Business

BusinessBy Suhaili Bin Md Tarmudi

Bachelor Degree of Business Management from UiTMCurrently doing Masters in Management at UTM

What is busines?Business is an activity done by a person or a group of people in order to gain profit from selling goods or providing services activity.

Types of business

1.Sole proprietorshipNew company start-up by your own.Fully responsible for business flow such as create regulations,managing accounts,etc.Unlimited liability-As a sole owner of the business, a creditor can make a claim against your personal or business assets to pay off any debt.

Advantages of Sole ProprietorshipLow cost to start your businessDirect control of decision makingAll profits will go to you directly

Disadvantages of Sole ProprietorshipUnlimited liability (if you have business debts, personal assets would be used to pay off the debt)Taxable income(The higher the income,the higher the tax will be.)Lack of continuity for your business.(If the owner have low commitment and usually absent for personal purposes)

2.PartnershipMade up from 2-20 of person.Financial resources are combined and put into the business.When establishing a partnership, you should have a partnership agreement drawn up with the assistance of a lawyer, to ensure that profit sharing,liability sharing and factors that can disbanded the partnerships.

Advantages of PartnershipStart-up costs would be shared equally with you and your partnerEqual share in the management, profits and assetsTax advantage, if income from the partnership is low or loses money (you and your partner include your share of the partnership in your individual tax return)

Disadvantages of PartnershipsUnlimited liability (if you have business debts, personal assets would be used to pay off the debt)Slow decision making process(Need to make a meeting and ask for opinion and permission from other all members in the partnerships.)Difficult to find a good and reliable partner.There might be conflict among the members.Held responsibility for business decisions made by partner (for example, contracts that are broken)

Companies/CorporationsManaged by Board of Directors that usually 2-50 person depends on the shareholders.Separate entity,company can sue or be sued.As a shareholders.A person will not be personally liable for the debts.Need to seek legal advice before make any decision making process.

Advantages of CompaniesLimited liabilitySeparate legal entityContinuous existenceTransferable ownerships.

Disadvantages of CompaniesA corporation is closely regulatedMore expensive to start the business.Extensive corporate records required, including shareholder and director meetings, and documentation filed annually with the governmentPossible conflict between shareholders and directors

Franchising-Franchising is a condition where a business entity(franchisee)pay a royalty payment in order to use franchisor products or trademarks.

Types of Franchising1. Product distribution franchise-licenses the franchisee to sell specific products under the manufacturers brand name and trademark through a selective, limited distribution network.eg:Ferrari

2. Trade name franchise-franchisee purchases the right to become identified with the franchisers trade name without distributing particular products exclusively under the manufacturers name.eg:Kleenex tissue with Mickey Mouse cartoon.

Types of Franchising3. A Purefranchise-franchisee purchases the right to use all the elements of a fully integrated business operation as same as franchisor.eg:KFC.

Benefits of FranchisingTo Franchisee:1. Management Training and Support Program.2. Higher chance for success3.Proven products and business formats

To Franchisor:1.Get royalty from franchisee2.Strengthen the market.3.Less competitors.

Disadvantages of FranchisingTo franchisee:1.Need to pay a lot of money as royalty to franchisor.2.Strictly need to follow franchisor systems.

To franchisor:1.Difficult to control.2.Trademark are at risk.

Product Life CycleEvery product are usually not last foreverA product have its own life cycle start from its launch until the day the product are no longer receive any demands.Product Life Cycle help to understand a product in which stage and what strategy are best to apply in each stages.

Product Life Cycle

Introduction researching, developing and then launching the productGrowth when sales are increasing at their fastest rateMaturity sales are near their highest, but the rate of growth is slowing down, e.g. new competitors in market or saturationDecline final stage of the cycle, when sales begin to fall

Introduction StageNew product launched on the marketLow level of sales

Relevant strategies at the introduction stage might include:Aim to encourage customer adoptionHigh promotional spending to create awareness and inform peopleEither skimming or penetration pricingDemand initially from early adopters

Growth StageExpanding market but arrival of competitorsFast growing salesProduct gains market acceptanceThe market grows, profits rise but attracts the entry of new competitors

Relevant strategies at the growth stage might include:Advertising to promote brand awarenessGo for market penetration and (if possible) price leadershipTarget the early majority of potential buyersContinuing high promotional spendingImprove the product - new features, improved styling, more options

Maturity StageWeaker competitors start to leave the marketPrices and profits fall

There is a wide variety of possible options for a product that has reached the maturity stage:Product differentiation & product improvementsCompetitor based pricingPromotion focuses on differentiationPersuasive advertisingIntensive distributionEnter new segmentsRepositioning

Decline StageFalling salesMarket saturation and/or competitionDecline in profits.

Potential strategies are:Spending little on marketing the productPrice cutting to maintain competitivenessPromotion to retain loyal customers

Extension StrategiesAdvertising try to gain a new audience or remind the current audiencePrice reduction more attractive to customersAdding value add new features to the current product, e.g. video messaging on mobile phonesExplore new markets try creating new market segments such as exporting it abroad.New packaging brightening up old packaging, or subtle changes such as putting crisps in foil packets or Seventies music compilations

Porters Forces Model

1. Threat of New EntrantsAn example is web design, as there are independents in every location. This is an easy market to enter with few requirements, other than skills, initiative and relevant hardware and software. This does mean there are many new entrants!2 . Buyer PowerAn example is the grocery sector since supermarkets tend to retain power over suppliers due to volume and price of contracts. They dictate terms, set prices and can possibly end agreements at any time.

3. Threat of SubstitutionThe substitute to all services is DIY. For example hairdressing or writing a will. Focus is on expertise, customer service or added value.4. Supplier powerSome sectors have monopolistic (one) or oligopolistic (few) suppliers, such as utility companies. Sometimes customers have little choice i.e. where to buy domestic water suppliers though this is changing.5. Competitive rivalryThese include Estate agents, web design and office stationary. Many competitors often buy on price.

New Product DevelopmentStep 1:Generating ideasGathering as much idea as possible.Ideas can be obtained through various sources such as supplier,customer feedback,or even in a groups such as focus groups or brainstorming session.Step 2:Screening The IdeaIdea will be filter out.Only the best ideas will be accepted and shortlisted for further process.

Step 3:Testing The ConceptDoes the consumer understand, need, or want the product or service?The organization will analyze whether the idea will be a solution to solved customer problem and whether the product can be develop or not and can be market or not.Step 4:Business AnalyticsCompany will analyze from finance,managing, and also development of the product based on current organizations situation whether they will go for it or not.During the New Product Development process, build a system of metrics to monitor progress. Even if an idea doesnt turn into product, keep it in the hopper because it can prove to be a valuable asset for future products and a basis for learning and growth.

Step 5:Market TestingsSelect a few group from overall customer population as sampling and introduce them with the new products.Their feedback are really welcome at this stage.Step 6:Product DevelopmentIn this stage,the real product will be produced in mass production and and the product will be ready to see the consumers.

Step 7:CommercializeThe product was commercialize.At this point,marketing will be really essential in order to make sure consumers are aware with this new productsStep 8: Post Launch Review andPerfect PricingAfter a few while,the company will need to revise the pricing since usually the product is sold at introduction price.Thus,a new pricing strategy will be needed.

Step 7:CommercializeThe product was commercialize.At this point,marketing will be really essential in order to make sure consumers are aware with this new productsStep 8: Post Launch Review andPerfect PricingAfter a few while,the company will need to revise the pricing since usually the product is sold at introduction price.Thus,a new pricing strategy will be needed.

Pricing Strategy1.Market Skimming Pricing Strategy2.Market Penetration Pricing Strategy

Market Skimming Pricing StrategySold new products at a high price.The objectives is to cover the costs as soon as possible and gain more profits.

Market Penetration Pricing StrategyThe objective is to penetrate the market and gain a marketshare.Profits are generally lower than skimming strategy but in might be more profitable in the long run.

Strategy Against Competitor1.Cost-Leadership2.Differentiation3.Focus Strategy

Strategy Against Competitor1.Cost-LeadershipSell products that have same value as competitor at the lowest price.2.DifferentiationCreate or produce a unique product that still doesnt exist in the market.3.Focus StrategyFocusing on niche market where the company are able to customize products according to customer taste and preferences.

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