1

1.1 Introduction
 The word „entrepreneur is originated from a French word,
„entreprendere‟, which means undertaking
 There are many concepts derived from the word „entrepreneur‟.
Entrepreneurship, entrepreneurial and entrepreneurial process are
among such concepts.
 Entrepreneurship is then what the entrepreneur does.
 Entrepreneurial is an adjective describing how the entrepreneur
undertakes what he or she does.
 The entrepreneurial process is the process through which the
entrepreneur creates new value
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1.2 Historical Origin of Entrepreneurship

Let us took in to the historical development of entrepreneurship so
as to grasp the meaning of the word entrepreneurship.
 Entrepreneurship has evolved to its current meaning over periods
of time
 Before 17th Century, word entrepreneur was used to refer to a
person managing large commercial projects through the resources
provided to him.
 In the 17th Century, entrepreneur used to refer to a person who has
signed a contractual agreement with the government to provide
stipulated products or to perform service
 3

 In the 18th Century, the first theory of entrepreneur has been

developed by Richard Cantillon, who defined entrepreneur as
.risk taker and entrepreneurship as the activity of buying a
certain product at certain price with a view to sell it at uncertain
price.

 In the late 19th and early 20th Century, an entrepreneur was

viewed from economic perspectives. The entrepreneur was
defined as someone who organizes and operates an enterprise
for personal gain.

 In the middle of the 20th Century, the notion of an entrepreneur

as an inventor as established.
 4

 Entrepreneur was defined as someone who reforms or

revolutionizes the pattern of production through exploitation of an
invention or through untried technological possibility for
producing new commodities or producing an old one in a new way
or opening a new outlet for products by reorganizing a new
industry.

 The concept of innovation and newness are at the heart of the

above definition.

 From the historical development it is possible to understand the

fact that the perception of the word entrepreneur was evolved from
managing commercial project to the application of innovation
 5

1.3 Definitions of Entrepreneurship

The concept of entrepreneurship is defined differently by

different authors. Some of the definitions given by different
scholars are presented bellow.

 Entrepreneurship as the purposeful activity of an individual

or a group of associated individuals, undertaken to initiate,
maintain or earn profit by production and distribution of
economic goods and services (A.H. Cole ).
 6

 Entrepreneurship is the function of seeking investment and

production opportunity, organizing an enterprise to undertake
a new production process, raising capital, hiring labor,
arranging the supply of raw materials and selecting top
managers for day-to-day operations (Heggins)

 Entrepreneurship is the process of creating value through

recognition of business opportunity, the management of risk
related to the opportunity, and through the communicative
and management skills to mobilize resources necessary to
bring a project to fruition
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 Entrepreneurship is the art of identifying viable business

opportunities and mobilizing resources to convert those
opportunities into a successful enterprise through creativity,
innovation, risk taking and progressive imagination

 Entrepreneurship is the process of identifying opportunities in

the market place, arranging the resources required to pursue
these opportunities and investing the resources to exploit the
opportunities for long term gains

 Engaging in entrepreneurship shifts people from being “job

seekers” to “job creators”, which is critical in countries that
have high levels of unemployment
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1.6.4 Entrepreneurial Environment

Business Environment
 It refers to factors or forces or trends that are either internal
or external to a business organization that influence its
operation and then its effectiveness

 No business organization can ignore environment as

environmental disregard has heavy penalty
 9

The benefits of environmental study:

 It provides information required to operate the business
 It provides information required to adapt to the business changing
market environment
 It provides information required to expand or to grow
 It provides information required to be in harmony with
environment

Types of Business Environment

1. External Environment
It refers to all factors outside to a business organization which either
provide opportunities or pose threats to the organization
 10

External Environment in turn can be classified as

 Micro-environment

 Macro-environment

i. Micro-environment
This refers to all factors in the immediate environment of the
business organization that can affect its performance. Micro-
environment includes
Suppliers competitors
Customers general publics
Financial community marketing intermediaries
 11

ii. Macro-environment

 It comprises trends, forces or factors that may not

immediately affect the business organization but sooner or
later alters the way the organization operates.

 Macro-environment includes

a. Economic environment which consists of factors like

national income and its distribution, balance of payment ,
balance of trade , inflation rates, economic system adopted by a
country, economic policies etc.
 12

b. Legal Environment which consists of a frame work of

rules, laws and legal principles like taxation law, labor
law, environmental law, employment law etc.

c. Political Environment which consists of political program

of the ruling party, political stability, foreign policy etc.

d. socio-cultural Environment which consists factors like

societal norms, culture, values and beliefs

e. Demographic Environment which consists factors like

educational status, income status, age and gender
profiles
 13

2. Internal Environment
It refers to all factors within the organization which either
imparts strength or cause weakness to the strategic issues of an
organization. Internal Environment includes:
 Values of the organization
 Mission and vision of the organization
 Objectives and goal of organization
 Business strategy of organization
 Marketing and financial resources
 Human resources (Employees)
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1.7 Creativity, Innovation and Entrepreneurship

1.7.1 Creativity

 It refers to ability of generating new ideas and identifying new and

different ways of looking at opportunity or problem.

 It refers to tendency of generating new ideas, possibilities or

alternatives that are useful in solving problems or entertaining

In order to be creative

 one needs to see things in new ways from different perspectives

 one should generate a number of alternatives that are unique and

different
 15

Steps in Creative Process

1.Opportunity or Problem Recognition
The opportunity or problem is sought and identified
2. Immersion
 The person concentrates on the problem and becomes absorbed in it
 The person collects relevant information and dream ups alternatives
without refining or evaluating the alternatives
3. Incubation
 The idea is kept in subconscious mind for a while
 The person does not seem to be working on the problem even though
the subconscious mind still engages in it
 The problem is internalized into the subconscious mind
 16

4 Insight / illumination
 At this stage, the solution to the problem flashes to the mind
of the person at unexpected time

 The creative solution bursts from the subconscious mind to

the conscious mind

 This stage is also called the Aha! Experience

5. Verification and Application

The supporting evidence is gathered and experimented

The idea is consciously elaborated and then applied

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1.7.2 Innovation
It refers to the process of creaking new values / unrealized values to
satisfy customers
It refers to the process of commercialization of recognized
opportunity
It is the process of exploitation of the recognized opportunity
Types of Innovation
1. Invention
It refers to creation of new product/service/process for the first time
2. Extension
The expansion of already existing product/service/process
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3. Duplication

The replication of already existing product / service / process.

Process of Innovation

1. Analytical Planning: this involves identifying

 products to produce

 service to offer

 resources required to exploit the opportunity

2. Resource Organization

Obtaining all the required resources

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3. Implementation

 The prepared plan is put into action

 The obtained resources are applied to accomplish the

goal

4. Commercialization

 providing values for customers

 rewarding employees

 satisfying stakeholders
 20

Areas of Innovation

 Producing new product

 Establishing new process

 Offering new services

 New ways of reaching customers

 New ways of informing customers

 New ways of managing relationship

 New ways of organizing the business

 New operation practices

 CHAPTER 2
BUSINESS PLANNING
21
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2.1 Entrepreneurial Process

As we introduced in chapter one, entrepreneurial process
involves several steps :

2.1.1. Opportunity Identification and Evaluation

 Most scholars that agree that Opportunity Identification and
Evaluation is the first step in entrepreneurial process

 Opportunity refers to a favorable set of conditions that

create a need to produce a product or to offer a service.
 23

 It is the gap in the market that can create potential to establish

new value for customers
 Opportunity recognition corresponds to the principal activities
that take place before a business is formed or structured.

 The opportunity identification and evaluation stage can be

divided into five main steps, namely:

i. environmental scanning

ii. identifying the opportunity,

iii. developing the opportunity,

iv. evaluating the opportunity.

v. evaluating entrepreneurial team.

 24

i. Environmental scanning/generation of idea

Environmental scanning refers to the acquisition and the use of
information about events, trends, and relationships both in
internal and external environment of business organization to
 identify opportunity
 identify possible threats
 identify strength of the organization
 Identify the weakness of the organization
 identify areas where the organization performs better than its
competitions
 25

 Idea is a thought or suggestion about a possible course of

action, thought, intention, scheme, suggestion, proposal,
initiative, spur, impulse, brainwave, insight, concept and
connotation are synonymous with “idea”
 Opportunity is a favorable time or set of circumstances for
doing something.
A business opportunity is a gap left in a market by those who
currently serve it that provides a chance to others to add new
value by performing differently from and better than
competitors
 26

 The difference between an idea and an opportunity is that an

opportunity is the possibility of occupying the market with a
specific innovative product that will satisfy a real need and for
which customers are willing to pay but idea is all about
opinion about anything we can have.
 Successful venturing may well rest upon the ability of an
individual to recognize or distinguish an opportunity from an
idea.
ii. Opportunity Identification
It is the ability seeking out and discovering and the
opportunities that others miss.
 27

It is important for the entrepreneur to understand the cause of the

opportunity. It may be

 technological change,

 market shift,

 government regulation,

 competition

Opportunity identification is a very difficult task, as most

opportunities do not just appear but rather result from an
entrepreneur‟s alertness to possibilities
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iii. Opportunity Development

 It refers to timely adaptation of the recognized opportunity to

suit actual market need

 It is the process of combining resources to pursue the

recognized opportunity

 This involves systematic research to refine the recognized

opportunity to the most promising high potential opportunity
that can be transformed into marketable items.
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iv. Opportunity Evaluation

 Opportunity screening and evaluation is a critical element of the
entrepreneurial process.
 Opportunity screening and evaluation assess whether the proposed product
or service has the required returns.
This evaluation process involves looking at
 the creation and length of window of opportunity,
 real and perceived value of the developed opportunity
 risks and returns of the developed opportunity
 the fitness of the developed opportunity to the personal skills and goals of
the entrepreneur
 the competitive advantage of the developed opportunity in its
competitive environment.
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According to experts, evaluating the opportunity must answer

the questions .
Business Factor Question for Evaluation
Product or What competitive advantage / benefits does the product have?
Service
What is the required customer care support for this
product/service?
Is the company able to produce product and supply required
aftercare support?

Where is the market demand?

Market
Opportunity What is the target market?
Is it generic or a niche?
Industry characteristics (growth rates, change, entry barriers).
What market share can the product reasonably expect today? In
2, 5 or 10 years?
 31

Continued
Business Factor--------.
Question for Evaluation

Timing and length of the window of opportunity?

Market What competition exists in this market? Substitutes?
Opportunity
How big is their turnover?
How accessible are the desired distribution channels?

Costing and
How much will it cost to develop the product and
Pricing
commercialize it?
Where will the funds come from?
How do the pricing, costs and economies of scale compared
to competitors?
How easy is it to acquire equipment, skills and other inputs
required?
 32

Continued --------.
Business Factor Question for Evaluation

What are the gross margins?

Would the return on investment be acceptable? What is the
Profitability
payback period?
What are the cash flow patterns and the source of working
capital?

How much capital is required to start?

What are the long-term capital needs?
How much of the required capital is secured and where will
the rest come from?
What securities are available to guarantee the required
funds?
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v. Assessment of the Entrepreneurial Team

Regardless of how right the opportunity may seem to be, it will
not make a successful business unless it is developed by a team
with strong skills

Table 2.2: Team factors and questions for opportunity evaluation

Team factor Questions for evaluation

Is the founder really an entrepreneur, bent on

building a company?
Does the entrepreneur (or his team) have some
experience (work or industry)?
Do they really like this product/sector?
Do they really want this?
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Team factor Questions for evaluation

Who will work full time?

Do your managers represent competitive
advantage?
Does the team have the necessary management and technical
skills?
If the required skills are not available, can they be acquired at
Management competitive rates?
How is their relationship with the entrepreneur, commitment and
motivation
Ownership
Have the critical decisions about ownership and equity splits
been resolved?
Are the members committed to these?
Does the owners have enough financial capital for required
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2.1.2 Business Idea Development
A business idea is a short and precise description of the basic
operation of an intended business.
There are three types of business ideas. They are:
1.Old Idea: Here an individual copies of an existing business
idea from someone.
2. Old Idea with Modification: In this case, the person accepts
an old idea from someone and then modifies it in some way to
fit a potential customer‟s demand.
3. A New Idea: This one involves the invention of something
new for the first time
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2.1.3 Business Idea Identification (BII)

BII involves identifying :

 the customers‟ needs and wants to be satisfied

 the potential customers that business can attract

 the goods and services that business will sell

 the marketing strategies to be used ( pricing, promoting,

distributing and producing)

 the extent of dependence on environment and its impacts on

the business operation and its effectiveness
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2.1.3.1 Methods of Generating Ideas

a. Hobbies/interest

 Hobby is a leisure -time activity activity which may include cooking,

travelling, exercising sport , playing with computers etc.

 Business idea can be generated from one‟s own hobby

b. Learning from Successful Business Owners

A mechanic with experience of working in large garage may eventually

set up his own car business or used car business

c. Trade fair and Exhibition

Attending trade fair and exhibition regularly allows the attendee to

know new products and service
 38
 It also gives the attendee the chance to meet sales representatives
,manufacturers, wholesalers, distributors and franchisers.

 These are often excellent sources of business ideas, information

and help you in getting your business started. Some of them may
also be looking for someone just like you to be a business partner.

d. Focus Group Discussion

 A focus group is a group of 5 to 10 persons that represents

different socio-economic backgrounds.

 These are experts in different subjects and thus their belief,

opinions, perceptions and attitudes toward a product, a service, a
concept and advertisement help to generate new ideas
e. Brainstorming 39

It is the process of generating new ideas through group

discussion which involves

 idea capture

 discussion and evaluation

 Selection

In brainstorming, everyone writes ideas related to the problem

in 4 to 6 minutes.

Then every one passes ideas to the next person who will build
on the idea adding creative strategies
 40
The moderator collects the idea , the group discusses the idea
and decide which idea is the bes tone.

f. Surveys

 The focal point for a new business idea should be the

customer.

 The needs and wants of the customer, which provide the

rationale for a new product or service, can be ascertained
through a survey.

 Surveys may be conducted using a questionnaire, through

interviews or through observation.
 41

 In a survey, one needs to ask or interview people who are

part of the distribution chain including manufacturers,
wholesalers, distributors, agents and retailers through
questionnaire or structured interview.

 These people have a good sense of what is required and

what will sell and what will not sell because of their close
contact with customers .

 Finally, one should talk to as many customers (both existing

and potential customers) as possible
 42
g. Complaints

 Complaints and frustrations on the part of customers have led

to many new products or services.

 Whenever consumers or customers complain bitterly about a

product or service, or when customers have unsatisfied
needs by the current products or service, you have the
potential for a business idea.

 The idea could be to set up a rival firm offering a better

product or service, or it might be a new product or service
which could be sold to the firm in question and/or to others.
 43
h. Mass Media

 The mass media is a great source of information, ideas and

often opportunity. Newspapers, magazines, television, and
the Internet are all examples of mass media.

 Taking a careful look at the commercial advertisements in a

newspaper or magazine may open an avenue for generating
ideas

 Furthermore, articles in the printed press or on the Internet or

documentaries on television may report on changes in
fashions or specific consumer needs.
 44
i. Personal Skills and Experience:
 Over half of the ideas for successful businesses come from
experiences in the work place.
 For example, a mechanic with experience in working for a large
garage may eventually sets up his/her own car repair or used car
business.
 Thus, the background of potential entrepreneurs can play a crucial
role in the decision to go into business as well as the type of
venture to be created.
 One‟s own skills and experience are probably the most important
resources, not only in generating ideas but also in capitalizing on
them to develop a good business opportunity
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j. Franchises

Franchise is a type of license in which the franchisor gives the

franchisee exclusive rights to use its trademark, business
knowledge, brand or methods of doing businesses.

k. Other People’s Experience/Customers Comments

 The people around you are potential customers.

 It is important to understand their experience trying to find

goods and services that are unavailable or not exactly what they
need.
 46

 Listen carefully to what these people say about their shopping

experience.

 Expand your social knowledge by talking to people from

different age groups, social classes, community groups, etc.

Here are some examples of comments that would help with your
search for a business idea:

 “I cannot find a lunch box that keeps the food warm.”

 “The choice of cooking pots in the shops is very limited.”

 47
 “There is no reliable way of sending gift packages to my
friends and relatives living in the villages.”

 “There is not enough entertainment in this town and the

weekends are so boring.”

 “I really need to buy some marketing textbooks, but there are

no good bookstores in this town.”

l. Scanning Environment

It may be useful to think about business ideas by considering all

the resources and institutions in your area.
 48
 Natural resources

 Characteristics and skills of people in the local community

 Import substitution

 Waste products

 Publications,

m. Attribute Listing

 Attribute listing is an idea-finding technique in which the

entrepreneur lists the attributes of an item or problem and then
look at each from a variety of viewpoints.
 49

 objects can be brought together to form a new combination

and possibly a new product/service that better satisfies a need.

2.4 Business Idea Screening

 Idea screening is the process of selecting good ideas and

eliminating the poor one.

 To screen the business idea generated, three approaches are

discussed as follow:

1. Macro screening: is aimed screening down ideas to 10.

 50
The common criteria in macro-screening are:

 are my own competencies sufficient?

 can I finance it to a large extent with my own equity?

 will people buy my product/service (i.e. is it needed and can people

afford it)?

2. Micro Screening: is aimed screening down ideas into 3. The

common criteria used for micro- screening are:

 solvent demand

 availability of raw materials

 availability of personal skills

 availability of financial resources

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3. Scoring the Suitability of Business Idea

 This approach is most appropriate when deciding on starting a

business.

 When there are more than one possible business ideas and one
needs to decide which one to follow, we use score business
ideas (e.g., BI1, BI2, BI3) by assigning a rating from 1 to 3 for
each question, with 3 being the strongest.

 After we score the ideas, we sum the total and select the idea
with the highest score
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While answering the above questions, there are four important
groups that one should talk to

Potential customers

Their views are essential to understand whether or not the

proposed product is important to them and if modifying the idea
needed to meet their needs.

Competitors and Suppliers

Their views will reveal the challenges of competition that you

would face, as well as other issues related to your potential
business.
 54
Financial Institutions

Find out the lending requirements to determine whether borrowing for

a new business is possible.

Key Informants and Opinion Leaders

 These are people who would know a lot about the type and field of
business to go into and/or a lot about your potential customers.

 Their views would give you a lot to think about and could also give
you a better insight into the feasibility of your business idea.

 After completing the summary of the business idea, the next step is
preparing a business plan for the proposed business.
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2.5 The Concept of Business Plan
 It is a written document that sets out the basic idea
underlying a business and related start-up considerations.
 It is the blue-print that directs how a given business is
going to be launched and operated.
It can be viewed as
a road map for starting and operating a business
 an entrepreneurial game plan
a communication tool of informing a business stakeholders
about start-up and operation of a business
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A business plan,
 identifies an innovative idea
 identifies opportunities and threat
 identifies strength and weakness
 assesses the feasibility of the business idea
 allocates the required resources for start-up and operation
The objectives of the business plan are to
 objectively evaluate the prospects of a business
 monitor the progress during operation
 persuade others to join the business
 assess the feasibility of the business
 57

 to guide the actual implementation of the plan

 identifies the strength and weakness of the plan

 identifies challenges and opportunities

 identifies resources required

2.5.1 A business Plan Developing Process

1. Preliminary Investigation

It is pre-assessment before the preparation of the plan which

involves activities like :
 58
 reviewing available business

 making assumption about inflation, exchange rates, market

growth, competitive forces

2. Environmental Scanning

3. Opportunity Identification and Evaluation

As we discussed in chapter one, this involves seeking out

opportunity, identifying it , developing th recognized opportunity
and evaluated the developed opportunity

4. Feasibility Study: A search to assess the viability the proposed

business idea with emphasis on potential problem identification
 59

It refers to analysis and evaluation of a proposed business to

determine

 whether the business idea is technically, operationally,

structurally, financially, environmentally feasible or not

 Whether it is profitable or not

5. Report Preparation

Preparing a written document that outlines the starting and

running of the business
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2.5.1.1 Essential Elements of the Business Plan

 Cover page
 Table of contents
 Executive summary
 Information about the owner
 The business description
 The company‟s product/service
 Overview of the industry
 The plan: marketing plan, organizational plan, operational plan,
financial plan
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1. Introductory Summary

1.1 Cover : This includes

 the name of the business and owner

 Company logo

 Contact information: phone number, fax, e-mail address

1.2 Executive summary

A brief summary of important features of the proposed

business plan described in 2 or 3 pages.

 Generating interests in minds of the reader is the prime

motives of the summary
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1.3 Table Contents
Each title with corresponding pages is enlisted
2. Description of the Business: This includes
 industry overview
 description of the company
 description of the company‟s position
 description of the company‟s product
2.1 Industry Overview
In this section, the type industry in which the business operate is
briefly described
 63
This includes
 Trends in the industry
 History of the industry
 Threats and opportunities in industry
 Growth and barriers in the industry
2.2 The Company Description : It discusses about
 The mission, goal and objectives of the business
 The form of ownership
 The location of the business
 Contribution of the company to the economy
 The target customers
 64

 The competitive advantages of the business

2.3 The Company’s Product and Service

It provides brief description of the product. The description

includes:

 key features of the product/service

 the product range

 the advantages of that product has over similar product

/substituting in the market

It also gives information about:

 65
It also gives information about:

 patent right( if any)

 trademarks

 Copyright

 Licensing agreement

2.4 Positioning

 It refers to how the business place itself in the market or

industry

 It defines where your product stands in relation to others and

the minds of the other
 66

A company‟s positioning must answer the following questions

 How do you want your customers and competitors to perceive your
business?
 Where you stand in the industry?
3. Start-up Capital
It refers to cash /money required to purchase machinery, land,
equipment and other resources to start the business and continue its
operations.
4 The plan
4.1 The Marketing Plan
The marketing plan encompasses the following:
 67
 Target customers
 Promotion strategy
 Pricing strategy
 Distribution channel
 Market size and trends
 Competition and sales estimation
4.1.1 Target Customers
Under this, you should describe
 who are your target customers
 the preferences of your target customers
 the demographic characteristics of your customers
 geographic distribution of your target market
 68
4.1.2 The Market Size/trends

 What are trends in market with respect to your product

 What is the size of the market: Generic or niche?

 What is the nature of growth of the market?

4.1. 3 Promotion Strategy

Identify the promotion vehicles to be used

1. Advertising : mass communication through newspapers, magazines,

TV, internet etc.

2. Public Relation: a form of communication to change perceptions

of customers, shareholders, suppliers, employees and other
publics about a company and its product
 69

3. Sales promotion: a type of promotion involves short term incentives such as

discounts, free samples, and prizes to arouse interest of customers in buying the
good/service
4. Personal selling: two-way flow of communication between a buyer and seller
4. 1.4 Methods of Sales
 Describe how would you get the product / service into the hands of your
customers
 Describe your distribution channels.
4.1.5 Estimating Sales
Sales in units and dollars (Birr) for the next two or three years are estimated,
broken down into quarters or even moths
4.2 Operational Plan
This includes
 70
This includes plan for
 material requirement
 inventory requirement
 quality control , and
 Budget for operational plan
4.3 Organizational Plan
It indicates how responsibilities and duties should flow in the
organization. Such plan may include :
 The manpower plan required to start and run the business
organization
 The organizational structure
 Laws that govern the management and employees
 71

4.4 Financial Plan

The financial plan is usually drawn for two to five years for an
existing company. For a new organization the following
projections are drawn:
 Projected Sales
 Projected Break Even Point
 Projected Income Statement
 Projected Balance Sheet
 Projected Cash Flows
 72
2.7 Critical Risks

 The investors are interested in knowing the tentative risks to evaluate

the viability of the business and to measure the risks involved in the
business.

 This can further give confidence to the investors as they can calculate
the risks involved in the business from their perspectives as well.

2.8 Exit Strategy

 The exit strategies would provide details about how the organization
would be dissolved, what would be the share of each stakeholder in
case of winding-up of the organization.

 It further helps in measuring the risks involved in investing

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Unit Three :Business Formation

3.1 Forms of Business Organization

There are three basic legal forms of business entity. These are

3.1 Sole Proprietorship

 It is a form of organization which is owned, managed and controlled

by an individual, who is the recipient of all profit and bearer of all the
risks.

Features of Sole Proprietorship

1. Easy Formation: Formation and closure of the business organization

is easy because no serious legal formalities are required to start such
business except licensing.
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2. Liability
 Sole proprietors have unlimited liability. This mean the owner is
personally responsible for the payment of debt of the business if
the assets of the business are not sufficient to pay the debt.
3. Sole risk bearer and Profit Recipient
He /she bears the risk and receives the benefit
4.No separate Entity
No distinction between the business and the owner in eyes of law

But every business entity is treated as separate entity according

to GAAP-business firms are separate apart from the business
owners
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4. Lack of Business Continuity

 Since sole proprietorship is owned ,managed and controlled by one

person and thus death, imprisonment, sickness or bankruptcy
detrimentally affect such form of business or even cause it to be
closured.

 According to GAAP, a business will continue to operate into future

for a period longer than the life expectancy of its asset-Going
concern Principle.

 The assumption is that a business entity will remain in a business

for foreseeable future
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Merits of Sole Proprietorship
This form of business organization has many advantages.
 Quick decision making
 Confidentiality of information
 Sense of accomplishment
 Ease of formation and closure
Limitations of Sole Proprietorship
 Limited resources
 Limited life of the business
 Unlimited liability
 Limited managerial ability and skill
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3.2 Partnership

 A form of business organization formed by legal agreement between two

or more persons to share capital for investment and share profit thereof.

 Partnership comes into exist through legal agreement. The legal

agreement on basis of which partnership is formed is known as
Partnership Agreement /Articles of co-partnership.

Partnership Agreement contains terms and conditions that dictate

 Name and location of the firm

 The data of inception of the business

 The purpose of the firm

 Rights and duties of the partners

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 The capital contribution of each partners

 Basis of sharing net income and loss

 Conditions for settling disputes

 Procedure for withdrawal or addition of a partner

 Rights and duties of surviving partners in event of death of a a

partner

Features of Partnership

1.Liability : The general partners have unlimited liability while

limited partners have limited liability

The partners with unlimited liability are personally liable for the
payment of debts of the partnership
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 The personal asset can be sold to pay the debts of partnership if

the asset of partnership is insufficient to repay the debt

2. Risk Bearing

 Partners bear the risk of running their business as a team

 Risk are shared in the same away as profit or loss

3. Decision-making and control

 Decisions are made jointly with mutual consent

 But if a decision is made by a partner selected to act on behalf of

the partnership, the decision is binding on the other partners
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3. Continuity

Partnership is characterized by the lack of continuity because

of

 death of the a partner

 insolvency

 retirement of a partner

 withdrawal or addition of a partner

But if Articles of Partnership has already stipulated issues

related how to continue in event like those mentioned above, the
business may continue
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4. Mutual Agency

 A legally binding relationship where acts of each party on

behalf of the partnership entails authority and participation of all

 In partnership, individuals with different experience may involve

in decision-making and the decision is likely balanced

Merits of Partnership

 Balanced decision making

 More funds can be raised easily

 Sharing of risks

 Secrecy
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Limitation of Partnership
 Unlimited liability
 Limited access to finacncial resources compared to corporation
 Possibility of conflict
 Lack of continuity
 Lack of public confidence compared to corporation
3. Corporation
 Form of organization owned by shareholders who invest money in
the business by buying shares of stock
 The portion of the corporation that the shareholders own depends
on the percentage of the stock they hold
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 It is a form of organization with legal identity or fictitious personality

Participants in Corporate Governance

Corporate governance is the system of rules, practices, and processes that a

company uses to direct and control its operations. Participants in such
processes are

 Board of directors

 Chief executive officer and other managers

 shareholders

Benefit of Corporation

i. Limited liability

shareholders are not personally liable to the debts of corporation. They are
liable to the extent they contributed even if the business become insolvent
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ii. Easy Access to Financial Resources

 Corporations raise funds by selling stock unlike other forms of

organization

 Corporations are trusted by the financial institutions and thus can

get loans easily

iii. Specialized Management

Corporate organizations are managed and controlled by professional

individuals not by owners

iv. Continuity and Transferability

Corporation can exist forever ( at least in theory) as it has a legal

identity separate from the lives of its owners
 85

Transferring ownership of a corporation is easy as the

shareholders can simply sell theirs stock to others

Drawbacks of corporations

Agency Problem

A conflict of interest in a relationship in which one party is

supposed to act in the best of the others.

 Managers are often more interested in career development

than overall profitability of the company and shareholders
may care about the profits without regard for the bell being of
the employees
 86

Double Taxation

 Corporations are taxed by the federal and state government on their

earning

 When these earnings are distributed as dividends, the shareholders

also pay taxes on the dividends

3.2 Definition and Roles of Micro and Small Business Enterprise

(MSEs)

Different countries use different ways of specifying size or

standards of defining MSEs

But all may use size and/or economic criteria as bases to define
small business
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1. Size Criteria

Some criteria used to measure size includes

 No of employees

 Volumes and values of sales turnover

 Volumes of production

 Asset size

 Volume of deposit

 Total capital investment

 Combination of these factors
 88

 Although the number of employees is the most widely used

yardsticks, the best criteria in any given case depends the
users‟ purpose

 Size criteria based definition of MSEs varies from country to

country

 Ethiopian definition of MSEs based on size criteria defines

manufacturing and service enterprises differently

 Ethiopian size-based definition of MSEs is summarized in the

Table below
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Levels of Enterprise Sector Human Total asset

power

Micro-enterprise Industry <5 <100,000 Birr

Service <5 < 50,000 Birr

Small Enterprise Industry 6-30 <1.5 million

Birr

Service 6-30 < 500,000 Birr

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2. Economic Criteria

Size does not always reflect the true nature of enterprise.

Economic basis of definition of MSEs covers

 Market share

 Independence or personalized management

 Technology

 Geographic Areas of operation

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3.3 Roles of MSEs in Developing Countries

MSEs play an important roles in both developed and

developing countries. Here are some importance of MSEs:

 Creating employment opportunities

 Balanced regional development

 Removing regional imbalance

 Equitable distribution of wealth and decentralization of

power

 Less dependence on import or export promotion

 Facilitates development of large scale enterprises

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3.3.1 Classification of MSEs in Ethiopia

MSEs are classified into the following sectors or sub-sectors

in Ethiopia

 Manufacturing sector

 Construction sector

 Trade sector

 Service sector

 Agricultural sector
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1. Manufacturing sector

This sector comprises the following|:

 Textile and garment

 Leather and leather products

 Food processing and beverage

 Metal works and engineering

 Wood works including furniture and ornaments service

 Agro-processing.
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2. Construction sector : this includes

 Sub-contracting

 Building materials

 Traditional mining works

 Cobble stones

3. Trade sector

 Wholesale of domestic products

 Retail sale of domestic products

 Raw material supply

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3. Service Sectors

 Cafe and restaurant

 Store service

 Management service

 Project engineering service

 Product design and development service

 Maintenance service

 Beauty salons

 Electronic software service

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4. Agricultural Service

 Livestock rearing

 Bee production

 Poultry

 Modern Irrigation

 Vegetable and fruits

 Animal food processing

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3.4 Setting Up Small Business

Steps for Setting up Entrepreneurial Venture

Entrepreneurial process of launching a new venture can be

divided into three key stages :

1. Discovery : This has two steps

Step 1: identifying opportunity that may form the basis of

entrepreneurial venture. It may involve strength and weakness

Step 2: Identifying a problem and potential solution

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2. Evaluation

Step 3: evaluating the business opportunity. Evaluation must

address the following questions

Is the solution to the problem really wanted by customers?

Is the proposed solution feasible with respect to technology

environment , environmental, financial and legal issues ?

Step 4 :Seeking and gathering resources

what resources are required?

What are resources are required to reach customers ?

What are resources are required to inform customers ?

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3. Exploitation

Making the final preparation and launching to the market

Step 5: Forming an enterprise to create value

Step 6: Implementing entrepreneurial strategy

The marketing, operational, financial and organizational plans

are put into action

Step 7: Planning the future

Looking a head and visualizing where to go

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3.5 Environmental Analysis
3. 5.1 Macro-environmental Analysis
Under this analysis, the economic, legal, political, social and
demographic environment of the business entity are investigated.
All of these factors are not in the immediate environment of the
business
3.5.1 Sectorial Analysis
After having understood the general environment in which the
business operates, studying the sector / industry in which it operates
is important. Sectorial Analysis involves:
 History of the industry
 The future trends
 New products/ service developed in the industry
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 Forecasts made by the industry or government

 Nature of competition

 Threats of substitutes and entry barriers

3.5.2 SWOT Analysis

 It refers to analysis of internal strength and weakness as

well as external analysis of opportunities and threat

 Strength refers to positive internal factors that enable

business to achieve its goals, mission and objectives

 Weakness refers to negative internal factors that inhibit the

business from achieving its goals
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 Opportunity: A favorable sets of conditions that provide

chance of making business

 Threat: Negative external factors that hinders the business

from attaining its mission goal and objectives

Macro-environmental Analysis

Sectorial analysis

SWOT analysis

Product or service
 103

3.6 Small Business Success and Failure Factors

3.6.1 Small Business Failure Factors

Business Failure refers to closure of the operation of a

business organization as a result of

 bankruptcy

 voluntary withdrawal

 foreclosure

 receivership
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Causes of Business Failure

There are a number of reasons for the failure of a given

business entity ,but the following are the major ones.

1.Inadequate management

Inability of managing resources of the organization and its

operation, This may involve

 Inexperience

 Lack of planning

 Poor inventory control system

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 Poor business philosophy

 Overinvestment in a fixed asset

 Poor financial controlling system

 Failing to understand the required commitment and hard

work

 Improper estimates of cash flow

 Failing to adjust to external change

 Failing to hire the required human resources

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2. Inadequate Financing
Lack access to financial resources and improper management
of financial resources
3. Neglect, Fraud, Nepotism, Favoritism and Disaster
 Neglect: failing to pay due attention to the enterprise
 Fraud: intentional misrepresentation or deception
 Nepotism: making unnecessary favor for family members
and relatives
 Favoritism: making unfair favor for an individual or a
group of individuals based religion, ethnicity, bribery, or
other reasons
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Disaster : refers to unforeseen event that causes serious loss or

destruction
3.6.2 Small Business Success Factors
As there are a number of factors that leads to a business failure,
there are factors that leads to the success of MSEs
Here are some of success factors for MSEs:
i. The Business’s Internal Strength
 Ability to be flexible and innovative
 Ability to identify competitive advantages
 Cultivating relationship with customers
 The possible presence of symbiotic relationship with larger
business
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ii. Conducive External Environment

 Good political environment

 Favorable economic environment

 Good socio-cultural environment

iii. Adequate Credit Assistance

 Adequate and timely credit support

 Lower interest rates than the prevailing commercial rates

 Less collateral requirement

 Lower equity ration

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iv. Market and Marketing Support

 Helping MSEs in finding the right market access

 Helping improving the marketing strategy

3.7 Main Supporting Packages for MSEs Development in

Ethiopia

In Ethiopia, MSEs are entitled with supporting packages which

include

 awareness creation about the sector

 provision of legal service

 forming legal business enterprise

 Providing technical business management training

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 financial support based on personal saving

 Facilitating working premises

3.8 Problems of Small Business Enterprise

MSEs are facing many several problems and thus they have not
fully contributed to economic development .The major problems
of MSEs in Ethiopia are

1. Lack of adequate access to financial resources

Small business in Ethiopia have difficulty of securing funds for

establishment and running their enterprises. The availability of
fiancé is not adequate for people with interest in small business .
 111

2. Production Problems

MSEs employ poor production technology which arise due to lack

of education and technological know-how

Regardless of governmental attempt to increase education or

trailing for MSEs, the problem of poor knowledge still exists

3. Market and Marketing Problem

Lack of easy access to market and distribution networks are

among the obstacles hindering development of MSES.

4.Widespread Corruption

Corruption impedes development and drives away investment

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 Increases cost of doing business

 Undermines the rule of law

5. Lack of infrastructure and proper work premises

3.9 Designing the Organization

Organizational Design is the process of deciding how an

organization should be structured and function. The five points to
be considered in organizational design process.

1. Organizational structure

This defines how tasks are formally divided , grouped and

coordinated
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They key elements used to determine organizational structure

 Departmentalization

 Chain of command

 Work specialization

 Span of control

 Centralization vs decentralization

 Formalization

2. Planning , Measuring and Evaluation (Performance) Schemes

 How the organizational goals are to be achieved

 How performance will be measured and evaluated, should be stated

clearly
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3. Rewards: means of rewarding employees for their

performance should be stated clearly

This may be promotion, salary, bonuses or praises

4. Selection criteria

Criteria of recruiting, selecting and placing employees are

specified

5. Training and Development

The kind and career development schemes should be clearly

stated
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Unit Four :Product Development

4.1 The Concept of Product / Service
Product is any thing that can be offered to a market to satisfy
customers‟ needs and want.
Product can be
 physical goods
 places
 persons
 ideas
 services
 organizations
 116

4.2 Product Development Process

All business organizations are forced to adopt new product development

process due to

 rapid development of new technologies

 changes in customer needs

 gradual increase of competition

Product development is a process through which organizations react to

 changes in market needs

 changes in customer needs

 changes in technological development

 foray into new areas

 ensure continuous growth

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 It is a core process in achieving strategic objectives, renewal of
business mode, and deterring competition from displacing the
company from market position
The various stages of New Product Development processes are
 Idea generation
 Idea screening
 Concept Development and testing
 Marketing Strategy Development
 Business Analysis
 Product development
 Market Testing
 Commercialization
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Stage 1. Idea Generation

Good ideas are lifeblood of new product development.

Scanning for new ideas should encompass both internal and

external sources, which include

 customers

 suppliers

 competitors

 Employees

 Executives

 Sales representatives
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The obtained ideas are reviewed by the idea committee who sort
the ideas into three groups
 promising ideas
 marginal ideas
 rejects
Stage 2. Idea Screening
Ideas generated in stage-1 are reduced to a number which is likely
to be useful. Ideas are screened in terms of
 Availability of production facility
 Availability of raw material for production
 Availability of financial resources
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 Availability of managerial ability

 Possibility of profitability

 Good market potential

 Uniqueness of the product

Stage 3. Concept Development and Testing

Concept Development

 Product concept is a pictorial representation and description of a

new product

 Product concept serves as communication tool to communicate

to consumers about the nature of the new product
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Product concept describes

 who are the users of the product

 the product features and characteristics

 the benefits the product provides

 the problem product will solve

 how the product will work

 where the product is to be consumed

Product concept statement provides the basis to get feedback from

the consumer to identify

 strength of potential new product

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 viability of the proposed product

 the sales potential of the proposed product

Concept Testing

Testing the product concept involves exposing the product idea

to consumers to get reaction to it using a series of questions

It is a marketing research technique that is used

 to evaluate the market potential of the product concept

 to provide information useful in strengthening the concept

 to develop introductory marketing strategy

 123

Elements of Concept test

 Concept‟s relevance to consumer needs

 Consumer reactions to the product features

 Reasons the consumers purchase the product

 Major strengths and weakness

 Perceived advantages and disadvantages relative to competitors

product

 Uniqueness of the product

 Expected frequency of purchase

 124

 Concept testing can either use qualitative or quantitative

techniques

Qualitative techniques such as in-depth interview and focus group

discussion can provide a great deal of useful knowledge regarding

 Consumer reaction to the concept

 The concept‟s strength and weakness

 Recommendation for improvement

Stage 4. Marketing Strategy Development

Preliminary marketing strategy plan is developed to introduce new

product into the market
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The marketing strategy plan consists of

 The market size , structure and behavior

 Long-run sales and profit goals

 The marketing mix strategy

 Marketing budget

Stage 5. Business Analysis

 At this stage, the business attractiveness of the proposal is

evaluated

 Sales, cost and profit projections are made by the management

of the organization
 126

Estimating Total Sale: the sale forecast is made to know whether

the profit is satisfactory or not

Estimating Cost : the cost to be incurred starting from the idea

generation to commercialization is estimated

Estimating Profit = estimated sale- estimated cost

The company can use other financial measures like break-even

point to evaluate the merit of product proposal

Stage 6:Product Development

 At this stage, the product concept is converted into its physical

version

 Prototypes are first developed and tested

 127

 Prototype refers to an early sample or model of a product built

to test the concept

i. Functional test : how effectively and safely the product

performs

ii. Consumer test: consumers are given the product to use them in
their own home

Stage 7: Market Testing/ Test Marketing

Test marketing is a trial mini-launch of the products in a limited

areas that represent the potential market before the products are
fully launched
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It provides information about

 Buyers

 Dealers

 Market program effectiveness

 Market potential

It gives information how customers, buyers, and dealers react in

handling, using and repurchasing of the actual products

Stage 8: Product Commercialization

The product is fully launched to the market for commercial success

under complete marketing strategy
 129

It involves

Full scale production

Full scale distribution

Full-scale promotion

4.3 Intellectual Property Protection

What is intellectual property(IP)?

IP refers to the results of creation of mind such as

 Literary works including computer program, books, poetry,

database, speech

 Artistic works including sculpture, painting, photograph, drawing

 130

 Design

 Symbol, names, and images

Intellectual Property right includes

 Patent

 Copyright

 Trademark
 131

i. Patent

 It refers to exclusive right granted to inventors by law for their

inventions

 It grants an inventor the right to prevent the 3rd party from

using inventions for commercial purpose without
authorization

 The invention cannot be commercially made, used,

distributed or sold without the consent of the owner
 132

What can be panted?

 Machines, instruments,, equipment

 chemicals, drugs, medicines, physical goods

 Process, methods, research, analysis,

 technologies with new applications

ii. Trade Marks

 Are distinctive names, marks, symbols, or motto identified with a

company‟s product or service and registered by government office

 Trademark may be a word, symbol, design or any combination of

these or it could be a slogan or even a particular sound that
identifies the source, product or service
 133

 Unlike patent, a trade mark lasts indefinitely as long as the mark

continue to perform its indicated function

3. Copyright

 It is exclusive granted by law to authors for their original literary

and artistic works

 It prevents the 3rd party from printing, copying or publishing any

original work of authorship without the consent of the author

 It protects original work of authorship including literary works like

poetry, novels, computer program, software, books, songs, speech,
etc. and artistic works like painting, drawing, sculpture or architect
What is protected by Copyright?

1. Literary works including books, poetry, computer program,

novel, speech, sermons etc

2. Musical composition including dramatic works, movies,

choreography , Pantomimes, Pictorial works , graphic works
and sculptural works
 135

UNIT FIVE: MARKETING

5.1 Introduction
 The foundation of marketing is exchange.

 Exchange is an act or a process in which a party provides another

party something of value and receives something else of value in

returns

 Marketing consists of all activities designed to generate or facilitate

an exchange intended to satisfy human needs.

 The concept of market is very important in marketing.

 136

 Philip Kotler defines “A market as an area of potential exchanges”.

 Thus, a market is a group of buyers and sellers interested in

negotiating the terms of purchase/sale for goods or services

5.2 Definitions of Marketing

Marketing has been defined in various ways. The definitions that

serve our purpose best are as follows:

 Marketing is a social and managerial process by which an

individual or group obtain what they need and want through
creating, offering and exchanging of product of values with
others ( Kotler,2012).
 137

 Marketing is a total business activity designed to plan,

price, promote and distribute want-satisfying products
to target market to achieve organizational goal
(Stanton, 1984).

 Marketing is an organizational function and a set of

processes for creating, communicating, and delivering
value to customers, and for managing customer
relationships in ways that benefit the organization and
its stake holders (AMA).
 138

Marketing answers the following questions:

 Who are my customers?

 What are customers' needs and wants?

 How to satisfy my customers‟?

 How do I make a profit as I satisfy my customers?

 How do I price, promote and distribute products?

 How I do compete in the market?

 139

5.3 Core Concepts of Marketing

Needs, Wants and Demand

The marketer must try to understand the target market's needs,
wants, and demands.

Need

Human Need is a state of deprivation of some basic satisfaction

which arises out of physical or psychological imbalances.

People need food, air, water, clothing, safety, belongingness and

shelter to survive. Beyond this, people have a strong desire for
recreation, education and other services
 140

Want

 Human needs become wants when they are directed to specific

objects that might satisfy the need.

 An American needs food but may want a hamburger, French

fries while a person in Ethiopia needs food but may want injera.

 Wants are needs shaped by socio-cultural factors and institutions

like churches, schools, families ,and community have great
roles in shaping human want

 Wants are thus desires for specific satisfiers of needs

 141

Demands

 Demands are wants for specific products that are backed by

ability and willingness to buy them.

 Want become demand when supported by purchasing power.

Many people want Mercedes; only a few are willing and able
to buy it.

 Companies must therefore measure not only how many people

want their product but, more importantly how many would
actually be willing and able to buy it.

 Marketers do not create needs: Needs pre-exist marketers.

Marketers, along with other societal factors, influence wants.
 142

Product
 It refers to anything that can be offered to market to satisfy
customers‟ needs or wants.

 It can be physical goods, idea, organization, service, places,

person etc. Thus, product can be tangible or intangible.

Value
 It is the consumers‟ estimate of a product‟s overall capacity to
satisfy their needs.

 It is the measure of the benefit gained from a product relative

to the full cost of the item.
 143

 In marketing, perceived value is the customers' evaluation of

the merits of a product and its ability to meet their needs and
expectations, especially in comparison with its peers.

 Marketing professionals try to influence consumers' perceived

value of a product by describing the attributes that make it
superior to the competition.

Cost

It is the amount of money that is going to be expended or

already incurred to acquire a product.
 144

Exchange

It is the act of obtaining a desired product from someone by

offering something in return.

Transaction: - is the trade of values between two parties. A

transaction is a contract or agreement between two parties where
a good or service is exchanged in return for a monetary value

Market: Traditionally, a "market" was defined as a physical

place where buyers and sellers gathered to buy and sell goods.
Economists, however, describe a market as a collection of
buyers and sellers who transact over a particular product.
 145

Utility Marketing

Utility refers to the value or benefit a customer receives from an

exchange. It is thus refers to the value or usefulness of a product
or service to its users. There are five types of utility:

1.Form Utility

 Form Utility refers to the usefulness of the physical attributes

of a product to its users.

 If we consider a cell phone as a product its form utility

includes things like various features of the cell phone, style
and other aspects of aesthetic beauty of the cell phone, the
durability of the cell phone, and ease of use of the cell phone.
 146

Therefore, the marketing team designs a form that creates

utility for the users.

2. Place Utility / Spatial Convenience

 This refers to the availability of a product in a location that is

convenient for customers.

 This means that Place Utility defines the usefulness of the

product because of the fact that the product is near to the
customers and thus they do not need to spend a lot of time,
physical effort, and money to buy the product.
 147

 This usefulness is ensured by marketing people through

proper distribution of the product using effective marketig
channel.

 Customers want, not only the right product (form utility), but
also in right place (place utility)

3.Time Utility

A product becomes useful to its user if and only if it is available

when it is needed.

Customers need right product in right time. This usefulness of a

product when it is available at right time is called Time Utility.

 148

 By focusing on the utility of time, you can ensure that products

and services are available when customers need them.

 In service marketing, you can deliver utility by offering service

and support 24 hours a day.

4. Possession Utility

 The ability of a product to make its owner feel proud and give

mental satisfaction is called possession utility.

 Possession utility describes the satisfaction customers feel when

they buy a product or service.

 The utility of possession gives the customers ownership of the

product
 149

5. Information Utility

 Usefulness of the product due to availability of all information

required to be with it

 The information includes product details, service information,

and promotional messages among other things.

 The goal is to catch the attention of interested buyers. If you

deliver the right information at the right time, you can improve
your chances of making a sale.
 150

5.5 Marketing Philosophies

There are six competing concepts under which organizations can

choose to conduct their marketing activities: namely:

1. The production concept,

2. The product concept,

3. The selling/sales concept,

4. The marketing concept,

5. The societal marketing concept

6. Relationship Marketing Concept

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1.The Production Concept

 The production concept is one of the oldest and first marketing

concept

 It holds that consumers will prefer products that are widely

available and inexpensive.

 Managers of production-oriented businesses concentrate on

achieving

 high production efficiency,

 low costs, and

 mass distribution.
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 The production concept of marketing assumes that consumers

are price sensitive and thus they buy products that are widely
available at lower costs.

 The basic idea of the production concept is to ensure mass

production, reduce cost per unit, and make
products easily available everywhere which
ultimately leads to more sales.

 According to the concept, price is a key marketing variable.

 The concept is fit when the demand is higher than supply, and a
company wants to expand the market.
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 But it won‟t work well when the supply is higher than demand,
competition is high, and people search for quality products
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2.The Product Concept

 The product concept assumes that consumers will prefer

products that have better quality, performance and innovative
features as opposed to a normal product.

 Under the concept, mangers assume that buyers admire well-

made products and can appraise product quality and
performance.

 The product concept assumes that people even ignore the price
when they see quality products and thus believes that
customers are ready to pay high prices for product extra
features.
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 However, the quality of the product is not the only way to the
success of marketing because a quality product will not
necessarily lead to success unless the product is priced,
distributed, advertised, and sold properly.
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3. The Selling Concept (Sales Concept)

 The selling concept holds that consumers, if left alone, will

ordinarily not buy enough of the organization product.

 The organization must therefore undertake an aggressive

selling and promotion effort

 This concept assumes that consumers typically show buying

inertia and must be coaxed into buying

 Then the concept believed that marketers should visit the

customers, present the benefits of their products, and
influence them to buy.
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 It assumes that people with no intention of buying, will buy if

you persuade them, and if they get disappointed, later they
will forget.

 The selling concept may work well with unsought goods like
insurance and funeral plots, and expensive cars, expensive
clothes, etc,

4.The Marketing Concept

 The marketing concept is a customer-centered (sense-and-

respond) philosophy.

 The marketing concept believes companies‟ success relies on

customer satisfaction.
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 It gives priority to customers‟ needs and wants and aims to

serve what they want and generates better customer value and
satisfaction.

 This concept is fit in the competitive markets to confront the

competition and achieve a better market position.
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Difference between Selling Concept and Marketing Concept

 Selling focuses on the needs of the seller; marketing on the needs

of the buyer.

 Selling is preoccupied with the seller's need to convert his

product into cash; marketing with satisfying the needs of the
customer by means of the product

 Selling concept considered marketing as "hunting," he marketing

concept sees it as "gardening."
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5. Societal Marketing Concept

 It assumes a company must consider the customer‟s interests,
their satisfaction, and the welfare of society while making
products and marketing decisions.
 It states that companies operate in a society, they get resources
from the environment, and they should repay them.
 In fact, the societal marketing concept is marketing concept +
society; it is the addition of society‟s welfare to the marketing
concept.
 According to it, a company must balance the company‟s profit
goal, customers‟ interest, and wellbeing of society
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5. 6.Relationship Marketing Concept

 Relationship marketing has the aim of building mutually
satisfying long-term relationships with key parties—customers,
suppliers, distributors, and other marketing partner to earn and
retain their business
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 Marketing must not only do customer relationship management, but

also partner relationship management as well.

The four key constituents for marketing according this concept are

 customers

 Employees

 marketing partners (suppliers, distributors, dealers, agencies)

 members of the financial community (shareholders, investors,

analysts).

 The operating principle is simple: build an effective network of

relationships with key stakeholders, and profits will follow
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5.6 Marketing Information Systems(MIS)

 It is a continuing and an interacting system of people, equipment

and procedures to gather, sort, analyze, evaluate and distribute
timely and accurate information to be used in marketing decision.

 To carryout analysis, planning, implementation, and controlling

activities , marketing managers need information about
development in the marketing environment.

 The role of the MIS is to assess the manager‟s information needs,

develop the needed information, and distribute the information in a
timely fashion to the marketing managers
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MIS is developed through

 internal company records

 marketing intelligence activities,

 marketing research, and

 marketing decision support system

5.6.1 Marketing Research

 Marketing research is the systematic and objective identification,
collection, analysis, and dissemination of information to solve
problems or exploit opportunities in marketing.

 It uses the scientific method in that data are collected and analyzed to
test prior thinking or hypotheses
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Marketing research is objective as it attempts to provide

accurate, impartial information.

Accordingly, marketing research involves

 identification,

 collection,

 analysis, and

 dissemination of information related to marketing

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5.6.1.1 The Role of Marketing Research in Decision

Making

There are three Functional Roles of Marketing Research. These are:

 Descriptive Function :the gathering and presentation of fact.

 Diagnostic (analytical) Function :The explanation of data.

 Predictive Function: Making forecast using descriptive and diagnostic

research

5.6.1.2 Marketing Research Components

Marketing researchers deal with many aspects of a market including the

following:

Market size: this deals with the number or value of units sold to a market in a
given period
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Market Share: the share of a company compared to the industry in

which operates

Market penetration: it is a marketing strategy which aims to

attract more customers or get better market share by charging low
price to the current product

Brand equity research: a research conducted to know how

favorably consumers view the brand.

Buyer decision processes research: a part of marketing research

activity which is used to determine what motivates people to buy
and what decision-making process they use
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5.6.1.3 Customer Satisfaction Research

A type of marketing research used to assess about:

Distribution channel audits: to assess distributors‟ and retailers‟ attitudes

toward a product, brand, or company

Mystery Consumer/Mystery shopping: the researcher acts as a shopper.

This is often used for quality control or for researching competitors'
products.

Positioning research: this research is mostly conducted to answer

questions like:

How does the target market see the brand relative to competitors?

What does the brand stand for?

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Price elasticity testing: It is a research is to determine how sensitive

customers are to price changes

Sales forecasting : an analysis to determine the expected level of sales

given the level of demand with respect to other factors like advertising
expenditure, sales promotion etc.

Segmentation research : a research to determine the demographic,

psychographic, and behavioral characteristics of potential buyers.

Test marketing : a small-scale product launching used to determine the

likely acceptance of the product when it is introduced into a wider market
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5.6.1.4 Marketing Research Process

Marketing research consists of the following related phases:

Step 1: Define the research purpose or objectives

The following questions help to establish objectives:

Where potential customers buy the product?

Why they purchase there?

What is the size of the market? How much of it can your business capture?

How does your business compare with competitors?

The impact of promotion on customers.

What types of products are desired by potential customers?

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Step 2: Research Design Formulation

The research design is a blueprint for conducting the marketing

research. Formulating the research design involves the following
steps:

 Study period and place determination.

 data collection methods.

 Questionnaire design.

 Measurement and scaling procedures.

 Sampling process and sample size.

 Plan of data analysis.

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Step 3: Gathering secondary data

A data which is originally collected by others for their own purpose, but such
data can be used by the researcher when it is relevant to the current study.

Step 4: Gathering Primary Data

Primary data collection techniques can be categorized as;

Observational method: watching the subjects of study in their natural setting .

Experimental method: investigates cause and effect relationships.

Survey method- data collection method that collects data from a small
portion of the population or from sample
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Step 5: Data Processing and Analysis

Data processing includes the editing, coding, transcription, and verification

of data.

In data analysis, the obtained results are evaluated and interpreted in

response to the research objectives to give meaning to data that have been
collected.

Step 6: Report Preparations and Presentation

At the end the research results will be written in a report form and
presented to the concerned parties. The report includes:

 the specific research questions addressed

 describes the research approach,

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 the research design,

 the data collection methods, and sampling procedures,

 the data processing and analysis procedures,

 the major findings and suggestions for actions.