristics
credit terms -- the terms of sale for customers who have been extended credit by the firm
Cash discount -- a percentage deduction from the purchase price; available to the credit customer who pays its account within a specified time
Cash discount period -- the number of days after the beginning of the credit period during which the Cash discount is available
credit period -- the number of days after the beginning of the credit period until full payment of the account is due
credit monitoring -- the ongoing review of a firm's accounts receivable to determine whether customers are paying according to the stated credit terms
aging schedule -- a credit monitoring technique that breaks down accounts receivable into groups on the basis of their time and origin; it shows the percentages of the total accounts receivable balance that have been outstanding for specified periods of time
float -- funds that have been sent by the payor but are not yet usable funds by the payee
mail float -- the time delay between when payment is placed in the mail and what is received
processing float -- the time between receipt of a payment and its deposit into the firm's account
clearing float -- the time between deposit of a payment and when spendable funds become available to the firm
lockbox system -- a collection procedure in which customers mail payments to a P.O. Box that is emptied regularly by the firm's bank, which processes the payments and deposits them in the firm's account. This system speeds up collection time by reducing processing time as well as mail and clearing time
controlled disbursing -- the strategic use of mailing points and bank accounts to lengthen mail float and clearing float, respectively
Cash concentration -- the process used by the firm to bring lockbox and other deposits together into one bank, often called the concentration bank
depository transfer check (DTC) -- an unsigned check drawn on one of the firm's bank accounts and deposited in another
ACH (automated clearinghouse) transfer -- preauthorized electronic withdrawal from the payor's account in deposit into the payee's account via a settlement among banks by the automated clearinghouse
wire transfer -- an electronic communication that, via bookkeeping entries, removes funds in the payor's bank and deposits them in the payee's bank
zero balance account (ZBA) -- a disbursement account that always has an end of day balance of zero because the firm deposits money to cover checks drawn on the account only as they are presented for payment each day

Unit 4 Summary

2007-02-03T20:47:00.000-05:00

Capital Budgeting, Valuation and Capital Structure

Now that we have examined the main concepts and tools in finance, we are ready to discuss how managers analyze and carry out key financial decisions at their respective enterprises. Decisions are either long term or short term. In this presentation we focus on the main long term decisions facing companies; capital budgeting decisions, valuation issues and capital structure choices.

Capital Budgeting

Capital Budgeting (CB) decisions are probably among the most important tasks faced by the management of any type of business. New product launches, new marketing campaigns, plant modernization, business expansions or contraction, are examples of CB tasks. Basically, the whole subject of CB could be collapsed into a single question: “Should a project under consideration be accepted or rejected?” To answer this vital question effectively, we need to be familiar with CB techniques such as payback, net present value (NPV), and internal rate of return (IRR) methods. In addition to being able to apply these methods to any CB situation, we also need to be able to determine the relevant cash flows (CFs) for all projects under consideration.

Briefly then, each project has three types of cash flows: initial CFs; operating CFs; and terminal CFs. Generally speaking, initial CFs are negative in nature -they are the costs of getting the project off the ground (cash outflows). The other two, operating and terminal CFs are positive (cash inflows). Although finding operating CFs is can be complex, we can define an operating (or periodic) cash flow as the sum of periodic net income after taxes plus periodic depreciations.

Valuation

It is almost impossible to think of any financial decision that does not depend on valuation. In fact, valuation lies at the heart of any CB decision.

Consider NPV for example. NPV is essentially about valuation - valuing cash flows. Furthermore, valuation techniques are used to “price” all sorts of decisions - from recruitment decisions (stock options and compensation plans) to buying, selling, and expanding businesses; and from launching new units to shutting down plants and operations. Generally, we may value the right-hand side of the balance sheet - stocks and bonds- or the left-hand side - the assets. Additionally, valuation could be based on current market dynamics -market-value-based, or past and historical figures - book-value-based. Normatively, finance requires always looking to the future for making present day decisions. As a result, market-based valuations that are built upon projected future cash flows are the norm.

Capital Structure

“Bottom lines”, and consequently market values, are also affected by the extent to which companies use debt to finance their assets. The structure of debt and equity within a business - in effect, the right hand side of the balance sheet - is known as capital structure(CS). CS becomes a key decision issue for management because as companies start using more and more debt, they become more and more risky. Such risk is referred to as financial risk. Management should move toward an “optimum” CS.

Another risk that affects the “bottom line” has to do with the extent to which a business utilizes fixed assets in its operations. This latter phenomenon gives rise to operating risk - also known as operating leverage. The higher the proportion of fixed assets in a balance sheet, the higher the risk the company faces. How do we explain this phenomenon? In times of economic downturn, companies will find it difficult to recover large fixed expenses.

Financial management -- Chapter 12 -- summary

2007-02-03T20:46:00.000-05:00

The amount of leverage (fixed cost assets or funds) employed by a firm directly affects its risk, return, and share value. Generally, higher leverage raises risk and return, and lower leverage reduces risk and return. Operating leverage is concerned with the level of fixed operating costs; financial leverage focuses on fixed financial costs, particularly interest on debt and any preferred stock dividends. The firm's financial leverage is determined by its capital structure. Because of its fixed interest payments, the more debt a firm employees relative to its equity, the greater its financial leverage.

The value of the firm is clearly affected by its degree of operating leverage and by the composition of its capital structure. The financial manager must therefore carefully consider the types of operating and financial costs it concurs, recognizing that with greater fixed costs comes higher risk. Major decisions with regard to both operating cost structure and capital structure must therefore focus on their impact on the firm's value. Only those leverage and capital structure decisions that are consistent with the firm's goal of maximizing its stock price should be implemented.

Effects of changing costs
Leverage results from the use of fixed costs to magnify returns to a firm's owners. Capital structure, the firm's mix of long-term debt and equity, affects leverage and therefore the firm's value. Breakeven analysis measures the level of sales necessary to cover total operating costs. The operating breakeven point may be calculated algebraically, by dividing fixed operating costs by the difference between the sale price per unit and variable operating cost per unit, or it may be determined graphically. The operating breakeven point increases with increased fixed and variable operating costs and decreases than increase in sale price, and vice versa.

Leverages
Operating leverage is the use of fixed operating costs by the firm to magnify the effects of changes in sales on EBIT. The higher the fixed operating costs, the greater the operating leverage. Financial leverage is the use of fixed financial costs by the firm to magnify the effects of changes in EBIT on EPS. The higher the fixed financial costs, the greater the financial leverage. The total leverage of the firm is the use of fixed costs -- both operating and financial -- to magnify the effects of changes in sales on EPS.

Non-US firms and capital structure theory
Debt capital and equity capital make up a firm's capital structure. Capital structure can be externally assessed by using financial ratios -- debt ratio, Times interest earned ratio, and fixed payment coverage ratio. Non-US companies try to have much higher degrees up indebtedness then do their US counterparts, primarily because US capital markets are much more developed.

Research suggests that there is an optical capital structure that balances the firm's benefits and costs of debt financing. The major benefit of debt financing is the tax shield. The costs of debt financing include the probability of bankruptcy; agency costs imposed by lenders; and asymmetric information, which typically causes firms to raise funds in a pecking order so as to send positive signals to the market and thereby enhance shareholder wealth.

Optimal capital structure
Zero growth valuation model defines the firm's value as its net operating profit after taxes (NOPAT), or after-tax EBIT, divided by its weighted average cost of capital. Assuming that NOPAT is consistent, the value of the firm is maximized by minimizing its weighted average cost of capital (WACC). The optimal capital structure is one that minimizes the WACC. Graphically, the firm's WACC exhibit a U-shaped, whose minimum value defines the optimal capital structure that maximizes owner wealth.

EBIT-EPS
the EBIT-EPS approach evaluates capital structures in light of the returns they provide the firm's owners and their degree of financial risk. Under the EBIT-EPS approach, the preferred capital structure is the one that is expected to provide maximum EPS over the firm's expected range of EBIT. Graphically, this approach reflects risk in terms of the financial breakeven point and the slope of the capital structure line. The major shortcoming of EBIT-EPS analysis is that it concentrates on maximizing earnings (returns) rather than owner's wealth, which considers risk as well as return.

Return and risk of alternative capital structures
The best capital structure can be selected by using a valuation model to leak return and risk factors. The preferred capital structure is the one that results in the highest estimated share value, not the highest EPS. Other important non-quantitative factors must also be considered when making capital structure decisions.

Financial management -- Chapter 12

2007-02-03T20:32:00.000-05:00

leverage and capital structure
terms

Leverage -- results from the use of fixed cost assets or funds to magnify returns to the firm's owners
capital structure -- the mix of long-term debt and equity maintained by the firm
breakeven analysis -- indicates the level of operations necessary to cover all costs and the profitability associated with various levels of sales
operating breakeven point -- the level of sales necessary to cover all operating costs
operating leverage -- the potential use of fixed operating costs to magnify the effects of changes in sales on the firm's earnings before interest and taxes
degree of operating leverage (DOL) -- the numerical measure of the firms operating leverage
financial leverage -- the potential use of fixed financial costs to magnify the effects of changes in earnings before interest and taxes on the firms earnings per share
degree of financial leverage (DFL) -- the numerical measure of the firm's financial leverage
total leverage -- the potential use of fixed costs, both operating and financial, to magnify the effects of changes in sales on the firms earning per share
degree of total leverage (DTL) -- the numerical measure of the firms total leverage
pecking order -- a hierarchy of financing that begins with retained earnings, which is followed by debt financing and finally external equity financing
asymmetric information -- the situation in which managers of a firm have more information about operations and future prospects than do investors
signal -- a financing action by management that is believed to reflect its view of the firms stock value; generally, debt financing is viewed as a positive signal that management believes the stock is "undervalued," and a stock issue is viewed as a negative signal that management believes the stock is "overvalued"
optimal capital structure -- the capital structure at which the weighted average cost of capital is minimized, thereby maximizing the firm's value
EBIT-EPS approach -- an approach for selecting the capital structure that maximizes earnings per share (EPS) over the expected range of earnings before interest and taxes (EBIT)
financial breakeven point -- the level of EBIT necessary to just cover all fixed financial costs

Financial management -- Chapter 11 -- summary

2007-02-03T20:24:00.000-05:00

The cost of capital is an extremely important rate of return used by the firm in the long-term decision process, particularly in capital budgeting decisions. It is the expected average future cost to the firm of funds over the long run. Because the cost of capital is the pivotal rate of return used in the investment decision process, its accuracy can significantly affect the quality of these decisions.

Even with good estimates of project cash flows, the application of NPV and IRR decisions techniques, and adequate consideration of project risk, a poorly estimated cost of capital can result in the destruction of shareholder value. Underestimation of the cost of capital can result in the mistaken acceptance of poor projects, whereas over estimation can cause good projects to be rejected. In either situation, the firm's action could be detrimental to the firm's value. By applying the proper techniques to estimate the firm's cost of capital, the financial manager can improve the likelihood that the firm's long-term decisions will be consistent with the firm's overall goal of maximizing stock price (owner wealth).

Cost of capital
The cost of capital is the rate of return the firm must earn on its investments to maintain its market value and attract needed funds. It is affected by business and financial risks, and is measured on an after-tax basis. A weighted average cost of capital should be used to find the expected average future cost of funds over the long run. The specific costs of the basic sources of capital (long-term debt, preferred stock, retained earnings, and common stock) can be calculated individually.

Determine the cost of long-term debt and preferred stock
The cost of long-term debt is the after-tax cost today of raising long-term funds through borrowing. Cost quotations, calculation, or approximation can be used to find a before tax cost of debt, which must then be tax adjusted. The cost of preferred Stock is the ratio of the preferred stock dividend to the firm's net proceeds from the sale of preferred stock.

Calculating the cost of common stock equity and conversion to cost of retained earnings
The cost of common stock equity can be calculated by using the constant growth valuation (Gordon) model or the CAPM. The cost of retained earnings is equal to the cost of common stock equity. Adjustment and the cost of common stock equity to reflect underpricing implication costs is necessary to find the cost of new issues of common stock.

WACC & EVA
The firm's WACC reflects the expended average future cost of funds over the long run. It combines the costs of specific types of capital after weighting each of them by its proportion. The theoretically preferred approach uses target weights based on market values. Economically value added (EVA) is a popular measure that uses the WACC to determine whether a proposed investment is expected to make a positive contribution to the owner's wealth.

Determining breakpoints
As total new financing increases, the costs of the various types of financing will increase, raising the firm's WACC. The WMCC is the firm's WACC associated with its next dollar of total new financing. Break points represent the level of total new financing at which the cost of one of the financing components rises, causing an upward shift in the WMCC. The WMCC schedule relates to the WACC to each level of total new financing.

WMCC & IOS
The IOS ranks currently available investments from best to worst. It is used with the WMCC to find the level of financing/investment that maximizes owner wealth. The firm accepts projects up to the point at which the marginal return on its investment equals is weighted marginal cost of capital.

Managerial finance -- Chapter 11

2007-02-03T20:09:00.000-05:00

the cost of capital
terms

Cost of capital -- the rate of return that a firm must earn on the projects in which it invests to maintain its market value and attract funds
business risk -- the risk to the firm of being unable to cover operating costs
financial risk -- the risk to the firm of being unable to cover required financial obligations (interest, lease payments, preferred stock dividends)
target capital structure -- the desired optimal mix of debt and equity financing that most firms attempt to maintain
cost of long-term debt -- the after-tax cost today of raising long-term funds through borrowing
net proceeds -- funds actually received from the sale of the security
flotation costs -- the total costs of issuing in selling a security
cost of preferred stock -- the ratio of the preferred stock dividend to the firm's net proceeds from the sale of preferred stock; calculated by dividing the annual dividend, by the net proceeds from the sale of the preferred stock
cost of common stock equity -- the rate at which investors discount the expected dividend of the firm to determine its share value
constant growth valuation (Gordon) model -- assume is that the value of a share of stock equals the present value of all future dividends (assumed to grow at a constant rate) that it is expected to provide over an infinite time horizon
capital asset pricing model (CAPM) -- describes the relationship between the required return, and the nondiversifiable risk of the firm as measured by the beta coefficient
cost of retained earnings -- the same as the cost of on equivalent fully subscribed issue of additional common stock, which is equal to the cost of common stock equity
costs of new issue of common stock -- the cost of common stock, net of underpricing and associated flotation costs
underpriced -- stock sold at a price below its current market price
weighted average cost of capital (WACC) -- reflects the expected average future cost of funds over the long run; found by weighting the cost of each specific type of capital by its proportion in the firm's capital structure
book value weights -- weights that use accounting values to measure the proportion of each type of capital in the firm's financial structure
market value weights -- weights that use market values to measure the portion of each type of capital in the firm's financial structure
historical weights -- either book or market value weights based on actual capital structure proportions
target weights -- either book or market value weights based on desired capital structure proportions
economic value added (EVA) -- a popular measure used by many firms to determine whether an investment contributes positively to the owner's wealth; calculated as the difference between an investments net operating profit after taxes (NOPAT) and the cost of funds used to finance the investment, which is found by multiplying the dollar amount of the funds used to finance the investment by the firm's weighted average cost of capital (WACC)
weighted marginal cost of capital (WMACC) -- the firm's weighted average cost of capital (WACC) associated with its next dollar of total new financing
breakpoint -- the level of total new financing at which the cost of one of the financing components rises, thereby causing an upward shift in the weighted marginal cost of capital (WMACC)
weighted marginal cost of capital (WMCC) schedule -- graph that relates the firm's weighted average cost of capital to the level of total new financing
investment opportunities schedule (IOS) -- a ranking of investment possibilities from best (highest return) to worst (lowest return)

Managerial finance -- Chapter 10 -- summary

2007-02-03T19:56:00.001-05:00

Not all capital budgeting projects have the same level of risk as the firm's existing portfolio of projects. In addition, mutually exclusive projects often possess differing levels of risk. The financial manager must therefore adjust projects for differences in risk when evaluating their except ability. With Al such adjustment, management could mistakenly accept projects that destroy shareholder value or could reject projects that create shareholder value. To ensure that neither of these outcomes occurs, the financial manager must make sure that only those projects that create shareholder value are recommended.

Risk adjusted discount rates (RADRs) provide a mechanism for adjusting the discount rate said that it is consistent with the risk-return preferences of market participants and thereby with excepting only value creating projects. Procedures for comparing projects with unequal lives, procedures for explicitly recognizing real options embedded in capital projects, and procedures for selecting projects under capital rationing and able the financial manager to refine the capital budgeting process farther. These procedures, along with risk adjustment techniques, should enable the financial manager to make capital budgeting decisions that are consistent with the firm's goal of maximizing stock price.

Recognizing risk
the cash flows associated with capital budgeting projects typically have different levels of risk, and the acceptance of a project generally affects the firms overall risk. Thus it is important to incorporate risk considerations in capital budgeting. Various behavioral approaches can be used to get a feel for the level of the project risk, whereas other approaches explicitly recognize project risk in the analysis of capital budgeting projects.

Risk in capital budgeting is the degree of variability of cash flows. Finding the breakeven cash inflow and estimating the probability that it will be realized make up one behavioral approach for assessing capital budgeting risk. Sensitivity analysis and scenario analysis are also behavioral approaches for capturing the variability of cash inflows and NPVs. Simulation is a statistically based approach that results in a probability distribution of Project returns.

Unique risks
although the basic capital budgeting techniques are the same for multinational and purely domestic companies, firms that operate in several countries must also deal with exchange-rate and political risks, tax law differences, transfer pricing, and strategic issues.

RADRs
the risk of a project whose initial investment is known with certainty is embodied in the present value of its cash inflows, using NPV. Two opportunities to adjust the present value of cash inflows for risk exist -- adjust the cash inflows or adjust the discount rate. Because adjusting the cash inflows is highly subjective, adjusting discount rates is more popular. The RADRs use a market-based adjustment of the discount rate to calculate NPV. The RADR is closely linked to CAPM, but because real corporate assets are generally not traded in an efficient market, the CAPM cannot be applied directly to capital budgeting. Instead, firms develop some CAPM- type relationship to leak a projects risk to its required return, which is used as the discount rate. Often, for convenience, firms will rely on total risk as an approximation for relevant risk when estimating require Project returns. RADRs are commonly used in practice, because decision-makers prefer rates of return and find an easy to estimate and apply.

ANPVs
the ANPV approach is the most efficient method of comparing ongoing, mutually exclusive projects that have unequal usable lives. It converts the NPV of each unequal lived project into an equivalent annual amount -- it's ANPV. The ANPV can be calculated using financial tables, a financial calculator, or a spreadsheet. The project with the highest ANVP is best.

Real options
Real options are opportunities that are embedded in capital projects that allow managers to alter their cash flow and risk in a way that affects project except ability (NPV). By explicitly recognizing real options, the financial manager can find a project strategic NPV. Some of the more common types of real options are abandonment, flexibility, growth, and timing options. The strategic NPV improves the quality of the capital budgeting decision.

Capital rationing exists when firms have more acceptable independent projects and they can fund. Although, in theory, capital rationing should not exist, in practice it commonly occurs. Its objective is to select from all acceptable projects the group that provides the highest overall net present value and does not require more dollars than our budget. The two basic approaches for choosing projects under capital rationing are the internal rate of return approach and the net present value approach. The NPV approach better achieve the objective of using the budget to generate the highest present value of inflows.

Managerial finance -- Chapter 10

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risk and refinements in capital budgeting
terms

Risk (in capital budgeting) -- the chance that a project will prove unacceptable or, more formally, the degree of variability of Cash flows
breakeven cash inflow -- the minimum level of cash inflow necessary for a project to be acceptable, that is, in any NPV >$0
scenario analysis -- a behavioral approach that evaluates the impact on the firm's return of simultaneous changes in a number of variables
simulation -- a statistics based behavioral approach that applies predetermined probability distributions and random numbers to estimate risky outcomes
exchange rate risk -- the danger that an unexpected change in the exchange rate between the dollar in the currency in which the project's cash flows are denominated will reduce the market value of that project cash flow
transfer prices -- prices that subsidiary's charge each other for the goods and services traded between them
risk adjusted discount rate (RADR) -- the rate of return that must be earned on a given project to compensate the firm's owners adequately -- that is, to maintain or improve the firm's share price
annualized net present value (ANPV) approach -- and approach to evaluating unequal-lived projects that converts the net present value of unequal-lived, mutually exclusive projects into an equivalent annual amount (in NPV terms)
real options -- opportunities that are embedded in capital projects that enable managers to alter their cash flows and risk in a way that affects project acceptability (NPV), also called strategic options
internal rate of return approach -- an approach to capital rationing that involves graphing Project IRRs in descending order against the total dollar investment to determine the group of acceptable projects
investment opportunities schedule (IOS) -- the graph that plots project IRRs and ascending order against the total dollar investment
net present value approach -- an approach to capital rationing that is based on the use of present values to determine the group of projects that will maximize owners wealth

overview unit 3

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Overview of Risk and Return, Time Value of Money, Cost of Capital

To date we have examined the role that financial statements - especially pro forma statements - play in mapping out the future course for a company. Before we start talking about the key decision issues at the corporate level, however, we still need to learn about one more set of tools; risk and return, the time value of money, and cost of capital.

Risk and Return

Risk and return are the back bone of finance. Without them, it is impossible to make any rational business decision. Return in its simplest form can be defined as income (or better, net cash inflow) divided by investment. For example, if you buy a house for $100,000 and sell it for $110,000 a year later, your one-year return is 10,000 divided by 100,000 or 10%. We can more or less use the same concept to calculate multi-period returns. We also have the Capital Asset Pricing Model (CAPM) at our disposal for calculating required rates of returns.

Risk, however, needs more explanation. In finance, risk can be discussed both at the corporate level and investment level. For corporations, there are two types of risk; business and financial. For investors, there is only portfolio risk. Business or operating risk has to do with the use of fixed assets by a firm. The more fixed assets a company has in its possession, the more its operating risks. Financial risk has to do with the use of debt by a company; the more debt, the higher the financial risk. The reason for this is simple. In times of economic downturn, companies experience difficulty paying their fixed commitments such as interest or fixed operating costs. This places the company's continuing operation in jeopardy. Portfolio risk on the other hand, also called beta, occurs when we consider investments by either individuals or institutions. Beta is, is in fact, a key component of the CAPM.

Time Value of Money

The basic principle of the time value of money (TVM) is that a dollar received today is worth more than a dollar received tomorrow. The reason for this is the opportunity cost of money - or interest rate. In other words, one could invest an amount today and start collecting interest as time goes on. TVM, closely related to the concept of risk and return, allows us to get a clear sense of financial trade-offs involved in any form of financial transaction such as long-term corporate investments (capital budgeting) at the business level or home loan mortgages at the individual level.

Cost of Capital

Capital is referred to as the right-hand side of the balance sheet - mainly the sum of liability and equity. Cost of capital (COC) is the cost of financing a company’s operations or assets - the left-hand side of the balance sheet. Furthermore, COC is the minimum rate of return that a company’s owners (stockholders) require. If the minimum rate is not achieved by a firm, then the owners will divest their money and invest elsewhere, driving that company’s stock price down and placing the future of the company at risk. In other words, COC is a cost item to companies, and a return item to investors - including bondholders.

financial management - chapter 7 summary

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the prices of each share of a firm's common stock is the value of each ownership interest. Although common stockholders typically have voting rights, which indirectly give them a say in management, they are only significant right is their claim on the residual cash flows of the firm. This claim is subordinate to those of vendors, employees, customers, lenders, the government (for taxes), and preferred stockholders. The value of the common stockholders claim is embodied in the cash flows they are entitled to receive from now to infinity. The present value of those expected cash flows is the firms share value.

to determine this present value, forecast cash flows are discounted at a rate that reflects their risk. Riskier cash flows are discounted at higher rates, resulting in lower present values than less risky expected cash flows, which are discounted at lower rates. The value of the firm's common stock is therefore driven by its expected cash flows (returns) and risk (certainty of the expected cash flows.)

in pursuing the firm's goal of maximizing the stock price, the financial manager must carefully consider the balance of return and risk associated with each proposal and must undertake only those actions that create value for owners -- that is, increased share price. By focusing on value creation and by managing and monitoring the firms cash flows and risk, the financial manager should be able to achieve the firm's goal of share price maximization.

Debt versus equity capital
Holders of equity capital (common and preferred stock) are owners of the firm. Typically, only common stockholders have a voice in management. Equity holders claims on income and assets are secondary to creditors claims, there is no maturity date, and dividends paid to stockholders are not tax deductible, as is interest paid to debt holders.

Common and preferred stock
The common stock of a firm can be privately owned, closely owned, or publicly owned. It can be sold with or without a par value. Preemptive rights allow common stockholders to avoid dilution of ownership when new shares are issued. Not all shares authorized in the corporate charter are outstanding. If a firm has treasury stock, it will have issued more shares than are outstanding. Some firms have two or more classes of common stock that deferred mainly in having on equal voting rights. Proxies transfer voting rights from one party to another. The decision to pay dividends to common stockholders is made by the firm's board of directors. Firms can issue stock in foreign markets. The stock of many foreign corporations is traded in the form of American depositary receipts (ADRs) in US markets.

Preferred stockholders have preference over common stockholders with respect to the distribution of earnings and assets. They do not normally have voting privileges. Preferred stock issues may have certain restrictive covenants, cumulative dividends, a call feature, and a conversion feature.

Issuing stock
The initial non-founder financing for business startups with attractive growth prospects typically comes from private equity investors. These investors can be either angel capitalists or venture capitalists (VCs). VCs usually invest in both early stage and later stage companies that they hope to take public so as to cash out their investments.

The first public issue of the firm's stock is called an initial public offering (IPO). The company selects an investment banker to advertise it and to sell the securities. The lead investment banker may form a selling syndicate with other investment bankers. The IPO process includes getting SEC approval, promoting the offering to investors, and pricing the issue.

Stock quotations provide information on calendar year change in price, 52 week high and low, dividend, dividend yield, P/E ratio, volume, closing price, and net price change from the prior trading day.

Market efficiency
Market efficiency as soon set the quake reactions of rational investors to new information cause the market value of common stock to adjust upward or downward quickly. The efficient market hypothesis (EMH) suggests that securities are fairly priced, that they reflect fully all publicly available information, and that investors should therefore not waste time trying to find and capitalize on mispriced securities. Behavioral finance advocates challenged this hypothesis by arguing that emotion and other factors play a role in investment decisions.

The value of a share of common stock is the present value of all future dividends it is expected to provide over an infinite time horizon. Three dividend growth models -- 0 growth, constant growth, and variable growth -- can be considered in common stock valuation. The most widely cited model is the constant growth model.

models and approaches
The free cash flow valuation model values start ups, firms that have no dividend history, or operating units of a larger public company. The model finds the value of the entire company by discounting the firms expected free cash flow at its weighted average cost of capital. The common stock value is found by subtracting the market values of the firm's debt and preferred stock from the value of the entire company.

relationships among financial decisions, return, risk, and the firm's value
In a stable economy, any action of the financial manager that increases the level of expected return without changing risk should increase share value; any action that reduces the level of expected return without changing risk should reduce share value. Similarly, any action that increases risk will reduce share value; any action that reduces risk will increase share value. An assessment of the combined effect of return and risk on stock value must be part of the financial decision-making process.

financial management -- Chapter 7 -- terms

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capital -- the long-term funds of a firm; all items on the right hand side of the firm's balance sheet, excluding current liabilities
debt capital -- all long-term borrowing incurred by a firm, including bonds
equity capital -- the long-term funds provided by the firm's owners, the stockholders
privately owned stock -- all common stock of a firm owned by a single individual
closely owned stock -- all common stock of a firm and by a small group of investors (such as a family)
publicly owned stock -- common stock of a firm's owner by a broad group of unrelated individuals or institutional investors
par value stock -- a relatively useless value for a stock established for legal purposes in the firm's corporate charter
preemptive right -- allows common stockholders to maintain their proportionate ownership in the corporation when new shares are issued
dilution of ownership -- occurs when a new stock issue results in each president shareholder having a claim on a smaller par of the firm's earnings than previously
rights -- financial instruments that allow stockholders to purchase additional shares at a price below the market price, in direct proportion to their number of owned shares
authorized shares -- the number of shares of common stock that a firm's corporate charter allows it to issue
outstanding shares -- the number of shares of common stock held by the public
treasury stock -- the number of shares of outstanding stock that have been repurchased by the firm
issued shares -- the number of shares of common stock that have been put into circulation; the sum of outstanding shares and treasury stock
supervoting shares -- stock that carries with it multiple votes per share rather than a single vote per share typically given on regular shares of common stock
nonvoting common stock -- common stock that carries no voting rights; issued when the firm wishes to raise capital through the sale of common stock but does not want to give up its voting control
proxy statement -- a statement transferring the votes of a stockholder to another party
proxy battle -- the attempt of a nonmanagement group to gain control of the management of a firm by soliciting a sufficient number of proxy votes
American depositary receipts (ADRs) -- claims issued by a representing ownership of shares of a foreign company's stock held on deposit by the US bank in the foreign market and issued in dollars to US investors
par value preferred stock -- preferred stock with a stated face value that is used with the specified dividend percentage to determine the annual dollar dividend
no par preferred stock -- preferred stock with no stated face value but with a dated annual dollar dividend
cumulative (preferred Stock) -- preferred stock for which all passed (unpaid) dividends in arrears, along with the current dividend, must be paid before dividends can be paid to common stockholders
noncumulative (preferred Stock) -- preferred stock for which passed (unpaid) dividends do not accumulate
conversion feature -- a feature of convertible preferred stock that allows holders to change each share into a stated number of shares of common stock
venture capital -- privately raised external equity capital used to fund early-stage firms with attractive growth prospects
venture capitalists (VCs) -- providers of venture capital; typically, formal businesses that maintain strong oversight over the firms they invest in and that have clearly defined exit strategies
angel capitalists -- wealthy individual investors who do not operate as a business but invest in promising early-stage companies in exchange for a portion of the firm's equity
initial public offering (IPO) -- the first public sale of a firm's stock
prospectus -- a portion of a security registration statement that describes the key aspects of the issue, the issuer, and its management and financial position
red herring -- a preliminary prospect is made available to prospective investors during the waiting period between the registration statements filing with the SEC and its approval
investment banker -- financial intermediary that specializes in selling new security issues and advising firms with regard to major financial transactions
underwriting -- the role of the investment banker in bearing the risk of reselling, at a profit, the securities purchased from an issuing corporation at an agreed-upon price
underwriting syndicate -- a group formed by an investment banker to share the financial risk associated with underwriting new securities
selling group -- a large number of brokerage firms that join the originating investment bankers; each accepts responsibility for selling a certain portion of a new security issue on a commission basis
expected return -- the return that is expected to be earned on a given asset each period over on infinite time horizon
efficient market hypothesis (EMH) -- theory describing the behavior of an assumed "perfect" market in which:

securities are typically in equilibrium
security prices fully reflect all public information available and react swiftly to new information
because stocks are fully and fairly priced, investors need not waste time looking for mis-priced securities

Behavioral finance -- a growing body of research that focuses on investor behavior and its impact on investment decisions and stock prices. Advocates are commonly referred to as "behaviorists."
Zero growth model -- an approach to dividend valuation that assumes a constant, non growing dividend stream
constant growth model -- a widely cited dividend valuation approach that assumes that dividends will grow at a constant rate, but a rate that is less than the required return
Gordon model -- a common name for the constant growth model that is widely cited in dividend valuation
variable growth model -- a dividend valuation approach that allows for a change in the dividend growth rate
free cash flow valuation model -- a model that determines the value of an entire company as the preset value of its expected free cash flows discounted at the firm's weighted average cost of capital, which is its expected average future cost of funds over the long run
book value per share -- the amount per share of common stock that would be received if all of the firm's assets were sold for their exact book value and the proceeds remaining after paying all liabilities, including preferred stock, were divided among the common stockholders
liquidation value per share -- the actual amount per share of common stock that would be received if all of the firm's assets were sold for their market value, liabilities were paid, and any remaining money were divided among the common stockholders
Price/earnings multiple approach -- a popular technique used to estimate the firm's share value; calculated by multiplying the firms expected earnings per share (EPS) by the average price/earnings (P/E) ratio for the industry

financial management - chapter 5 summary

2007-01-29T20:06:00.000-05:00

a firm's risk and expected return directly affect its share price. Risk and return are the two key determinants of the firm's value. It is therefore the financial managers responsibility to assess carefully the risk and return of all major decisions so as to ensure that the expected returns justify the level of risk being introduced.

The way the financial manager can expect to achieve the firm's goal of increasing its share price is to take only those actions that earn returns at least commensurate with their risk. Clearly, financial managers need to recognize, measure, and evaluation risk -- return trade-offs to ensure that their decisions contribute to the creation of value for owners.

risk, return, and risk preferences
Risk is that chance of loss or, more formally, the variability of returns. a number of sources of a firm specific and shareholder specific risks exist. Return of any cash distributions plus the change and value expressed as a percentage of the initial value. Investment returns vary both overtime and between different types of investments. Managers may be risk-averse, risk indifferent, or risk seeking. Most financial decision-makers are risk averse. They generally prefer less risky alternatives, and they require higher expected returns in exchange for taking on greater risk.

Assessing and measuring the risk of a single asset
The rest of a single asset is measured in much the same way as the risk of a portfolio of assets. Sensitivity analysis and probability distributions can be used to assess risk. The range, the standard deviation, and the coefficient of variation can be used to measure risk quantitatively.

Measurement of return and standard deviation for a portfolio
The return of a portfolio calculated as the weighted average of returns on the individual assets from which it is formed. The portfolio standard deviation is found by using the formula for the standard deviation on a single asset.

Correlation -- the statistical relationship between any two series of numbers -- can be positive, negative, or uncorrelated. At the extremes, the series can be perfectly positively correlated or perfectly negatively correlated.

Risk and return characteristics
Diversification and involves combining assets with low correlation to reduce the risk of the portfolio. The range of risk and a two asset portfolio depends on the correlation between the two assets. If they are perfectly positively correlated, the portfolio is risk will be between the individual's assets risks. If they are uncorrelated, the portfolio's risk will be between the risk of the more risky asset and the amount less than the risk of the less risky asset but greater than zero. If they are perfectly negatively correlated, the portfolio's risk will be between the risk of the more risky asset and zero.

International diversification can be used to reduce the portfolio's risk farther. Foreign assets have the risk of currency fluctuation and political risks.

Capital asset pricing model (CAPM) and security market line (SML)
The capital asset pricing model (CAPM) uses beta to relate an assets risk relative to the market to the assets required return. The graphical depiction of CAPM is the security market line (SML), which shifts overtime in response to changing inflationary expectations and/or changes in investor risk aversion. Changes in inflationary expectations result in parallel shifts in the SML. Increasing risk aversion results in a deepening on the slope of the SML. Decreasing risk aversion reduces the slope of the SML. Although it has some shortcomings, CAPM provides a useful conceptual framework for evaluating and linking risk and return.