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Business Studies Notes PDF

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Financial Management
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(Class – 12 / Chapter- 9)

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MEANING OF BUSINESS FINANCE

The money required to carry out business activities is known as business finance. Finances are needed to operate
a business, as well as to carry out day to day activities of the business.

FINANCIAL MANAGEMENT
● Financial Management is concerned with the proper procurement and usage of finance. It includes
business activities such as procuring funds, reducing the cost of funds, keeping the risk under control and
deployment of such funds.
● Financial management involves two dimensions, that is finance and management. Hence, Financial

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management can be said as the application of the management functions, particularly planning and
controlling functions in the finance function of the business.
● Financial Management is very important as it has a direct emphasis on the financial health of a business.
Financial management decisions affect all the items of the financial statement directly or indirectly.

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Role of Financial Management:
● Size and composition of fixed assets: Over investment in fixed assets may block funds and increase the
size of fixed assets which may not be healthy for business whereas, little investment may hamper the

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growth of business.
● The quantum of current assets and its break up into cash, inventory and receivables: The financial
decisions about investments in fixed assets, the credit policy, inventory management, etc., influence the

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amount of working capital required by a business enterprise.
● The amount of long term and short financing: Financing decision decides the proportion of funds raised
from long term and short term sources.
● Break-up of long-term financing into debt, equity etc: It is important for a financial manager to decide
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the way by which the proportion of debt and/or equity in a business has to be pumped in. The decisions of
the finance managers affect debt, equity share capital, preference share capital and are an integral part of
financing management.
● All items in Profit and Loss account: Financing decisions affect the value of items appearing in the profit
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and loss account.

Objectives of Financial Management:

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● Profit maximization: This was the primary objective of firms which are concerned with the increasing
earnings per share (EPS) of the company. It is also the traditional objective of the financial management
that focuses on the fact that all the financial efforts should be made to increase the overall profit of the
company.
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● Wealth Maximization concept:

○ ‘Owners’ of a company are the shareholders.
○ The term wealth refers to wealth of owners as reflected by the market price of their shares.
○ The market price of shares is linked to three basic financial decisions:
a. Investment decision
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b. Financing decision
c. Dividend decision
○ Market price of a share will increase if benefits from a decision are greater than the cost involved in
it.
○ The goal of a firm should be to maximize the wealth of owners in the long run.
○ Increase in the market price of shares is an indicator of the financial health of a firm.

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● Other objectives: It helps a firm achieve the primary objective are:

○ Ensure availability of funds at reasonable costs.
○ Ensure effective utilization of funds.
○ Ensure safety of funds through creation of reserves.
○ Maintain liquidity and solvency.

FINANCIAL DECISIONS
The financial functions relate to three major decisions which every finance manager has to take:
(i) Investment decision

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(ii) Financing decision
(iii) Dividend decision

I. Investment Decision (Capital Budgeting Decision):

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Each and every organization has limited resources in comparison to the uses of the resources. So it is very
important for a firm to decide the source in which the funds should be invested in so as to fetch the best returns.
● Investment decisions in an organization are taken in both long term and short term.
● There are two types of decisions:

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○ Long term investment decisions: These are also called capital budgeting decisions. This also
implies that the funds are invested in a resource for a longer period of time. These decisions affect
the profitability and size of assets.

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○ Short term investment decision: These are also known as working capital decisions. This also
implies that the funds are invested in a resource for a shorter period of time. These decisions affect
the day to day operations and activities of the organization. It also affects the liquidity and
profitability of the business.
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● The essential contents in a working capital are:
○ Inventory management
○ Receivables management and
○ Efficient cash management.
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Factors affecting Investment Decisions/Capital budgeting decisions:

● Cash flows of the project: The series of cash receipts and payments over the life of an investment
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proposal should be considered and analyzed for selecting the best proposal.
● Rate of Return: The expected returns from each proposal and risk involved in them should be taken into
account to select the best proposal.
● Investment Criteria Involved: The various investment proposals are evaluated on the basis of capital
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budgeting techniques. These involve calculation regarding investment amount, interest rate, cash flows,
rate of return etc.

II. Financing Decision:

● Under this the financial managers of the organization decide the sources from which to raise long-term
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funds. The main source of funding is shareholders' funds and borrowed funds.
○ Shareholders' funds include share capital, reserves and surpluses and retained earnings.
○ Borrowed funds refer to funds raised through issue of debentures and other forms of debt.
● The decision of raising funds from various sources in appropriate proportion lies in the hands of the
financial managers.
● Interest on loan has to be paid regardless of the profitability of the project.
● Debt is considered to be the cheapest form of finance.

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Factors Affecting Financing Decision:

● Cost: The cost of raising funds from different sources is different. The cheapest source should be selected.
● Risk: The risk associated with different sources is different. More risk is associated with borrowed funds as
compared to the owner's fund as interest is paid on it and it is repaid also, after a fixed period of time or on
expiry of its; tenure.
● Flotation Cost: The costs involved in issuing securities such as brokers commission, underwriters’ fees,
expenses on prospectus etc. are called flotation costs. Higher the flotation cost, less attractive is the source
of finance.
● Cash flow position of the business: In case the cash flow position of a company is good enough then it

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can easily use borrowed funds and pay interest on time.
● Control Considerations: In case the existing shareholders want to retain the complete control of business
then finance can be raised through borrowed funds but when they are ready for dilution of control over
business, equity can be used for raising finance.

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● State of Capital Markets: During boom, finance can easily be raised by issuing shares but during the
depression period, raising finance by means of debt is easy.
● Period of Finance: For permanent capital requirement, Equity shares must be issued as they are not to be
paid back and for long and medium term requirement, preference shares or debentures can be issued.

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III. Dividend Decision:
● Dividend is that part of profit which has to be distributed among the shareholders of a company. This

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○ If all profits are to be dispersed,
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decision relates to the distribution of dividends among various groups. In this decision, it must be decided

○ Whether all earnings will be retained in the business, or

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○ Whether a portion of profits will be retained in the business and the remainder distributed among
shareholders.

Factors affecting Dividend Decision:

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● Earnings: Companies having high and stable earnings could declare a high rate of dividends as dividends
are paid out of current and paste earnings.
● Stability of Dividends: Companies generally follow the policy of stable dividend. The dividend per share is
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not altered and changed in case earnings change by small proportion or increase in earnings is temporary
in nature.
● Growth Prospects: In case there are growth prospects for the company in the near future then it will retain
its earnings and thus, no or less dividend will be declared.
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● Cash Flow Positions: Dividends involve an outflow of cash and thus, availability of adequate cash is for
most requirements for declaration of dividends.
● Preference of Shareholders: While deciding about dividend the preference of shareholders is also taken
into account. In case shareholders desire a dividend then the company may go for declaring the same.
● Taxation Policy: A company is required to pay tax on the dividend declared by it. If tax on dividends is
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higher, companies will prefer to pay less by way of dividends whereas if tax rates are lower, more dividends
can be declared by the company.
● Issue of bonus shares: Companies with large reserves may also distribute bonus shares to increase their
capital base as it signifies growth of the company and enhances its reputation also.
● Legal constraints: Under provisions of Companies Act, all earnings can’t be distributed and the company
has to provide for various reserves. This limits the capacity of the company to declare a dividend.

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FINANCIAL PLANNING
It means deciding in advance how much to spend, on what to spend according to the funds at your disposal.

Objectives of Financial Planning:

● To ensure availability of funds whenever these are required.
● To see that the firm does not raise resources unnecessarily.

Importance of Financial Planning:

● Forecasting: It helps in forecasting the future under different circumstances. This helps the firms and

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organizations in dealing with contingencies.
● Prepares for uncertainties: It helps in preparing firms for various future ventures by avoiding business
shocks and surprises.
● Coordination: It helps in better coordination of various business functions like production, sales, etc.

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● Building links: It builds a link between the present of the organization with its future. It also provides a link
between the financing and investment decisions on a regular basis.
● Easy Performance Evaluation: It makes the evaluation of the performance easier and in a detailed way.

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CAPITAL STRUCTURE
● On the basis of ownership, funds => owners funds + borrowed funds.
● Owners funds = equity share capital + preference share capital + reserves and surpluses + retained
earnings = EQUITY
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● Borrowed funds = loans + debentures + public deposits = DEBT
● Capital Structure = The mix of long-term sources of funds
● Refers to the proportion of debt and equity used for financing the operations of a business.
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● Cost and risk- Debt vs Equity
● Cost of Debt is lower than the cost of equity but Debt is more risky than equity.
● Cost of debt < cost of equity as lenders risk < owners risk.
● Lender earns an assured interest and repayment of capital.
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● Interest on debt is a tax deductible expense so brings down the tax liability for a business whereas
dividends are paid out of profit after tax.
● Debt is more risky for the business as it adds to the financial risk faced by a business.
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● Any default w.r.t payment of interest or repayment of principal amt may lead to liquidation.
● Capital structure affects both the profitability and the financial risk faced by a business.
● Optimal Capital Structure is that combination of debt and equity that maximizes the market value of shares
of that company
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Factors affecting the Choice of Capital Structure:

● Cash Flow Position: Before raising finance business must consider the projected flow to ensure that it has
sufficient cash to pay fixed cash obligations. A company with high liquidity and a good cash flow position
can issue debt capital, as the company will have less chances of facing financial risk than the company
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with a low cash position.

● Interest Coverage Ratio: It refers to the number of times a company can cover its interest obligations from
the profits and higher ICR reduces the risk of failing to meet interest obligations.
● Debt Service Coverage Ratio: It indicates the company's ability to meet cash commitments for interest
and principal amount of debt.
● Return on Investment: If a company earns hai returns it has the capacity to opt for death as a source of
finance.

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● Cost of debt: A company may raise funds from debts if it has the capacity to borrow funds at a lower
interest rate.
● Tax Rate: Higher the tax rate, more preference for debt capital in the capital structure, as interest on debt
capital being a tax deductible expense makes the debt cheaper.
● Cost of equity: If a company has high risk, its shareholder may expect a high rate of return resulting in
increased cost of capital.
● Floatation cost: Choosing a source of fund depends on the flotation cost to be incurred to raise such
funds, flotation cost makes this show less attractive.
● Risk Consideration: A company chooses debts as a source of finance depending on its operating risk and

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overall business risk.
● Flexibility: The choice of debts depends on the company's potential to borrow and the level of flexibility it
wants to retain for choosing a source of funds in future.
● Control: Debt normally does not cause dilution of control whereas a public issue makes the firm vulnerable

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to takeovers. To retain control, firms should issue debt.

FIXED CAPITAL
Fixed capital refers to investment in long-term assets. Investment in fixed assets is for longer duration and they

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must be financed through long-term sources of capital. Decisions relating to fixed capital involve huge capital funds
and are not reversible without incurring heavy losses.

Factors Affecting Requirement of Fixed Capital:

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1. Nature of Business: Manufacturing concerns require huge investment in fixed assets & thus huge fixed capital
is required for them but trading concerns need less fixed capital as they are not required to purchase plant and
machinery etc.
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2. Scale of Operations: An organization operating on a large scale requires more fixed capital as compared to an
organization operating on a small scale.
For Example – A large scale steel enterprise like TISCO requires large investment as compared to a mini steel
plant.
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3. Choice of Technique: An organization using capital intensive techniques requires more investment in plant &
machinery as compared to an organization using labour intensive techniques.
4. Technology upgradation: Organizations using assets which become obsolete faster require more fixed capital
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as compared to other organizations.

5. Growth Prospects: Companies having more growth plans require more fixed capital. In order to expand
production capacity more plant & machinery are required.
6. Diversification: In case a company goes for diversification then it will require more fixed capital to invest in
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fixed assets like plant and machinery.

7. Distribution Channels: The firm which sells its product through wholesalers and retailers requires less fixed
capital.
8. Collaboration: If companies are under collaboration, Joint venture, then they need less fixed capital as they
share plant & machinery with their collaborators.
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WORKING CAPITAL
● Working capital is that amount of capital which is used in the day-to-day operations of the business this
may be in cash or cash equivalents. The working capital is utilised by the business within one year. For
example: stocks and inventories, debtors, bills receivables, etc.
● Various type of Current assets that contribute to the working capital are:
○ Cash in hand/cash at Bank

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○ Marketable securities
○ Bills receivable
○ Debtors
○ Finished goods
○ Inventory
○ Work-in-progress
○ Raw material
○ Prepaid expenses
● Various sources of Current liabilities that contribute to the working capital are:

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○ Bills payable
○ Creditors
● Outstanding expenses and advances received from customers.

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Factors affecting the Working Capital requirements advance from customers:
● Nature of Business: A trading organization needs a lower amount of working capital as compared to a
manufacturing organization, as trading organizations undertake no processing work.
● Scale of Operations: An organization operating on a large scale will require more inventories and thus, its

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working capital requirement will be more as compared to a small organization.
● Business Cycle: In the time of boom more production will be undertaken and so more working capital will
be required during that time as compared to depression.

be required as compared to lean season. C

● Seasonal Factors: During peak season demand of a product will be high and thus high working capital will

● Credit Allowed: If credit is allowed by a concern to its customers then it will require more working capital
but if goods are sold on a cash basis then less working capital is required.
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● Credit Availed: If a firm is able to purchase raw materials on credit from its suppliers then less working
capital will be required.
● Inflation: Working capital requirement is also determined by price level changes. For example, during
inflation prices of raw material, wages also rise resulting in increase in working capital requirements.
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● Operating Cycle/Turnover of Working Capital: Turnover means speed with which the working capital is
converted into cash by sale of goods. If it is speedier, the amount of working capital required will be less.
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Business Studies Notes PDF

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Financial Markets
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(Class – 12 / Chapter- 10)

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INTRODUCTION
Financial Intermediation = process of allocating funds from saving surplus units (E.g. households) to saving
deficit units (e.g. industries, government etc).
• Alternatives = Banks or Financial markets

Financial Markets: These are the institutional arrangements by which savings generated in the economy are
channelised into avenues of investment by industry, business and the government. It is a market for the creation
and exchange of financial assets.

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Functions of Financial Market:
● Mobilisation of savings and channeling them into the most productive uses: A financial market
performs the allocative function by linking the savers and investors, thus mobilising savings and
channelising them to make the most use of these idle savings.

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● Facilitating price discovery: The interaction between the households (supplier of funds) and business
firms helps to establish a price for the traded financial asset in the market.
● Providing liquidity to financial assets: Financial assets can be easily converted into cash as financial
markets provide facility of purchase and sale of financial assets.

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● Reducing the cost of transactions: Financial markets provide information about the traded securities and
save time, effort and money of both the buyers and sellers of a financial asset.

There are two types of Financial Markets:

○ Money Market
○ Capital Market
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A. MONEY MARKET:
It is a market which deals in short term securities and whose maturity period is less than one year.

Money Market Instruments:

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Instruments Issued By Duration Purpose

Treasury Bill RBI on behalf of the central 14 to 365 days To fulfill short term needs.
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government.

Commercial Large and creditworthy company 15 to 365 days Seasonal and working capital needs.
Paper
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Call money Inter-bank transaction 1 to 15 days To maintain CRR.

Certificate of Commercial bank and financial 91 to 365 days Helps tight liquidity period.
deposits institution.
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Commercial Bill Seller to buyer Up to 1 year Meet working capital requirements.

B. Capital Market:
It is a market which deals in medium and long term securities with a maturity period of more than one year.

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Distinction between Capital Market and Money Market:

Basis Money Market Capital Market

Participants RBI, banks, financial institutions and Financial institutions, banks, corporate entities,
finance companies. foreign investors.

Instruments Treasury bills, trade bills reports, Equity shares, debentures, bonds and preference
commercial paper and certificates of shares.
deposit.

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Investment Requires a huge investment outlet. e.g., Requires a small investment outlet as unit value of
outlet treasury bills require a minimum amount securities is very low i.e., ₹10 or ₹100.
of ₹25,000 and its multiples thereof.

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Duration Deals in short- term securities with Deals in medium and long-term securities with a
maturity period of less than one year or maturity period of more than one year.
even a single day.

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Liquidity Instruments are highly liquid as there is a Instruments are liquid as they can be easily traded
ready market for the sale, purchase or in stock exchange but comparatively less liquid.

Safety
discounting of instruments.

duration of investment.
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Instruments are safe because of shorter Instruments are risky because of the longer
duration of investment both in terms of returns and
repayment.
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Expected Money market securities yield Capital market securities yield higher returns due
Return comparatively less return on investment to longer duration.
due to shorter duration.
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The capital market can be divided into two parts:

1. Primary Market
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2. Secondary Market

1. Primary Market:
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• New issues markets

• Transfers investible funds from savers to entrepreneurs.
• Funds used for setting up new projects, expansion, diversification, modernization of existing projects, mergers
and takeovers etc.

Methods of Floatation of New Issues in Primary Market:

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● Offer through Prospectus: It involves inviting subscriptions from the public through issue of prospectus. A
prospectus makes a direct appeal to investors to raise capital through an advertisement in newspapers and
magazines.
● Offer for Sale: Under this method, securities are offered for sale through intermediaries like issuing houses
or stock brokers. The company sells securities to intermediary/broker at an agreed price and the broker
resells them to investors at a higher price.

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● Private Placements: It refers to the process in which securities are allotted to institutional investors and
some selected individuals.
● Rights Issue: It refers to the issue in which new shares are offered to the existing shareholders in
proportion to the number of shares they already possess.
● e-IPOs: It is a method of issuing securities through an on-line system of stock exchange. A company
proposing to issue capital to the public through the on-line system of the stock exchange has to enter into
an agreement with the stock exchange. This is called an e-initial public offer. SEBI’s registered brokers
have to be appointed for the purpose of accepting applications and placing orders with the company.

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2. Secondary Market:
● Secondary market is a market which deals with the sale and purchase of existing securities. It is also called
the stock market or stock exchange.
● SEBI prescribes the framework within which all the securities are traded, cleared and settled.

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● It provides opportunities of disinvestment and reinvestment to investors by exchange of securities.

Difference between Primary and Secondary Market:

Basis Primary Market Secondary Market

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Nature of Securities Securities issued for the first time. Sale and purchase of securities which
already exist.

Process
Transactions
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of Issue directly to investors or through an Ownership changes between brokers.
intermediary.
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Capital Formation Promotes direct capital formation. Promotes indirect capital formation.

Trading of securities Only buying of securities. Buying and selling of securities.

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Price Determination Decided by management of the issuing Determined by market forces of demand and
company. supply.

Location No geographical boundaries. Located at a specific place.

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STOCK EXCHANGE
It defines as “an organisation or body of individuals, whether incorporated or not established for the purpose of
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assisting, regulating and controlling of business in buying, selling and dealing in securities.”

Functions of Stock Exchange/Secondary Market:

● Economic barometer
● Pricing of securities
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● Safety of transactions
● Contributes to economic growth
● Spreading of equity cult
● Providing scope for speculation
● Liquidity
● Better allocation of capital
● Promotes the habits of savings and investment

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Trading and Settlement Procedure:

● In traditional times: Outcry or auction system.
● In modern times: Electronic trading system for screen based trading. In this system transactions are
carried on the computer screen and both the parties are able to see the prices of all shares going up and
down all the time during business hours of the stock exchange.

Advantages:
● Ensure transparency

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● Increases efficiency of operation and information
● Large number of participants, which improves liquidity
● Single trading platform

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Steps in trading and settlement procedure:
● Selection of Broker: in order to trade on a Stock Exchange first a broker is selected who should be a
member of stock exchange as they can only trade on the stock exchange.
● Placing the order: After selecting a broker, the investors specify the type and number of securities they

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want to buy or sell.
● Executing the order: The broker will buy or sell the securities as per the instructions of the investor.
● Opening Demat Account: It involves opening a demat account with a depository participant and a bank
account for cash transactions.
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● Settlement: After receipt of contract note and a day before the final settlement, the investor delivers the
securities sold or makes payment for securities purchased, which is called pay in day. On T+2 day the
broker delivers payment or securities to the exchange.
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DEMATERIALIZATION AND DEPOSITORIES

Dematerialization:
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It refers to the process of canceling the physical form of securities and converting them into electronic form. It was
introduced under the Depositories Act 1966.
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Working of Demat System:

● Identify depository participants either bank, broker or financial institution.
● An account opening form and formalities related to other documentation like PAN card details, photograph,
etc. is completed.
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● The physical certificate related to existing securities is given to the depository along with a
dematerialisation form.
● If investors plan to apply for shares in the IPO, then details of depository participant and demat account has
to be provided in the application form. The allotted shares automatically get credited to the demat account.
● If shares are sold through to a broker then the depository participant is to be instructed to debit the account
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with the number of shares the broker then gives instruction to his depository to deliver the shares to the
stock exchange the broker receives payment from the buyer and paste them to the seller of securities.
● The entire transaction is completed within a period of 2 days the delivery of shares and receipt of payment
from the buyer is on T + 2 basis settlement period.

Depository Services: Just like a bank keeps money in safe custody for customers, a depository also is like a
bank and keeps securities(e.g. shares, debentures, bonds, mutual funds etc.) in electronic form on behalf of the

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investor. In the depository a securities account can be opened, all shares can be deposited, they can be
withdrawn/ sold at any time and instruction to deliver or receive shares on behalf of the investor can be given.

At present there are two depositories in India:

● NSDL (National Securities Depository Ltd.)
● CDSL (Central Depository Services Ltd.)

Depository Participants: Depository participants are intermediaries electronically connected with the depository.
They act as a connect point between the depository and the investor.

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National Stock Exchange of India (NSEI)
It was recognised in 1992 and started working in 1994. It launched the capital market segment in November 1994
and option segment in June 2000 for various derivative instruments.

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Objectives and Nature of NSEI are as follows:
(i) Securities traded – Capital market + Money market
(ii) Payment and delivery in 15 days time period

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Market segments of NSEI
Exchange provides trading in following segment:
● Wholesale debt market segment
● Capital market segment

Over the Counter Exchange of India (OTCEI)

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The OTCEI was incorporated in 1990. The trading started in this exchange in 1992. This exchange is established
on the lines of NASDAQ, the OTC exchange in the USA.

Objectives and Nature of OTCEI are as follows:

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(i) Compulsory market makers to provide liquidity

(ii) Settlement period of OTCEI is one week
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BSE (Bombay Stock Exchange Limited)

It was Asia's first stock exchange and was established in 1875. It provides a platform for raising capital which has
contributed to the growth of the corporate sector. Permanent recognition to BSE was granted as per the Securities
Contract (Regulation) Act, 1956.
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Objectives of BSE:
(i) Efficient and transparent market for trade.
(ii) Trading platform for equities.
(iii) Ensure active trade.
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(iv) Services to capital market participants.

(v) Conform to international standards.

Securities and Exchange Board of India (SEBI)

SEBI was established by the Government of India on 12 April 1988 as an interim administrative body to promote
orderly and healthy growth of the securities market and for investor protection. It was given a statutory status on 30

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January1992 through an ordinance which was later replaced by an Act of Parliament known as the SEBI Act,
1992. It seeks to protect the interest of investors in new and second hand securities.

Objectives of SEBI
● To regulate the stock exchange and the securities market to promote their orderly functioning.
● To protect the rights and interests of investors and to guide & educate them.
● To prevent trade mal practices such as internal trading.
● To regulate and develop a code of conduct and fair practices by intermediaries like brokers, merchant
bankers etc.

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Functions of SEBI
1. Protective Functions:
(a) Prohibit fraudulent & unfair trade practices in the secondary market (e.g. Price rigging & misleading statement).

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(b) Prohibit insider trading.
(c) Educate investors Promote fair practice & code of conduct in the securities market.

2. Development Functions:

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(a) Promotes training of intermediaries of the securities market.
(b) Investor education.
(c) Promotion of fair practices code of conduct of all SRO‘s.

3. Regulation Functions:
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(d) Conducting research & publishing information useful to all market participants.

(a) Registration of brokers and sub brokers & other players in the mkt.
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(b) Registration of collective investment schemes & mutual funds.
(c) Regulation of stock bankers & portfolio exchanges & merchant bankers.

The Organisation Structure Of SEBI

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SEBI has five operational departments headed by the Executive Director. It is advised or assisted in policy
formation by two advisory committees –
● The primary market advisory committee
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● The secondary market advisory committee

Objectives of Advisory Committees

● To advise SEBI on matters related to regulations.
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● To advise SEBI on development and regulation of the primary market.

● It advises SEBI on disclosure requirements for the companies as per the provisions mentioned in the Act.
● To advise SEBI in the legal framework for making dealing in the primary market simple and transparent.
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Business Studies Notes PDF

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On
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Marketing Management
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(Class – 12 / Chapter- 11)

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Market: It refers to the ‘set of potential and actual buyers of a product or service’.

MARKETING
It is a social process by which individuals and groups obtain what they need and want through creating, offering
and freely exchanging products and services of value with others.
According to JF Pyle, “Marketing is that phase of business activity through which the human wants are satisfied
by the exchange of goods and services.”

Features of Marketing:

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1. Needs and Wants:
● The marketing process assists consumers in obtaining what they require and desire.
● A need is said to be known as a state of deprivation or the feeling that one is depriving oneself of
something.

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● Needs are fundamental to human beings and are unrelated to a specific product.

2. Creating a Market Offering:

Market offering is the process of offering and introducing a product or service with specific features such as size,

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quality, taste, and so on for the purpose of selling.

3. Customer Value:

4. Exchange Mechanism:
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Marketing used to facilitate the exchange of goods as well as services between buyers and sellers.

● The exchange mechanism is used in the marketing process.

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● Exchange refers to the process where two or more parties used to come together in order to get the
desired goods or service from someone while in exchange for something. For example, money is the
medium of exchange used to purchase or sell a product or service. The following conditions needs to be
met in order for an exchange to take place:
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a. There must be at least two parties.

b. providing something of value to the other party
c. communication
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d. freedom to accept or reject offer

e. willingness of the parties to enter into a transaction

What can be marketed:

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1. A product =
● bundle of utility not confined to physical products but can refer to other things of value such as services,
ideas, and place. It refers to anything that satisfies a need or want.
● may be tangible or intangible (i.e. goods and services)
● even people can be marketed
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2. Customers= people or organizations that seek satisfaction of their wants.

MARKETERS
● Anyone taking a more active role in the process of exchange is called a marketer. Normally it is the seller.
But in certain situations, it may also be the buyer. This may be in the situation of rare supply.
● Sellers as marketer are the deliverers or providers of satisfaction. They make available products or
services and offer them to customers with an intention of satisfying customer needs and wants.

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● They can be divided into:

○ Goods marketers (such as Hindustan Lever)
○ Services marketers (such as Indian Airlines)
○ Others marketing experiences (such as Walt Disney) or places (like tourist destinations).

MARKETING MANAGEMENT
It means management of all the activities related to marketing or in other words we can say, it refers to planning,
organising, directing and controlling the activities which result in exchange of goods and services. Marketing
management involves following activities:

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● Choosing a target market
● Growing customers in target market

The Process of Management of Marketing Involves:

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a. Identifying a target market
b. Creating demand by producing products that meet the needs and interests of customers.
c. Create, develop, and communicate superior customer values: To provide superior value products/services to
prospective customers, and to communicate these values to other potential buyers in order to persuade them to

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purchase the product/service.

MEANING AND CONCEPT OF MARKETING AND SELLING

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Marketing: It is a wide term. It refers to a large set of activities of which selling is just one part. A marketer before
making the sale does a lot of other activities such as planning the type, design of the product, the price and
selecting the distribution outlets at which the same would be available.
Selling: It refers to the sale of goods or service through publicity, promotion and salesmanship. The title of the
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product is transferred from seller to buyer. The entire focus in selling is to covert the product into cash.

Difference between Marketing and Selling:

Basis Marketing Selling
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Scope It is a broad term that encompasses a variety It is only a part of the marketing process.
of activities such as identifying customer
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needs, product development, pricing,

distribution, promotion, and selling.

Focus Satisfying the needs and desires of the Title transfer from seller to consumer
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customers to the greatest extent possible.

Aim Profits are generated as a result of customer Profits are generated by increasing sales volume.
satisfaction.

Emphasis Customer bending based on the product Creation of products that can meet the needs of
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the customers.

Strategies Product, promotion pricing, and physical Efforts such as promotion and persuasion are
distribution are all part of the effort. required.

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CONCEPTS & PHILOSOPHIES OF MARKETING

1. PRODUCTION CONCEPT = In the earlier days of the industrial revolution, the number of producers were
limited; → limited supply of industrial products → not able to match demand. So, anyone who was able to produce
goods could easily find buyers for the same.

2. PRODUCT CONCEPT= With passage of time, the supply improved→ customers started looking for products
that were superior in performance, quality and features.

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3. SELLING CONCEPT= increase in scale of production→ competition among the sellers → Product quality and
availability alone did not ensure survival as a large number of firms were now selling products of similar quality.

4. MARKETING CONCEPT= Marketing begins with determining what consumers want in order to satisfy

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consumers and profit. Customer satisfaction is a prerequisite for achieving the firm's goals and objectives.

5. SOCIAL MARKETING CONCEPT= Customer satisfaction is supplemented by social welfare in this concept. A
company that adopts the societal concept must balance the company's profits, consumer satisfaction, and societal

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interests.

Functions of Marketing:
1. Gathering and Analyzing Market Information:
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● Systematic fact-gathering and information-analysis.
● Examining a business environment's strengths, weaknesses, opportunities, and threats.
● Identifying customer needs and desires, determining purchasing motivations, selecting a brand name,
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packaging, and promotional media, and so on.
● Data is available from both primary and secondary sources.

2. Marketing Planning:
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● Create an appropriate marketing plan in order to meet marketing objectives.

● It should specify the action plans to achieve these goals.
● For example, if a marketer wants to increase his country's market share in the next three years, his
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marketing plan should include various important aspects such as a plan for increasing production levels,
product promotion, and so on.

3. Product designing and development:

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● Involves decisions regarding the product to be manufactured and it‘s attributes such as its quality
considerations, packaging, models and variations to be introduced etc.
● Done by anticipating customer needs and developing new products or improving existing products to
satisfy these needs.
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4. Standardization and grading:

● Standardization = Process of setting certain standards for a product on the basis of its desired qualities.
E.g. ISI mark for electrical goods.
● Grading = Division of products into classes made up of units possessing similar features such as for
agricultural products

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5. Packaging and labeling:

● Packaging refers to designing a package (that is a wrapper or a container) for a product.
● Packaging protects the products from damage, risks of spoilage, breakage and leakage. It also makes
buying convenient for customers and serves as a promotional tool.
● Labeling = designing a label to be put on the package. It may vary from a simple tag to complex graphics.

6. Branding:
● It aids in product differentiation, builds customer loyalty, and promotes sales.
● An important decision area is branding strategy, which determines whether each product will have a

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separate brand name or the same brand name will be used for all products.

7. Customer Support Services:

● Customer support services are extremely effective at increasing prospective customer sales and

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developing brand loyalty for a product.
● It aims to provide maximum customer satisfaction while also building brand loyalty.
● Examples include sales services, customer complaints and adjustments, credit services, maintenance
services, technical services, and consumer information.

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8. Pricing of Product:
● Product price refers to the amount of money that customers must pay in order to obtain a product.

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● It is an important factor in a product's success or failure.
● Because the price of a product/service is related to its demand, the price should be set after considering all
of the factors that influence the price of the product.
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MARKETING MIX
● A large number of factors influence marketing decisions; these are classified as ‘non-controllable factors'
and ‘controllable factors.'
● Controllable factors are those that can be influenced at the firm level.
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● Environmental variables are factors that influence a decision but are not controllable at the firm level.
● In order to be successful, a company must make sound decisions after analyzing controllable factors and
keeping environmental factors in mind.
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● Marketing Mix refers to the set of marketing tools that a company employs to achieve its marketing
objectives in the target market.
● The success of a market offer is determined by how well these ingredients are combined to provide
superior value to customers while also meeting sales and profit goals.
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Elements of Marketing Mix:

The four main elements of marketing mix are:
A. Product
B. Price
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C. Place/Physical Distribution
D. Promotion

These elements are more popularly known 4 P’s of the marketing:

1. Product Mix: All the features of the product or service to be offered for sale.
2. Price Mix: Value (Money) in lieu of product/service received by seller from a buyer.
3. Place: Physical product distribution, i.e. making the product available to customers at the point of sale.

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4. Promotion Mix: Informing the customers about the products and persuading them to buy the same.

I. PRODUCT MIX
The product element of the marketing mix signifies the tangible or intangible product offered to the customer which
satisfies the need.

Classification of Product or Service:

Product or goods can be classified in two categories:
(i) Consumer goods

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(ii) Industrial goods

A. Shopping Efforts Involved:

On the basis of the buyers' time and effort.

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● Convenience Products: Convenience goods are consumer products that are frequently purchased for
immediate use. Medicines, newspapers, stationery, toothpaste, and so on.
● Shopping Products: Shopping products are those in which buyers spend a significant amount of time
comparing the quality, price, style, suitability, and so on at various stores before making a final purchase.

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For example, electronic goods, automobiles, and so on.
● Specialty Products: Specialty products are goods that have unique characteristics that compel customers
to go out of their way to purchase them. For example, art, antiques, and so on.

B. Durability of Products: C
● Non-durable Products: These are consumer goods that are consumed in a short period of time. For
example, milk, soap, stationery, and so on.
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● Durable Products: Tangible items that can withstand repeated use, such as a refrigerator, radio, bicycle,
and so on.
● Services: Intangible services are those activities, benefits, or satisfactions that are sold, such as dry
cleaning, watch repairs, hair cutting, postal services, doctor services, and so on.
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INDUSTRIAL PRODUCT
Industrial products are used as input or raw material to produce consumer goods, e.g., tools, machinery etc.
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Characteristics:
● Number of buyer
● Channel of distribution
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● Geographical concentration
● Derived demand
● Technical consideration
● Reciprocal buying
● Leasing
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Classification:
● Materials and Parts: items that are completely incorporated into the manufacturer's products.
● Capital Items: the manufacture of finished goods, such as installations and equipment.
● Supplies and Business Services: short-term goods and services that aid in the development or
management of the final product. Repairs and maintenance, for example.

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BRANDING
The process used to create a distinct identity of a product. It is the process of using a name, term, symbol or
design individually or in some combination to identify a product.

Brand: Name, term, sign, design or some combination of the above used to identify the products of the seller and
to differentiate them from those of competitors.

Qualities of a Good Brand Name:

● Short, easy to pronounce, spell and remember (Rin, Vim, and Ponds).

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● Suggest product benefits and quality (Genteel, Boost)
● Distinctive (Zodiac, Safari)
● Adaptable to packing or labeling requirements, to different advertising media and to different languages.
● Versatile to accommodate new products(Maggi)

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● Capable of being registered and protected legally
● Have staying power (should not get outdated easily.

ADVANTAGES OF BRANDING

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1. Advantages to the Marketers:
● Enables Product Differentiation Through Marking: It aids in distinguishing its product from that of its
competitors.
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● Aids in the development of advertising and display programs
● Differential Pricing: It allows a company to charge different prices for different products.
● Ease of New Product Introduction
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2. Advantages to the Customers:
● Aids in Product Identification: Assists customers in identifying products.
● Ensures Quality: Ensures product quality
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● Status Symbol: Brands become status symbols due to their quality As an example, consider Benz
automobiles.
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PACKAGING
It can be defined as a set of tasks or activities which are concerned with designing, production of an appropriate
wrapper, container or bag for the product.
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Level of Packaging:
There are three levels of packaging:
● Primary packaging: It refers to the product’s immediate container e.g. toffee in a wrapper, a match box.
● Secondary packaging: It refers to additional layers of protection that are kept till the product is ready for
use e.g. at Colgate toothpaste usually comes in a cardboard box.
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● Transportation packaging: It refers to further packaging components necessary for storage, identification
and transportation e.g. package of toffees are put into corrugated boxes for storing at a manufacturer’s
warehouse and for transportation.

Functions of Packaging:
● Product Identification: Packaging helps in identification of the product.

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● Product Protection: The main function of the packing is to provide protection to the product from dirt,
insects and breakage.
● Convenience: It provides convenience in carriage, stocking and in consumption.
● Product Promotion: Packaging simplifies the work of sales promotion.

Importance of Packaging:
● Rising standard of health and sanitation
● Self service outlets
● Product differentiation

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● Innovational opportunities

LABELLING
Labeling is the process of affixing identification marks to a package. Labels are information carriers that provide

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information such as the name of the product, the name of the manufacturer, the contents of the product, the expiry
and manufacturing date, general information for use, weight, and so on.

Labels Perform Following Functions:

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● Identify the product: It assists customers in identifying the product among the various types of products
available. For example, the purple color of a Cadbury chocolate label easily distinguishes it from other
chocolates.

product's contents, etc. C

● Describe and specify the product's contents: The manufacturer provides all information regarding the

● Product grading: With the help of labels, products can be classified into different categories based on
quality, nature, and so on, for example: Brooke Bond Red Label, Brooke Bond Yellow Label, Brooke Bond
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Green Label, and so on.Aids in product promotion: Attractive and colorful labels excite customers and
entice them to purchase the products. For example, 40 percent extra free, as stated on detergent, buy two
get one free, and so on.
● Providing legal information: There is a legal requirement to print the batch number, maximum retail price,
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weight/volume on all products, and a statutory warning on the packet of cigarettes, “Smoking is harmful to
one's health”: In the event of a hazard on/poisonous material, appropriate safety warnings should be
posted.
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II. PRICE MIX

Meaning and concept of Price: Sum of values that consumers exchange for the benefit of having or using the
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product Price may therefore be defined as the amount of money paid by a buyer (or received by a seller) in
consideration of the purchase of a profit or a service. Normally expressed in monetary terms. Decisions include
decisions wrt basic price, discounts to be offered, etc.

Factors determining price determination:

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1. Pricing Objectives:
● to maximise profits in the short term-tend to charge maximum price.
● Obtain a large share of the market i.e., by maximising sales it will charge lower prices.
● Firm is operating in the competitive market and may charge a low price for it.

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2. Product cost:
● Price should include all costs and also include a fair return for undertaking the marketing effort and risk.
● Includes costs of producing, distributing and selling the product.
● Costs set the floor price – the minimum level / lower limit at which the product may be sold.
● Price should recover Total costs (Fixed costs/overheads + Variable costs+ Semi-variable costs) in the long
run, but in certain circumstances (introduction of a new product/entry into a new market) product price may
not cover all the costs for a short while.

3. Utility and Demand:

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● The utility provided by the product, as well as the demand for the product, determine the maximum price
that a buyer will be willing to pay for that particular product.
● Buyers would be willing to pay until the utility of the demand exceeded or equaled the utility derived from it.
● According to the law of demand, consumers buy more at a lower price.

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● Demand elasticity is the responsiveness of demand to changes in product prices. If a small change in price
leads to a larger change in quantity demanded, demand is elastic. Firms can set higher prices if demand is
inelastic.

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4. Extent of Competition in Market:
● Before setting prices, competitors' prices and anticipated actions must be considered.

5. Government Policies:
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● In the public interest, the government can intervene to regulate product prices.

III. PLACE MIX/PHYSICAL DISTRIBUTION MIX

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● A set of decisions needs to be taken to make the product available to customers for purchase and
consumption.
● The marketer needs to make sure that the product is available at the right quantity, at the right time and at
the right place.
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● It requires development of:

○ Channels of distribution
○ Physical distribution of products.
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Components of physical distribution:

● Order Processing: Accurate & speedy order processing leads to profit & goodwill & vice versa.
● Transportation: Add value of the goods by moving them to the place where they are required.
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● Inventory control: Additional demand can be met in less time, the need for inventory will also be low.
● Warehousing: Need arises to fill the gap between the time when the product is produced & time when it is
required for consumption.

Channels of Distribution:
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● Consists of a network of firms, individuals, merchants, and functionaries who assist in the transfer of title to
a product from the producer to the end consumer.
● Intermediaries help to cover a large geographical area and increase distribution efficiency, including
transportation, storage, and negotiation. They also provide customers with convenience by having a variety
of items available in one location, as well as serving as an authentic source of market information because
they are in direct contact with the customer.

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Types of Channels:

1. Direct Channel (Zero Level):

The manufacturer and the customer establish a direct relationship. Manufacturer-Customer. For example, mail
order, internet, and door-to-door sales.

2. Indirect Channel:
The distribution network is referred to as indirect when a producer uses one or more intermediaries to move goods
from the point of production to the point of sale.

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● Manufacturer-Retailer-Customer: Usually used for specialty goods like expensive watches, appliances,
Cars (Maruti Udyog) etc.
● Manufacturer-wholesaler-Retailer-customer: Usually used for consumer goods like soaps, salt etc.

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3. Manufacturer → Agent → Wholesaler → Retailer → Customer:
Done when manufacturers cannot approach wholesalers directly or when they carry a limited product line and has
to cover a wide market.

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Factors Determining Choice of Channels of Distribution:
The selection of an appropriate channel of distribution is a critical marketing decision:
● Product Related Factors: The nature of the product, whether it is industrial or consumer goods,

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perishable or nonperishable, etc., determines the distribution channels used.
● Company Characteristics: The company's financial strength and the level of control it wishes to exert
over other channel members. Short channels are used to exert more control over intermediaries and vice
versa.
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● Competitive Factors: Companies may copy the channels used by their competitors.
● Market Factors: The size of the market as well as the geographical concentration of potential buyers
influence channel selection.
● Environmental Factors: Legal constraints and a country's economic situation. In a down economy,
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marketers use shorter distribution channels.

IV. PROMOTION MIX

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It refers to a combination of promotional tools used by an organization to communicate and persuade customers to
buy its products.

Tools/Elements of Promotion Mix:

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1. Advertising: Most commonly used tool of promotion. It is an impersonal form of communication, which is paid
by the marketers (sponsors) to promote goods and services. Common mediums are newspaper, magazine,
television & radio.
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Role or Importance of Advertising:

● Paid Form –sponsored has to bear the costs of communicating with the prospective buyer.
● Impersonality – no direct face to face contact between prospects and advertisers. Creates a monologue
and not a dialogue.
● Identified Sponsor –undertaken by an identified individual who makes the advertising effort and bears the
costs of it.
● Mass Reach – a large number of people over a large geographical area can be reached.

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● Enhancing Customer Satisfaction And Confidence – creates confidence and prospective buyers feel
more comfortable and assured about the product quality
● Expressiveness – due to development in art, computer designs and graphics, special effects can be
created that make simple products and messages look attractive.
● Economy- because of its wide reach, overall cost of advertising gets spread over a wide audience and per
unit cost of reach ↓.

Objections to Advertising:
Some critics argue that advertising is a social waste because it raises costs, multiplies people's needs, and

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undermines social values.
● Adds to Cost: Unnecessary advertising raises the cost of the product, which is then passed on to the
buyer in the form of high prices.
● Undermines Social Values: It undermines social values while encouraging materialism.

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● Confuses the Buyers: A similar product of the same nature/quality confuses the buyer.
● Encourages Sale of Inferior Products: It makes no distinction between superior and inferior goods.
● Some Advertisements are in Bad Taste: These depict something that some people do not agree with.

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2. Personal Selling: Personal selling consists of contacting prospective buyers of product personally i.e. face to
face interaction between seller and buyer for the purpose of sale.
Features of the Personal Selling:

● Oral conversation.
● Quick solution of queries.
● Receipt of additional information.
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● Personal contact is established under personal selling.
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● Development of relationships with prospective customers which may become important in making sales.

Role of Personal Selling:

● Importance to Business Organisation
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o Effective Promotional Tool

o Versatile Tool
o Reduces Effort Wastage
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o Consumer Attention
o Long-Term Relationship
o Personal Relationship
o Role in the Introduction Stage
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o Customer Relationship
● Importance to Customers
o Assist in the Identification of Needs
o Up-to-date market information
o Expert advice
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o Customers are enticed

● Importance to Society
o Converts the most recent demand
o Employment Possibilities
o Job Opportunities
o Salesperson Mobility
o Standardization of Products

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3. Sales Promotion: It refers to short term incentives/ other promotion activities that seek to stimulate interest, trial
or purchase.
Merits of Sales Promotion:
● Attention Value: Attract attention of people through use of incentives.
● Useful In New Product Launch: Sales promotion tools induce people to break away from their regular
buying behavior and try new products.
● Synergy in Total Promotional Efforts: Sales promotion activities add to the overall effectiveness of the
promotional efforts (advertising and personal selling) of a firm.

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Limitations Of Sales Promotion – if used frequently:
1. Reflects Crisis: A firm that frequently relies on sales promotion activities may give the impression that it is
unable to manage its sales and there are no takers for its products.

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2. Spoils Product Image: Consumers may feel that the products are not of good quality or are not appropriately
priced.

Commonly Used Sales Promotion Activities:

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● Product Combination: Including another product as a free gift with the purchase of one.
● Rebate: Providing products at reduced prices.
● Instant draws and assigned gifts: Scratch a card and instantly win a prize with the purchase of a TV, Tea,
or Refrigerator, for example.
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● Lucky Draw: a lucky draw coupon for free gasoline when a certain amount is purchased, and so on.
● Useful Benefit: 'Purchase goods worth Rs 3000 and get a holiday package worth Rs 3000 free,' and so
on.
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● Full finance at 0%: Many marketers of consumer durables such as electronics, automobiles, and so on
offer simple financing schemes such as "24 easy installments" and so on.
● Contests: Holding competitive events that require the use of skills or luck, etc.
● Quantity Gift: Providing an extra quantity of the product, for example, "Buy three, get one free."
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● Refunds: Refunding a portion of the price paid by the customer upon presentation of proof of purchase.
● Discount: Selling products at a lower price than the list price.
● Sampling: Provide free product samples to potential customers. Typically used at the time of a product's
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introduction.

PUBLIC RELATIONS
“The Chartered Institute of Public Relations” defines Public Relations as a strategic management function that
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adds value to an organization by helping it to manage its reputation Public relations covers a wide range of tactics,
usually involve providing
information to independent media sources in the hope of gaining favorable coverage. It also involves a mix of
promoting specific products, services and events and promoting the overall brand of an organization, which is an
ongoing tact.
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Public Relation tools include:

● Press Release: A press release is an announcement of an event, performance, or other newsworthy item
that is issued to the press by a public relations professional of an organization. It is written in the form of a
story with an attractive heading so that the media quickly grasps and circulates the message through
newspaper/radio/television/internet.

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● Product promotion: The company tries to draw attention to new products by organizing sporting and
cultural events such as news conferences, seminars, and exhibitions, among other things.
● Corporate Communication: The image of the organization is promoted through newsletters, annual
reports, brochures, and other means.
● Lobbying: The organization maintains cordial relations with government officials and ministers in charge of
corporate affairs, industry, and finance in regard to business and economic policies.
● Counseling: The public relations department advises management on general issues affecting the public
and the company's position.

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Maintaining Good Public Relations also Helps in Achieving the Following Marketing Objectives:
● Building awareness
● Building credibility
● Stimulates sales force

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● Lowers promotion costs

ROLE OF ‘PR’ IN AN ORIGINATION

● Smooth functioning of business and achievement of objectives.

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● Building corporate image that affects favorably on its products. Up keep of parks, gardens, sponsoring
sports activities etc.

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Business Studies Notes PDF

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On
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Consumer Protection
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(Class – 12 / Chapter- 12)

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Consumer: A consumer is generally understood as a person who uses consumer goods or avails any service.

Consumer Protection It means protecting consumers from the clutches of fraud producers or sellers.

Importance of Consumer Protection:

A. From Consumer’s point of view:

● Consumers Ignorance: Majority of consumers are not aware of their rights and reliefs available to them as
a result of which they are exploited. In order to save consumers from exploitation, consumer protection is

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needed.
● Unorganized Consumers: In India consumers are still unorganized and there is a lack of consumer
organizations also, thus consumer protection is required.
● Widespread Exploitation of Consumers: Consumers are exploited on a large scale by means of various

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unfair trade practices and consumer protection is required to protect them from exploitation.

B. From Business Point of View:

● Business utilizes societal resources: Every business utilizes societal resources, and it is their job to

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operate in the society's best interests.
● Long-term business interests: It is in the business's best interests to keep its customers happy.
Customers must be satisfied in order to win the global competition. Satisfied consumers lead to repeat

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purchases, which helps to expand the company's customer base.
● Government Intervention: If a firm engages in any type of unfair commercial practices, the government
will take action against it, harming the company's reputation.
● Social Responsibility: A business has social duties to a variety of stakeholders, including owners,
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employees, the government, and customers. As a result, shoppers should be able to purchase high-quality
goods at affordable pricing.
● Moral Justification: Any firm has a moral obligation to behave in the best interests of its customers and
prevent exploitation and unfair trade practices such as faulty and unsafe products, adulteration, false a
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CONSUMER PROTECTION ACT, 1986 (CPA, 1986)

1. Set up to protect and promote consumer interests thro a speedy and inexpensive redressal of grievances.
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2. Recognizes consumer rights

Redressal agencies– set up a three-tier agency to address consumer grievances.

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Scope of the act:

It is applicable to all types of undertaking:
● Large and small scale
● Private, public and co-operative sector
● Manufacturer or trader
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● Firms supplying goods as well as services

Legal Protection to Consumers:

The legal framework that offers protection to consumers includes:
● The Indian Contract Act, 1872: The Indian Contract Act of 1872 stipulates the requirements for the
applicability of a contract signed by the parties to the contract, as well as the remedies available in the
event of a breach of contract.

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● The Sale of Goods Act, 1930: The Act gives buyers various protections and benefits in respect to the
agreement made for the sale of goods.
● The Essential Commodities Act, 1955: This Act prohibits profiteers, hoarders, and black marketers from
engaging in anti-social behaviour. Its goal is to maintain control over the production, supply, and distribution
of critical commodities.
● The Agricultural Produce (Grading and Marketing) Act, 1937: The Act establishes grade requirements
for agricultural and livestock commodities.
● Adulteration Act, 1954: The Adulteration Act of 1954 was enacted to prevent the adulteration of food
products and to preserve their purity in order to protect public health.

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● The Standards of Weights and Measures Act, 1976: It protects customers from the practice of
under-weighting or under-measurement.
● The Trade Marks Act, 1999: This Act prohibits the use of deceptive marks on products.
● The Competition Act, 2002: Consumers are protected by the Act in the event that businesses engage in

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unethical actions.
● The Bureau of Indian Standards Act, 1986: The Bureau's main tasks are to develop quality standards for
goods and to certify them using the BIS certification method.

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Meaning of Consumer:
● Any person who buys any goods for a consideration. It includes any user of such goods with the approval
of the buyer. But it does not include a person who obtains goods for resale or any commercial purpose.

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● Any person who avails any services for a consideration. It includes any beneficiary of such services but it
does not include a person who avails such service for any commercial purpose.

RIGHTS OF A CONSUMER
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Consumer Protection Act, 1986 has provided six rights to the consumers, which are as follows:
● Right to Safety: Consumers have the right to be protected against products, & services which are
hazardous to health & life (should use ISI marked electronic devices.
● Right to be Informed: Consumers have the right to have complete information about the product before
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buying it.
● Right to choose: Consumer has a right to choose any product out of the available products as per his own
decision making.
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● Right to be heard: Consumer has the right to file a complaint to be heard in case of dissatisfaction with
goods or services (use of grievance cell).
● Right to Seek Redressal: Consumer has the right to get relief in case the product or service falls short of
his expectations or is dangerous. He may be provided with replacement/removal of defect or compensation
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for any loss. Various redressal forums are set up by the Govt. at the National and State level.
● Right to be Heard: The consumer has the right to provide his opinion regarding the product and services,
as well as he has the right to be heard in such cases. Hence the consumer has a right to file a complaint if
he thinks that his rights have been violated. Also various consumer cells have been opened up in India so
as to provide them the right to be heard.
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Consumer Responsibilities:
Consumers have the following responsibilities:
● Be knowledgeable: Be knowledgeable about the numerous items on the market so that you can make an
informed and educated decision.
● Standardized products: Purchase just standardized products to ensure quality. Look for the ISI mark on
electrical goods, the FPO label on food products, and the Hallmark on jewellery, among other things.

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● Follow Instructions: Follow the product's instructions and learn about the hazards linked with it, then use
it safely.
● Cautious Purchasing: Carefully read labels for information on prices, net weight, manufacturing,
expiration dates, and so on.
● Assert Yourself: Assert yourself to guarantee that you obtain a fair bargain, and fair price of the product.
● Honesty: Be truthful in interactions and buy only legal goods and services, thus discouraging buying from
sellers who follow unethical methods such as black marketing and hoarding.
● Cash Memo: When purchasing products or services, request a cash memo. This will serve as proof of the
transaction.

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● Consumer Societies: Establish consumer societies that will actively participate in consumer education
and protection.
● Take action whenever needed: In the event of a defect in the quality of items purchased or services
received, file a complaint with an appropriate consumer forum. Even if the sum involved is modest, don't

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hesitate to take action.
● Avoid Littering: Respect and value the environment, and avoid any activity that would adversely affect it.

Ways and Means of Consumer Protection:

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1. Self Regulation by Business:
● It is in the long-term interest of businesses to serve the customers well.
● Socially responsible firms follow ethical standards and practices in dealing with their customers.

of their consumers.

2. Business Associations:
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● Many firms have set up their customer service and grievance cells to redress the problems and grievances
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● Examples of associations of trade, commerce and business – Federation of Indian Chambers of
Commerce of India (FICCI) and Confederation of Indian Industries (CII).
● They have laid down their code of conduct which lay down for their members the guidelines in their
dealings with the customers.
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3. Consumer Awareness:
● A consumer, who is well informed about his rights and the reliefs available to him, would be in a position to
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raise his voice against any unfair trade practices or unscrupulous exploitation.
● This enables them to understand their responsibilities and to safeguard their interests.

4. Consumer Organizations: Force business firms to avoid malpractices and exploitation of consumers.
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5. Government: The most important of these regulations is the Consumer Protection Act, 1986. The Act provides
for three-tier machinery at the district, state and national levels for redressal of consumer grievances.

REDRESSAL UNDER THE CONSUMER PROTECTION ACT

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a. Who can file a complaint under CPA, 2019:

● a consumer; or
● any voluntary consumer association registered under any law for the time being in force; or
● the Central Government or any State Government; or
● the Central Authority; or
● one or more consumers, where there are numerous consumers having the same interest; or

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● in case of death of a consumer, his legal heir or legal representative; or

● in case of a consumer being a minor, his parent or legal guardian.

b. Redressal Agencies:
As per Consumer Protection Act, 2019, The statute establishes a three–tier system for resolving consumer
complaints, as follows:
District Commission Complaints Upto 1 crore

State Commission Complaints exceeding 1 crore, but Upto 10 crores

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National Commission Complaints exceeding 10 crores

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c. District Forum:
District forums are set up in each district by the state concerned. The important features are:
● It consists of a President and two members, one of whom should be a woman, duly appointed by State
Govt.

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● It can receive consumer complaints of not more than Rs. 20 lakhs value.
● On receiving the complaint, the district forum shall refer the complaint to the opposite party concerned and
send the sample of goods for testing in a laboratory.

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● The district forum, after being satisfied that goods are defective or there is some unfair trade practice, can
issue an order to the opposite party directing him to either replace or return the price or pay compensation.
In case the aggrieved party is not satisfied with the order of district forum. He can appeal before a state
forum within 30 days of passing an order.
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d. State Commission:
It is set up in each state by the government concerned. The salient features are:
● Each commission consists of a president and at least 2 members appointed by state Govt.
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● Complaints of at least Rs. 20 lakhs but not more than 1 crore can be filed with state commission.
● On receiving the complaint, the state commission can also refer the complaint to the opposite party and
send the goods for testing in the laboratory.
● The state commission after being satisfied can order the opposite party to either replace or repay or pay
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compensation. In case the aggrieved party is not satisfied, they can appeal before the national commission
within 30 days of passing an order.
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e. National Commission:
Central government sets the National commission. The provisions are:
● It is made up of a President and at least four members chosen by the central government, one of whom
should be a woman.
● All complaints relating to products and services with a compensation value above Rs. 1 crore can be filed
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with the national commission.

● When the national commission receives a complaint, it can also refer it to the opposing party and send
items for testing.
● The National Commission has the authority to issue orders for product replacement and loss
compensation, among other things.
● If any of the parties is not pleased with the decision taken, they can file a complaint with the Supreme Court
of India within 30 days of the order being issued.

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f. Reliefs Available To The Consumer:

● Removal of flaws in the goods.
● Removal of the deficiencies in the service.
● Replacement of damaged goods with new ones that are free of flaws.
● Refunding the complainant for the price paid by him.
● Payment of an appropriate amount of compensation for any loss or injury that has occurred.
● In suitable circumstances, payment of punitive damages.
● Discontinuance or abandonment unfair/restrictive trade practices.
● Discontinuance of the sale of hazardous goods and services.

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● Payment to the consumer welfare fund (not less than 5%) which is to be used in the prescribed manner.
● Run corrective advertisements to counteract the effect of misleading advertisements.
● Reimburse all parties for their expenses.

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Role of Consumer organizations and NGO’s:
● Educating the general public about consumer rights by organizing training programmes, seminars and
workshops.
● Publishing periodical & other publications to educate consumers.

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● Providing legal assistance to consumers by providing legal advice etc.
● Producing films or cassettes on food adulteration, misuse of drugs etc.
● Filing complaints in appropriate consumer courts on behalf of consumers.

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● Encouraging consumers to take action against unfair trade practices.
● Taking an initiative in filing cases in consumer courts on behalf of consumers.

List of Consumer Organisations and Non-Governmental organisations (NGOs) working to defend and
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promote consumers' interests:
● Consumer Coordination Council, Delhi
● Common Cause, Delhi
● Voluntary Organisation in Interest of Consumer Education (VOICE), Delhi
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● Consumer Education and Research Centre (CERC), Ahmedabad

● Consumer Protection Council (CPC), Ahmedabad
● Consumer Guidance Society of India (CGSI), Mumbai
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● Mumbai Grahak Panchayat, Mumbai

● Karnataka Consumer Service Society, Bangalore
● Consumers’ Association, Kolkata
● Consumer Unity and Trust Society (CUTS), Jaipur
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