STUDIES IN ENTREPR
STUDIES IN ENTREPR MGT 3360
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This 23 page Class Notes was uploaded by Karen Padberg on Wednesday September 23, 2015. The Class Notes belongs to MGT 3360 at Texas State University taught by J. Bell in Fall. Since its upload, it has received 7 views. For similar materials see /class/212888/mgt-3360-texas-state-university in Business, management at Texas State University.
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Date Created: 09/23/15
Chapter 9 Marketing is the process of planning and executing the factors of product price promotion and placement to satisfy the goals of the entrepreneur and the organization Selling is the actual effort to pitch a product to a customer 4 P39s of Marketing Product Price Promotion and Placement 1 Product a Goods Vs Services i A product is anything that is offered to the market to satisfy consumer wants needs and demands ii Tangibility An items capability of being touched seen taste or felt iii Differences among the 5 types of product 1 Perishability a service exhibits perishability in that if it is not used when offered it cannot be saved for later use a Example A taxi cab sits for an hour without a fair that is one hour of revenue that is lost FOREVER 2 Inseparability a quality ofa service in which the service being done cannot be disconnected from the provider of the service a Example a cab ride the service you bought can only get delivered when you get in the cab The service and your consumption of the service happen at the same time and cannot be separated 3 Heterogeneity a quality ofa service in which each time it is provided it will be slightly different from the previous time a Example the quality of your haircut depends on which shop you visit and which stylist you use b The Total Product Approach i Total Product The entire bundle of products services and meanings of your offering includes extras like service warranty or delivery as well as what the product means to the customer 1 The total product is how customers describe your good or service Augmented Product Core product plus features that tend to differentiate it from the competition 1 What you describe as your product or service Brand Names Quality Levels Packaging and Specific Features iii Core Product The very basic description of what a product is a bar of soap a house cleaning service 1 Basic Description of what your company does 3 Target Market The group of people on which a marketer focuses promotion and sales effort Q d L 1 Using the total product approach and target market to design effective advertising Branding New Product Development Process i Metoo Products products essentially similar to something already on the market 1 Pharmaceuticals different color earbuds ii Idea Generation Use SCAMPER iii Idea Screening the process of selecting the most promising ideas to be further evaluated for feasibility 1 I2P a Product Market Intellectual property the people behind the idea additional resources needed the profitability iv Idea Evaulation an exhaustive process of specifying the details of each idea s technological feasibility its cost how it can be marketed and its market potential v Product Development Prototypes 1 Test marketing involves selling the prototype in either a real or simulated market environment vi Commercialization the process of makingthe new product available to consumers Product Life Cycle i Stage 1 Introduction 1 Low Sales and low Profits Low Competition a Intermediaries Firms that assist in getting your product to your end customers distributors retailers and so forth Often referred to as middlemen ii Stage 2 Growth 1 Acceptance of the product increases rapidly Advertising is less critical than in the introduction stage iii Stage 3 Maturity 1 Once the rapid growth begins to slow down a Sales level off and profits follow suit but still at very high levels b Customer numbers remain flat but competitors decrease c Product can stay in this stage for long periods oftime iv Stage 4 Decline N 1 Both profits and sales fall during this stage Advertising and promotion expenses are nearly eliminated f Service Life Cycle i Same four Stages as Product Easier to extend the life cycle and to eliminate the decline stage 1 Services can Change llon the runquot a Means that your service is starting a new life cycles with each tweaking of its existing offering g Using the Product Life Cycle i Very hard to figure out what cycle the product is in 1 Bottom line is you must be aware of the product life cycle and consider where your product might be and what that means Pricing Price mplies Value or Worth a Why Price Is Important Four main reasons i Price is a major factor in determining customers perceptions of quality and desirability ii Because of this Price is central to competitive strategy iii Price is directly related to your company s gross revenue and sales volume iv Price is easy to Change b Pricing from the Seller s Point of View i The Optimum Price is based on four important factors 1 Demand for the Product or Service 2 Value delivered to the customer 3 Prices set by competing firms 4 Your business strategy and product placement c Your Costs and Your Prices i The value you add should be a sum of all the things that your business provides talent artistry skill workmanship experience location expertise etc d Price Elasticity i Margin The amount of profit usually stated as a percentage of the total price ii Elasticity the idea that the markets demand for a product or service is sensitive to changes in its price 1 Inelastic Product Product for which there are few substitutes and for which a change in price makes very little difference in quantity purchased a Something people cannot or will not do without gas heating oil 2 Elastic Product Product for which there are any number of substitutes and for which a change in price makes a difference in quantity purchased a Candy bars etc e Pricing Psychology i Consumers have what are known as internal and external reference prices They are expectations about what a price should be 1 Internal Reference Price A consumers mental image of what a product s price should be a Based on their own knowledge 2 External Reference Price An estimation of what a price should be based on information external to a consumer such as advice advertisements or comparison shopping a From outside sources f Price Setting UCI i Your Company Objectives ii iii Channels of Distribution Marketing Strategy Price must be consistent with your Marketing Strategy 1 Price Escalation Middlemen Raise Prices iv Competition v Legal and Regulatory Issues Pricing Strategies i Skimming Setting a price at the highest level the market will bear usually because there is no competition at the time 1 Only possible if there is no competition ii Prestige or Premium Pricing Setting a price above that of the competition so as to indicate a higher quality or that a product is a status symbol 1 Prestige Pricing for an item considered a status symbol 2 Premium Pricing Used for nonstatus symbol types of products iii OddEven Pricing Setting a price that ends in the number 5 7 or 9 1 Example Don t charge 100 charge 9999 iv Partitioned Pricing setting the price for a base item and then charging extra for each additional component v Captive Pricing Setting the price for an item relatively low and then charging much higher prices for the expendables it uses 1 Example sell something usually base system at a relatively low price but the expendables it uses are relatively expensive vi Price Lining the practice of setting three price points good quality better quality best quality 1 And attempt to appeal to several different markets Price Lowering Techniques REFER TO TABLE 91 l Periodic and random Discounting Sales conducted at either predictable or nonpredictable intervals 1 Sales that happen regularly OffPeak Pricing Charging lower prices at certain times to encourage customers to come during slack periods 1 Happy hours etc Bundling or MultiplePacks or BonusPacks Pricing 1 Bundling Combining two or more products in one unit and pricing it less than if the units were sold separately a Particularly effective from promoting the sales of a second product or service 2 Multiple or Bonus Pack Combining more than one unit of the same product and pricing it lower than if each unit were sold separately a Sam s Club iv Coupons Rebates Loyalty and Referral Programs 1 80 Coupons delivered by mail Great way to get consumers to try a new product 2 Referral Discount a discount given to a customer who refers a friend to the business v Pricing Strategy WrapUp 1 99t0100 of small businesses in financial difficulties have set their price too low 2 Marketing effort in small businesses starts with the idea for the product or service and builds from there to include the key benefits that customers will want the price they are willing to pay and also some larger issues such as innovativeness and where the product or service is in terms of its life cycle Chapter 4 Outline Chapter quiz from website Entrepreneurial alertness means that entrepreneurs have a special set of observational and thinking skills that help them identify good opportunities A license E a legally binding agreement granting you rights to use a particular piece of intellectual property SCAMPER is an acronym for a set of cues that trigger new ideas for your business Companies may find it easier to mimic the strategies of other firms because of the expense and intense effort required to make decisions based on a radical innovation strategy such as where they live how much household income they have and how many children they have 7 7 H ilwfw The measure of how many visitors to your web site actually make a purchase is called ii m n T iii Dave Kapell a Suffered from writers block and copied a system used by David Bowie scattered clips from magazines but sneezed and blew them everywhere b He invented Magnetic Poetry for the refrigerator3 million kits sold Opportunity Recognition a The capture of new ideas that lead to business opportunities involves creative thinking b Researchers believe this is the most important entrepreneurial behavior Entrepreneurial Alertness a A special set of observational and thinking skill that help them identify good opportunities 4 What came first for new business a 42 Decision to start a business b 37 Business idea c 21 Idea and decision we simultaneous 5 Sources for business ideas a Work Experience i Many owners spend years working for a company and gained valuable experience b Similar Business i Maybe you get the idea for a company based on something that intrigues you c Hobby or personal interest d Chance happening or serendipity e Family and friends f Education and expertise i Consulting companies g Technology Transfer and licensing i Major universities and government agencies develop technologies free for citizens to exploit via Licensing 1 Licensing a legal agreement granting you rights to use a particular piece of intellectual property 6 Screening Ideastesting the feasibility ofa business idea a Two popular approaches to organizing an opportunity screen i University of Texas Austin 1 Idea To Product IZP ii NCIIA S 1 Invention To Venture IZV b IZP analysis i What is your product Idea ii What is the technology that underlines the idea iii Is your underlining technology unique iv Is your product or idea innovative v Who will buy it vi Why will they buy it vii Describe how you create value for your customers viii What is the market and its size ix How do you anticipate developing IP protection for your product x Who are the people behind the idea xi What resources are needed to take the idea and sell it to customers xii Can the idea generate a sufficient profit 7 From ideas to opportunities through creativity a Alex Osborne coined the term Brainstorming b He also created the creative tool SCAMPER for businesses to utilize when trying to set themselves apart from the competition or come up with new opportunities S S SSubstitute 1 Think of what might substitute for something else to form a new idea 2 City in Netherlands puts a tiny recording device in trashcans that tells a joke when you put trash in them CCombine 1 Think of possible combinations that might result in something entirely different 2 Barnes amp Noble combines bookstore coffee and music AAdapt 1 What could be adapted from products or services that already exist 2 Radical Innovation Strategy a Rejecting existing ideas and presenting a new way to do things differently 3 Bookof themonth club adapted to beerof themonth MMagnify or Modify 1 Taking an existing product and changing its appearance or adding features 2 Washington Mutual poked fun at traditional banks 3 Microchiplooked to minimize PPut to other uses 1 Generate new opportunities for your product beyond what it is traditionally used for 2 Arm amp Hammer looked for other uses for their product clothes refrigerators and litter boxes EEliminate 1 Search for opportunities that arise when you get rid of something or stop doing something 2 What if you could buy groceries without leaving the house or bank without leaving your car RRea rrange or Reverse 1 An example use stimulants to treat hyperactive people 2 Magnetic Poetry 8 Get into an innovative frame of mind a Techniques to try as you practice the business of innovation Read magazines and journals Invite someone to a meeting that you haven t included before Have a llscan the environment day study current trends Try a mini internship spend time in a friends business Put yourself in the shoes of your customers vi Redesign your work environment 9 Avoid pitfalls 5 pitfalls to avoid when trying to become innovative a Identifying the wrong problem i When a problem doesn t stay solved or the opportunity doesn t pan out like expected 1 Syntheticfiber company looked to lower costs that didn t work so they turned the problem around and tried to increase profits 57 Judging ideas too quickly i Avoid judgments like llwe ve heard that before llthe boss won t go for itquot and it s not in the budget Stopping with the first idea Squot i The first ideas usually are easy and rarely the best use SCAMPER S3 Failing to get the llbandits on the trainquot and ask for support i Who s support do you need to get so you don t derail the project get them involved early 5 Obeying rules that don t exist i Challenge your preconceived assumptions regarding your role and abilities 10 Types of innovations small businesses develop a mitative strategy a strategic approach in which the entrepreneur does what others are already doing i It is expensive to radically change or innovate your company ii Can be seen as more legitimate if other companies are doing it b Incremental strategy Taking an idea and doing it slightly better c Sometimes there are periods of innovation where the potential for a steady business declines and the market increase for those who are extremely innovative d Opportunity Identification Processcan judge whether the market is traditional environment or changing 11 Make sure an ideas is feasible a Feasibility the extent to which an idea is viable and realistic and to the extent to which you are aware of internal and external forces that could affect your business b Traditional problems facing new ideas Cannot be made economically into a product Product works but does not appeal to the masses The product works and has potential to sell but you need additional funding or resources to be viable c The study will lead to a decision to either pursue the opportunity or table it if the ides is feasible the next step is a business plan 12 Assessing feasibility by Pilot Testing a Pilot testing a low cost low risk preliminary run of a businesswebsite with the goal of assessing how well the overall approach works and what problems it might have b Rapid Web site prototyping process used by Napster Google and Facebook i Deploy ii Listen iii Revise iv Repeat c Conversion Rate the measuring of how many visitors to your web site actually make a purchase from you d Can administer surveys post discussion boards or email forms to get information back to you e The changes can be made relatively quick and the process can be repeated until the decision can be made about the productswebsite feasibility 13 Ways to keep on being creative a Keep on searching for new ways to be creative even after you are successful b Great ideas for making ideaprone companies 39 Give employees time to think of ideas Positively reinforce ideas avoid the automatic No ii Look to unlikely sources for ideas iv Get a room with a view vary your perspectives Sample Feasibility Study Pet Elan 1 The Business Idea a Description of your business b Description of the entrepreneur or team 2 The ProductService a Unique features Benefits Unique features Limitations Competitive advantage Stage of development Legal restrictions and rights Insurance requirements mrthDIT Trends related to productservice h Trends in customer demographics 3 The Industry and Market a Current industry b Market potential for this industry c The competition d Customers e Market penetration 4 FinancialProjections a Pricing b Sales revenue forecast c Cost forecast d Gross margin 5 e f Operating expenses Profitability Future Action Plan 5053957 Startup capital Sources of Startup capital Further information needed Writing a business plan Support needed Chapter 2 quiz from website 1 Using lowcost or free techniques to minimize your cost of doing business is called 2 things get done 5 The lw dills mu pn lqu39lle asks quotwould I be comfortable having my decision and name posted on a billboard for all to seequot 6 Tr quot m members of the company consists of the owners employees and any other owners or board 7 A part of the external environment made up of those components that the rm deals with directly such as customers suppliers consultants media interest groups and the like is Ill Chapter 2 Outline 1 Focus on Small Business Tim Hayden and the Missed Home Run a Tim Hayden a sports fan noticed lower attendance at baseball games b He realized the best seat in the stadium was actually at home c Sensing a business opportunity he combined a fan s personal cell phone with a WiFi Webbased application to bring the at home experience into the stadium 2 The Environment of Small Business a Become aware of the and the rm b Follow the BRIE model to set your firm apart from the rest of the environment to give your rm an yin The name description and distinctive elements of a rm such as trademarks uniforms logos characters and stories When you think of Famous Amos you think of cookies c Gather resources from the environment including information funding space All the forces outside of the entrepreneur and raw materials Could be easy during economic booms or hard during recessions As entrepreneurs face resource constraints they often learn to get by with less or substitute trade borrow or rent Using lowcost or free techniques b L alllrlTL W A set of shared beliefs basic assumptions that demonstrate how things get done It also includes common accepted ways of dealing with problems and challenges within a company Managing 0C is easier in a small business because there is more exibility in terms of roles and expected behaviors c l1 llquotquot llrquot fjl consists of everything outside the film s boundary into two parts 7 task and general d The i rm v mm is the part ofthe ex env that is made up of those components that a rm directly deals with such as customers suppliers consultants media interest groups and countless others e The other larger part of the ex env is the 39 w It consists of f the task and sectors of major forces that shape the people on institutions 0 internal environments i Economic sector 7 trends and current conditions of the overall market for goods and services the availability of equity and credit and employment Technological sector 7 innovation invention modernization i39 39 Sociocultural sector 7 cultures based on nationality religion or shared interests within a larger culture iv Demographic sector 7 trends in the mix of ages races and gender v Politicallegal sector re ects broad trends affecting law government and politics vi International sector 7 crossnational factors global factors vii Ecosystem infrastructure sector 7 re ects the physical world in which we live including the natural components such as raw materials weather and ecological components Also include created components such as cities roads and other elements of the infrastructure 4 Environmental Scanning for Small Businesses a 0 F D 5 Five Skills for Look for trends and futurelooking articles in the trade of your industry and those members of your task environment Ask your customers suppliers banker attorney and accountants what they see for business in general in the community in general or for your industry or line of business in particular Keep notes on the things that bother you about the way work is done or how something has changed i Do some quick research on its causes and how others feel about it Subscribe to a couple of magizinesnewletters or online newsfeeds or blogs outside your area of business i Tag or record interesting ideas to come back to later Put aside time every few months to think and re ect naging Relations with the Environment Willow 7 the general description for the processes and skills 1 5 used in the management of a firm s interactions with people organizations and institutions outside of its boundary ii The ve approaches 1 Building legitimacy 2 Developing a social network 3 Handling a crisis 4 Achieving sustainability 5 Making ethical decisions iii a 7 characteristics of a business like trusts consistency and networks that represent potential social obligations which are an asset of the rm or entrepreneur b 1 Building Legitimacy i 391 C means that a rm is worthy of consideration or doing business with because of the impressions or opinions of customers suppliers investors or competitors Based on your people 7 having good people whom customers know and respect increase a rm s legitimacy Based on your product 7 make sure the customer knows the details of the ii 111 product it s high quality environmental friendliness its competitive advantage how to use it and that assurance it will be backed up by the rm iv Based on your organization 7 whatever gives customers con dence in the quality and survivability of the firm 1 Employees should be dependable 2 Don t do anything to harm the organization 3 Be good to customers 2 Developing a Social Network lt 39 7 the entrepreneur s relationships and contacts with others See gure 22 Asking for help See gure 23 7 the action of each person helping another Build a network of people who trust you and are willing to help you and can depend on th MUG 1m you for help and advice in return r TL w my 7 interacting with others in order to build relationships useful to a business Take time to build and keep up your relationships with others in your network See gure 24 Online social networking 1 Make it easy for people to contact you 2 Take the initiative to ask others to link up with you 3 Find and link up with network mavens d 3 Handling a Crisis i ii39 1 ii e 4 Achieving Sustainability A crisis is a situation that poses a major problem for the business The survival of the business is at stake and immediate action is necessary Norman Augustine six step process 1 Admit you re in trouble 2 Get to the scene as soon as possible 3 Communicate facts you know 4 Have one person serve as the rm s spokesperson 5 Separate crisis management from regular management 6 Deal with the crisis quickly wwwreadygov three step process 1 Plan to stay in business 2 Talk to your people 3 Protect your investment In the end the best way to manage a crisis is to plan ahead but if one occurs the key is to stay calm take care of the people involved and keep them informed 3m wm m39vb lvn 7 an approach to operating a rm or a line of business which identifies creates and exploits opportunities to make a pro t in a way that can minimize the depletion of natural resources maximize the use of a recycled material or improve the environment or any combination of these outcomes Green entrepreneurship 7 another term for sus entr Taken from the popular belief that green is the color of a healthy environment f 5 Making Ethical Decisions 1 7 a system of values that people consider in determining whether actions are right or wrong Em n LL 7 a situation that occurs when a person s values are in con ict making it unclear whether a particular decision is the right thing rl ll will to do 1 Also occurs when there are several different options for a decision we have to make and the best choice is unclear iii LaRue Hosmer making ethical decisions three step process 1 De ne the moral problem a b c d Who will be hurt Who will bene t What do you owe others What do others owe you 2 Generate alternatives that meet your ethical legal and economic goals a b c Economic standards Legal standards Ethical standards i quot39 urmpn Hquot 7 a Latin expression which means let the buyer beware which has been made into a philosophy sometimes used by businesses to put the burden for consumer protection onto the consumer Not the way to go m 7 an ethical model which suggests treating others in the manner you wish to be treated iii seeking the greatest good for the greatest number of people there is a code of right and wrong that everyone can see and follow BMW wa an ethical model that asks whether someone would be comfortable having his or her decision and name advertised on a billboard for the public to see 3 Implement the best solution and monitor the situation a 57 O F Run your list of alternative solutions through the above philosophies The best outcome is a situation where both sides feel satis ed If rejected ask what parts need to be adjusted ntire proposal is rejected be ready to talk about h 1 4 A d and ask for theirs With BATNA the second best outcome is indenti ed by the parties in a negotiation to help clarify the value of achieving a successful negotiation Limit the need for highpressure ethical decisionmaking situations by integrating the lessons of legitimacy social networking crisis management sustainability and ethical decision making into your everyday activities and into the structure of your business 1 eP N Craft codes that re ect the personal values you can live with and up to When hiring make sure you discuss your expectations Learn from your mistakes by talking about them openly When counseling around external relation issues a Don t get emotional Be speci c about the problem at hand After an understanding work on future behavior Be consistent Be the role model 999w CHAPTER 6 SMALL BUSINESS ENTRY PATHS TO FULLTIME ENTREPRENEURSHIP LEARNING OBJECTIVES After you have read and studied this chapter you should be able to 1 Describe five ways that people get into small business management Compare the rewards with the pitfalls of starting a new business Compare the opportunities with the pitfalls of purchasing an existing business Explain four methods for purchasing as existing business Compare the advantages with the disadvantages of buying a franchise Explain the issues of inheriting a familyowned business Describe how hired managers become owners of small businesses 8995 VOCABULARY REVIEW Listed below are the important terms found in this chapter Choose the correct term for each de nition and write it in the space provided Asset Due name 1 If you operate your business in your apartment your house or your dorm you are a n Homebased business 2 When a firm allows someone to use its name and business procedures in exchange for a sum of money this is a n Franchise 3 One of the ways to get into business by starting from scratch is a n Startup 4 Managers who purchase the firms for which they work are participating in a n 5 An is quot 39 the business owns that is expected to have economic value in the future 6 Money goes in and money goes out this is 20 21 22 The person who originates the business is the When several people working together are able to accomplish more than the same working apart we can say that this group has Sometimes a larger rm will separate certain of its operations and allow them to form a new company This is a n A credit agreement that allows the borrower to pay all or part of the balance at any time is known as The type of franchising that is the complete package 7 trade name operational procedures marketing and products 7 is is the process of carefully checking the books and other information about a firm to assess its value Let the buyer beware or before purchasing a business means to do your homework If you figure the value of a business based on its estimated future cash income and out ows you are using refers to the original value of an asset less any depreciation If you take the firms value and divide it by its actual or expected annual earnings you have a financial ratio known as the are rules of thumb used to value a business The highest price that a buyer thinks he or she will pay is considered hisher An is when you purchase enough stock to have some control but not all the stock nor a controlling interest An is when you purchase enough stock to have a controlling interest in a firm stands for Employee Stock Option Plan often used in an employee buyout situation are items such as good will the value of having an ongoing business and other hardtomeasure assets 23 When a rm licenses another rm only to use its trade name this is 24 allows a certain rm usually a retailer or wholesaler the right to supply a certain area exclusively 25 The amount for which an asset will sell less the costs of selling it is its 26 When Bobby s delivery van was totaled in a car accident he found out that it would cost 15000 to buy an identical van The 15000 was the van s 27 A form of franchising that allows independent businesses to combine resources is ASSESSMENT CHECK Learning Objective 1 1 What are the ve ways to get in small business management a b e Learning Objective 2 2 What are four advantages of starting a new business a b C d 3 What are ve disadvantages of starting a new business 4 Name the 14 methods for increasing startup success Learning Objective 3 5 List three advantages to purchasing a business a b
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