Markt Finance

8/8/2019 Markt Finance

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Marketing Finance & Personnel Finance

Syllabus

Scheme of Assessment

Marketing Finance 50M Personnel Finance 50M

Marketing Finance

Impact of marketing policies on a firms working capital Credit policy, credit rating, credit recovery & overall receivables management Finished stock policy, stock out & loss of profit, optimal stock holding Break Even Analysis and Marketing decisions like pricing, product mix, expansion etc Marketing Cost Control & analysis Marketing Investment Appraisal using DCF techniques Appraisal of Distribution channels, Advertisement strategies Marketing Performance Evaluation Leasing & Bill Discounting concepts Brand Valuation

Personnel Finance

Job Evaluation as the basis of Wage and Salary Administration Financial implication of wage terms negotiated with Unions Cost of living index linked Incentives wages system and their financial implications


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Payment of commission based on profits Payment of bonus under Bonus Act Determining optimal fringe benefits and salary of executives in relation to profitability and size

of operations of a company using DCF techniques

Developing superannuation benefit schemes and early voluntary benefit schemes Cost analysis for areas such as labour and executives turnover, cost of recruitment training and

development, cost of employment programmes

Cost of committee management Cost of strikes, lockouts and gheraos Human resources accounting Motivational Accounting Developing Personnel Budget Personnel Cost Audit

Marketing Perspective

Understanding Terminology in Marketing

Markets

Traditionally market is a physical place where buyers & sellers gather to buy & sell goods.

Economist describe a Market as collection of buyers & sellers who transact over a particular product.

Buyer buys goods in the market to satisfy his needs / wants.

Seller hands over the goods to the buyer for some monetary consideration.

Marketing


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Marketing in simplest form is meeting needs profitably. Marketing deals with identifying & meeting human & social needs. As per social definition Marketing is a societal process by which individuals / groups obtain what

they need & want through creating, offering & freely exchanging products & services of value

with others.

As per formal definition of American Marketing association Marketing is an organizationalfunction and a set of processes for creating, communicating & delivering

value to customers and for managing customer relationships in ways that benefit the

organization & its stake holders.

Marketing Core concepts Basic concept in Marketing is exchange. Exchange is the process of obtaining a desired product from someone by offering something in

return.

When two parties engaged in exchange reach an agreement, a transaction takes place. A transaction is a trade of values between two or more parties. To make successful exchange, marketer analyzes what each party expects from the transaction.

He seeks to elicit a behavioral response from another party called the prospect.

Marketer must try to understand the target markets needs, wants & demands. Needs are the basic human requirements. Needs become wants when they are directed to specific objects that might satisfy the need. Food is the need of every person. Wants of Mumbai youth, when hungry, may be Pizza & soft drink whereas those of village

youth may be Dal , rice, roti & vegetable.

Demands are wants for specific products backed by ability to pay. The buyer or potential customer pays only when he gets value. Marketers job becomes difficult if the customer is not fully conscious of his needs & wants or

is not able to articulate them properly.


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Value The foundation of Marketing

Value is the price the person pays to perform a specific function in an efficient way. The function of a product / material / service is the job it does. Therefore Value = Function / cost. Value is increased by improving the function & reducing cost. Value can not be easily specified because it changes from person to person & time to time. The buyer gets the best value when he incurs the least cost for an essential function or service

with the required quality & reliability.

The marketer endeavors to create, communicate & deliver value to his target customer.

Process of Marketing

Wants list of a Prospect in Business Environment includes--Good quality product, Fair price, Timely delivery, Attractive financing terms, Reliable parts &

service

Wants list of a Marketer in the same environment includes-- Good price for the product, On time payment. +ve word of mouth.

If there is sufficient match or overlap in the want lists, a basis for transaction exists & may take place on

mutually acceptable terms.

Win win situation is achieved for both the parties, when the solution is found to customersneeds economically & conveniently.

Process of Marketing is different from Process of Selling.

Selling concept

Selling concept aims at selling what the firm makes or produces & is used when there is overcapacity.

It is practiced aggressively for unsought goods like insurance policy, encyclopedia.


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It presupposes that the customers who are coaxed into buying a product will like it. If they are not happy

with it, they will not return it or bad mouth it or complain to consumer protection organizations.

Their proponents try to sell more stuff to more people, more often, for more money in order to make

more profit.

Marketing Concept

As per this concept, Marketing job is not to hunt for the right customers for your products, butto offer the right product to your customers.

Marketing manager is responsible for demand management.His strategy is to stimulaterequirements of companys products by influencing the level, timing & composition of demand

to meet the organizations objectives.

He believes that if the company is more effective than its competitors in creating ,delivering &communicating superior customer value to its chosen target markets, organizational goals will

be achieved by getting, keeping & growing customer base.

Selling V/s Marketing

Selling focuses on the needs of the seller.

Marketing concentrates on the needs of the buyer. Selling involves preoccupation with the sellers need of converting his product into cash. Marketing is concerned with the idea of satisfying the needs & wants of the customer by means

of the products & whole cluster of things associated with creating, delivering & finally

consuming it.

Meeting expressed or stated needs of the customer is fairly simple but identifying his impliedneeds & understanding his latent requirements is quite complex.

Marketing Policy

Marketing Policy includes developing action plans for


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- connecting with customers

- building strong brands

- shaping the market offerings

- delivering & communicating value

- capturing marketing insights & performance

- creating successful long term growth.

In short they aim at creating, communicating & delivering value to the target customer.

Marketing Mix

For implementation of Marketing Policy, the main focus of the Marketing manager is onorganizing value enhancing marketing activities while keeping marketing costs to the

minimum.

Traditionally marketing activities are depicted through Marketing Mix which is defined as the setof Marketing tools the firm uses to achieve its Marketing Objectives.

They are classified into four broad groups which are popularly known as four Ps of Marketing.Viz. Product, Price, Promotion & Place .

Marketing Tools

Four P components of the Marketing Mix & variables under each P are-

Product

Variety, Quality, Design, Features, Brand Name, Packaging, Sizes, Services, Warranties, Returns.

Price

List price, Discounts, Allowances, Payment period, Credit terms.

Promotion

Sales promotion, Advertising, Sales Force, Public Relations, Direct marketing.


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Place

Channels, Coverage, Assortments, Locations, Inventory, Transport

Buyers Perspective

From a marketers perspective, the four Ps represent the marketing tools available forinfluencing buyers.

From Buyers point of view, each Marketing tool is designed to deliver a benefit to the customer. Against each P of the marketer there is a corresponding C which provides Value to the

customer & influences his buying decision.

Parameters in Transaction

Marketer Customer

Product ( Variety, Quality, Design, Features, Brand name, Packaging, Sizes,

Services, warranties, returns)

Customer Solution

Price ( List price, Discounts, Allowances, Payment Period, Credit terms, ) Customer Cost

Promotion ( sales promotion, Advertising, ,sales Force, Public relations, Direct

Marketing )

Communication

Place ( Channels, coverage, Assortments, Locations, Inventory, Transport) Convenience


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Finance Perspective

Impact of Marketing policy on Working Capital

Marketing Policy & Working Capital

Analyze each variable in four Ps or Marketing Tools to identify its impact on WorkingCapital. The relevant constituents of Working Capital & functions responsible for their management &

control are

- Debtors ( Marketing )

- Stocks

( R.M. - Materials,

W.I.P. Manufacturing,

F.G. - Marketing )

- Cash - ( Operations)

- Creditors - Materials


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Overview of Working Capital Management

ponents Cash Debtors Stock Stock

trol Measure - Debtors CollectionModel

EOQ & Throughputcycle time

Just in - time

Internal Financing

Efficiently managed companies try to minimize their levels of working capital so as to avoidshort-term borrowings.

Each element or constituent of working capital needs to be monitored & controlled closely. Working capital largely depends on the section of industry the firm operates in. For restaurants, supermarkets, malls etc. where customer has to pay before he leaves the

premises, the working capital requirement may be negative & correspondingly the internal

financing needs may be near zero.


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Cash

Cash is the lifeblood of a business. Business needs cash to survive and will try to keep enough cash to manage its day-to-day

operations (e.g. purchase stock and pay creditors), but not to maintain excessive amounts of

cash.

Cash budgets are prepared which enable to forecast the levels of cash needed to finance theoperations.

Liquidity and quick ratios are used to assess the level of cash requirement. Despite careful cash management if the short-term cash requirements are insufficient then the

business will have to borrow.

Debtors

For control of working capital debtors management is a key activity. It is often called credit control. Debtors result from the sale of goods on credit. Careful monitoring of the receipts from debtors is essential to see that they are received in full

and on time.

The debtors management involves --establishing credit limits for new customers,

-monitoring the age of debts by drawing up a debtors age schedule

-chasing up bad debts

In short marketing has to profile the age of the debts and old debts need to be quicklyidentified before they turn bad.


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Marketing Perspective

Out of 4 marketing tools, two have direct bearing onCurrent Assets or Gross Working Capital. Second P ( Price ) from Marketing Mix is primarily responsible for Debtors. Here the term Price is used in generic manner & encompasses all its variables like discounts,

credit period, payment terms.

Fourth P ( Place ) from Marketing Mix is responsible for stocks or inventory.

Price

Price is the major determinant of a buyers choice. Although non price factors are also quite important at times, price by far remains the most

important factor in determining sales and profitability.

Pricing gets modified by discounts, credit terms, payment period etc. because of - Competitive pressures.

- Consumer and middle men behavior.

- Short term orientation of the companies.

- Sales promotion activities.

Each price leads to a different level of demand and therefore has a different impact on acompanys marketing objectives.

The marketers draw demand curves to show relation between alternative prices and theresulting current demand.

In the normal case, demand and price are inversely related i.e. the higher the price the lowerthe demand.

The slope of the demand curve depends upon the elasticity (responsiveness ) of demand w,r,t,price.


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Price Elasticity of Demand

The demand curve having a very steep slope shows inelastic behavior of Demand w.r.t. price.Demand for essential commodities is less price sensitive or inelastic.

Demand for luxury ( non essential ) goods is largely dependent on or over responsive to pricechanges i.e. highly elastic.

The company wants to charge a price that covers its cost of producing, distributing, and sellingthe product, including a fair return for its effort and risk.

To price intelligently management needs to know how its costs vary with different levels ofproduction.

Price determinants


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The price demand curve provides the range within which the price needs to be fixed. Three Cs are the most important determinants of price. 1) Customers demand schedule

- Assessment of the unique features of the product establishes the price ceiling .

2) Cost

- The cost function sets the floor to the price. When the company tries to recover the full cost , the

net result is not necessarily the highest profitability.

3) Competitors prices

- Competitors prices and the price of substitutes provide an orienting point.

Ideally the price is based on the value perceived by the customer.

Perceived Value Pricing

The key to perceived value pricing is to deliver more value than the competitor and todemonstrate this to prospective buyers.

Company has to deliver the value promised by its value proposition & the customer must

perceive this value.

It uses other marketing mix elements like advertising, sales force, discounts, credit period,payment terms etc. to communicate & enhance perceived value in buyers mind.

Perceived value is made up of several elements such as the buyers image of the productperformance, the channel deliverables, the warranty quality, customer support, & other softer

attributes such as suppliers reputation, trustworthiness, & esteem.

Each potential customer places different weights on these different elements. The company stratifies the customers as per their response into price buyers, value buyers, and loyal buyers.

Company uses different price strategies for these three groups.


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For price buyers it offers stripped down products and reduced services. For value buyers it must keep innovating new value and aggressively reaffirming their value. For loyal buyers it must invest in relationship building and customer intimacy. Basically the company must understand the decision making process of the buyer.

Finance Perspective

Constituents ofCurrent Assets & their control. Management of debtors & stocks.

Debtors Collection Model It is a technique designed to maintain the efficient level of debtors. Debtors collection model balances the extra revenue generated by increased sales with the

increased costs associated with extra sales. (i.e. credit control costs, bad debts and the delay in

receiving money).

The model assumes that the more credit granted, greater are the sales. However, these extra sales are offset by increased bad debts as the company sells to less

trustworthy customers.

Whether the delay in receipts means that the business receives less interest or pays out moreinterest depends on whether or not the bank account is overdrawn.

Usually the cost of capital (i.e. effectively the companys borrowing rate) is used to calculate thefinancial costs of delayed receipts.

Stocks & Inventory For many businesses especially for manufacturing companies, stock is often an extremely

essential asset.

From the view point of production function, stock is needed to -- create a buffer against excess demand,


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- protect against rising prices

- safeguard against a potential shortage of raw materials

- balance sales and production.

Marketing function needs FG stocks to-- avoid loss of Sales due to stock out situation.

- prevent the potential customer from approaching the competitor.

Inventory Valuation & Control

Inventory valuation is done by either - FIFO

- LIFO

- Moving Average Price ( MAP ) method.

During inflationary growth period FIFO results into deflated cost of production & sales withresultant higher margins but inflated stock valuation.

During recessionary decline phase LIFO tends to give the same effect. MAP seeks the middle ground between these two extremes. Stock control is concerned with protecting the sock physically and ensuring that the optimal

level is held.

Two common techniques associated with efficient stock control are the economic orderquantity model and just-in-time ( JIT ) stock management.

Economic Order Quantity (EOQ)

This stock control measure falls within the domain of materials or Supply chain managementfunction.


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The EOQ model seeks to determine the optimal order quantity needed to minimize the costs ofordering and holding stock.

These costs are the costs of placing the order and carrying costs. Carrying costs are those costs incurred in keeping an item in stock, such as insurance,

obsolescence, interest on borrowed money or clerical / security costs.

The costs associated with ordering stocks are mainly the clerical costs, receiving & inspectioncosts.

The EOQ can be determined either graphically or algebraically. A key assumption underpinning the EOQ model is that the stock is used in production at a

steady rate.

Just in-Time

It seeks to minimize stock holding costs by the careful timing of deliveries and efficientorganization of production schedules.

At its best, just-in-time works by delivering stock just before it is used. The amount of stock isthus kept to a minimum and stock holding costs are also minimized.

In order to do this, there is a need for a very streamlined and efficient production and deliveryservice.

Taken to its logical extreme, just-in-time means that no stocks of raw materials are needed atall.

One potential problem with just-in-time is that if stock levels are kept at a minimum there is nostock buffer to deal with unexpected emergencies.

External Financing

Cash

Company needs to borrow if it does not generate enough cash from selling.


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Bank overdraft or loan are the most common methods of borrowing.

Banks provide overdraft facility for a business as long as they are sure the business is viable. Overdrafts

are more flexible.

A bank overdraft is more flexible. It is a good way to tackle the fluctuating cash flows experienced by

many businesses.

An alternative to a bank overdraft is a Bank loan.

Generally a loan is for a set period of years.

The interest rate for a loan is normally lower than that of a bank overdraft.

Loans may be secured on specific business assets, such as stock or motor vehicles.

External Financing (contd)

b)DebtorsSince debtors are an asset, it is possible to raise money against them. This is done by debt

factoring or invoice discounting.

External Financing (contd)

i. Debt factoringDebt factoring is in effect the subcontracting of debtors. Many department stores, for

example, find it convenient to subcontract their credit sales to debt factoring companies. The advantage

to the business is twofold.

It does not have to employ staff to chase up the debtors It receives an advance of money from factoring organization

There are however potential problems with factoring The debt factoring company will charge a fee, for example 4% of sales, for its services. In

addition the debt factoring company will charge interest on any cash advances to the company.

Finally the company will lose the management of its customer database to an external party.


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i. Invoice discountingii. Invoice discounting in effect is a loan secured on debtors.iii. The financial institution will grant an advance (for example 75%) on outstanding sales

invoices (i.e. debtors). Invoice discounting can be a one-off, or a continuing,

arrangement.

iv. An important advantage of invoice discounting over debt factoring is that the creditcontrol function is not contracting out.

v. The company therefore keeps control over its records of debtors.

The aim of debtors management is simply to collect money from debtors as soon aspossible .

For an optimal cash balance, with no considerations of fairness, a business will benefit if itcan accelerate its receipts and delay its payments. Receipts from customers and

payments to suppliers are measured using the debtors/creditors collection ratios.

c)StockAs with debtors it is sometimes possible to borrow against stock. However the time period is

longer.

Stock needs to be sold, then the debtors need to pay. Stock is not , therefore , such an attractive

basis for lending for the financial institutions.

However in certain circumstances financial institutions may be prepared to buy the stock now

and then sell it back to the company at a later date.

Sale and Buy Back of Stock

Any business where it may take such a long time for stock to convert to cash that businessesmay sell their stock to third parties.

The classic example of sale and buy back occurs in the wine and spirit business. It takes a longtime for a good whisky to mature. A finance company may therefore be prepared to buy the

stock from the whisky distillery and then sell it back at a higher price at a future time. In effect,

there is a loan secured against the whisky


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Another example might be in the construction industry. Here the financial institution may beprepared to loan the construction company money in advance. The money is secured on the

work-in-progress which the construction company has already completed. The construction

company repays the loan when it receives money from the customers.

Ratios

Debtors Collection Period This ratio seeks to measure how long customers take to pay their debts. Obviously the quicker a business collects and banks the money, the better it is for the company. This ratio can be worked out on a monthly, weekly or daily basis. Daily basis = Average debtors/ Credit sales pr day

=((Opening debtors + Closing debtors)/2) / (Total annual sales/365)

It is important to note that credit sales are needed for this ratio to be fully effective.

Creditors Collection Period In many ways this is the mirror image of the debtors collection period. It calculates how long it takes a business to pay its creditors. The slower a business is to pay the longer the business has the money in the bank. As with

debtors collection period we can calculate this ratio either monthly, weekly or daily.

Daily basis = Average creditors/Credit purchases per day

Cost of sales is used as the nearest equivalent to credit purchases (cost of sales is openingstock+purchases closing stock

It is often important to compare the debtors and creditors ratios It is Debtors collection period (in days) / creditors collection period (in days) If this ratio is less than 50% it means the firm collects cash from debtors in 40% of the time that

it takes to pay its creditors. The management of working capital is effective.


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Debtors and Creditors Collection period Businesses whose debtors collection periods are much less than their creditors collection

periods are managing their working capital well. can you think of any businesses which might be

well placed to do this?

Businesses which sell direct to customers generally for cash would be prime examples. Pubs andsupermarkets operate on a cash basis or with short-term credit (cheques or credit cards). Their

debtor collection period is very low. However they lay well take their time to apy their suppliers.

If they have a high turnover of goods they may collect the money for their goods from

customers before they have even paid their suppliers.

Stock Turnover ratio This ratio effectively measures the speed with which stocks move through the business. This varies from business to business and product to product. Strictly this ratio compares the cost of sales to average stock Stock turnover ratio = Cost of sales / Average stock = x X should be more than 2 Current ratio This ratio tests whether the short term assets cover the short term liabilities. If they do not then

there will be insufficient liquid funds immediately to pay the creditors.

It is current assets / current liabilities. Quick ratio This is sometimes called the acid test ratio. It is a measure of extreme short term liquidity. Basically stock is sold turning into debtors. When debtors pay the business gains cash. The quick ratio excludes the stock, the least liquid of the current assets to arrive at an

immediate test of a companys liquidity. If the creditors come knocking on the door for their

money, can the business survive?

It is current assets stock / current liabilities


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If this ratio is less than1 the firm will not be able to pay its suppliers in time.

Marketing channels & Value Networks

Most producers do not sell their goods directly to the final users; between them stands a set ofintermediaries performing a variety of functions. These intermediaries constitute a marketing

channel (also called a trade channel or distribution channel).

Marketing channels are sets of interdependent organizations involved in the process of makinga product or service available for use or consumption. They are the set of pathways a product or

service follows after production, culminating in purchase and use by the final end user.

Some intermediaries such as wholesalers and retailers buy, take title to, and resell themerchandise; they are called merchants.

Others brokers, manufacturers representatives, sales agents search for customers and maynegotiate on the producers behalf but do not take title to the goods; they are called agents.

Still others- transportation companies, independent warehouses, banks, advertising agencies-assist in the distribution process but neither take title to goods nor negotiate purchases or

sales; they are called facilitators.

Importance ofChannels

A marketing channel system is the particular set of marketing channels employed by a firm. Marketing channels also represent a substantial opportunity cos. One of the chief roles of

marketing channels is to convert potential buyers into profitable orders. Marketing channels

must not just serve market, they must also make markets.

The channels chosen affect all other marketing decisions. The companys pricing depends onwhether it uses mass merchandisers or high quality boutiques. The firms sales force and

advertising decisions depend on how much training and motivation dealers need.


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In addition channel decisions involve relatively long term commitments to other firms as well asa set of policies and procedures.

In managing its intermediaries, the firm must decide how much effort to devote to push versuspull marketing.

A push strategy involves the manufacturer using its sales force and trade promotion money toinduce intermediaries to carry, promote and sell the product to end users.

Push strategy is appropriate where there is low brand loyalty in a category, brand choice ismade in the store, the product is an impulse item, and product benefits are well understood.

A pull strategy involves the manufacturer using advertising and promotion to persuadecustomers to ask intermediaries for the product, thus inducing the intermediaries to order it.

Pull strategy is appropriate when there is high brand loyalty and high involvement in thecategory, when people perceive differences between brands, and when people choose the

brand before they go to the store.

Channel Development

If the firm is successful it might branch into new markets and use different channels in differentmarkets.

In smaller markets the firm might sell directly to retailers; In larger markets it might sell through distributors. In rural areas it might work with general-goods merchants; in urban areas with limited-line

merchants

In one part of the country it might grant exclusive franchises; in another it might sell through allfranchises; in another it might sell through all outlets willing to ahndle the merchandise.

In one country it might use international sales agents; in another it might partner with a localfirm.

In short the channel system evolves in response to local opportunities and conditions


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Todays successful companies are also multiplying the number of go-to-market or hybridchannels in any one market area.

Companies that manage hybrid channels must make sure these channels work well togetherand match each target customers preferred ways of doing business.

Role of Marketing Channels

Producers do gain several advantages by using intermediaries: Intermediaries bring in pooled financial resources. About 250 plus dealers help Maruti Udyog

manage its capital better by investing in inventories, facilities and trained personnel.

They help break bulk and create assortment for the customer( imagine buying each monthlygrocery item from specialist direct marketers in bulk packs)

They are normally more cost effective due to specialization Many small value items like candies ,chewing gum and ball point pens with large volume

ambitions cannot be sold through direct marketing due to both assortment and cost problems

Intermediaries normally achieve superior efficiency in making goods widely available andaccessible to target markets.

Through their contacts , experience , specialization and scale of operation, intermediariesusually offer the firm more than it can achieve on its own.

Channel functions and Flows

A marketing channel performs the work of moving goods from producers to consumers. Itovercomes the time place, and possession gaps that separate goods and services from those

who need or want them. Members of the marketing channel perform a number of key

functions.

Marketing channels also keep changing with the evolution of markets and the development ofnew technologies. As the internet and other technologies advance, service industries suvh as

banking, insurance, travel and share trading operate through new online channels.


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Channel Design Decisions

Designing a marketing channel system involves analyzing customer needs, establishing channelobjectives, identifying major channel alternatives and evaluating major channel alternatives.

Channel objectives vary with product characteristics. Perishable products require more direct marketing. Bulky products such as building materials require channels that minimize the shipping distance

and the amount of handling.

Nonstandard products such as custom built machinery and specialized business forms are solddirectly by company sales representatives.

Products requiring installation or maintenance services such as heating and cooling systems areusually sold and maintained by the company or by franchised dealers.

High-unit-value products such as generators and turbines are often sold through a companysales force rather than intermediaries.

Channel design must take into account the strengths and weaknesses of different types ofintermediaries.

Companies can choose from a wide variety of channels for reaching customers from salesforces to agents, distributors, dealers, direct mail, telemarketing and the Internet.

Each channel has unique strengths as well as weaknesses. Sales forces can handle complex products and transactions, but they are expensive. The Internet

is much less expensive, but t cannot handle complex products.

Distributors can create sales but the company loses direct contact with customers The problem is further complicated by the fact that most companies now use a mix of channels. Each channel hopefully reaches a different segment of buyers and delivers the right products to

each at the least cost.

Understanding Pricing


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Price is the major determinant of a buyers choice. Although non price factors have become quite important price still remains an important factor

in determining sales ad profitability.

Competitive pressures together with consumer and middle men behavior and short termorientation of the companies have resulted in a marketplace characterized by heavy discounting

and sales promotion.

Each price will lead to a different level of demand and therefore have a different impact on acompanys marketing objectives. The relation between alternative prices and the resulting

current demand is captured in a demand curve.

In the normal case, demand and price are inversely related :the higher the price the lower thedemand.


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Price Elasticity of Demand

Demand sets a ceiling on the price the company can charge for its product. Costs set the floor. The company wants to charge a price that covers its cost of producing, distributing, and selling

the product, including afair return for its effort and risk.

Yet when companies price products to cover full costs the net result is not always profitability. To price intelligently management needs to know how its costs vary with different levels of

production.

Within the range of possible prices determined by market demand and company costs, the firmmust take consider the nearest competitors price.

Given the three Cs the customers demand schedule, the cost function, and competitorsprices the company is now ready to select a price.


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Costs set a floor to the price. Competitors prices and the price of substitutes provide an orienting point. Customers assessment of unique features establishes the price ceiling.

Perceived Value Pricing

Companies base their price on the customers perceived value. They must deliver the value promised by their value proposition and the customer must

perceive this value.

They use other marketing-mix elements such as advertising and sales force, to communicate andenhance perceived value in buyers minds

Perceived value is made up of several elements such as the buyers image of the productperformance, than channel deliverables, the warranty quality, customer support, and softer

attributes such as the suppliers reputation, trustworthiness, and esteem.

Furthermore each potential customer places different weights on these different elements withthe result that some will be price buyers, others will be value buyers, and still others will be loyal

buyers.

Companies need different strategies for these three groups. For price buyers companies need to offer stripped down products and reduced services.For

value buyers companies must keep innovating new value and aggressively reaffirming their

value. For loyal buyers companies must invest in relationship building and customer intimacy.

The key to perceived value pricing is to deliver more value than the competitor and todemonstrate this to prospective buyers.

Basically a company needs to understand the customers decision making process

Personnel Finance

Integration of the Accounting & Financial concepts with those of1)Personnel Management ( Traditional Approach )


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Objectives -

Effective utilization of human resources Desirable working relationships among all members of the organization Maximum individual development.

Major Functional Areas -

Planning Staffing Employee development Employee maintenance

The focus is to provide an adequate number of employees competent with the skills , abilities,

knowledge & experience to further the organizational goals.

P. M. - Responsibilities

Responsibilities assigned to personnel function depend upon the size, goals, philosophies, & structure of

the organization.

Even small organizations also have to perform the basic personnel functions of hiring, training ,

compensation & benefits, record keeping etc.

With the increase in size & complexity of the organization, the requirement of people with different skill

sets & competencies goes up. The expectations from Personnel Department become more demanding.

To meet this challenge, this function also tends to branch out into different specialized areas with

different responsibilities.

P.M. - Major functions.

1)Manpower Planning

2)Job Analysis

3)Staffing


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4)Selection

5)Orientation

6)Training & Development

7) Performance Appraisal

8) Career Planning

9)Compensation

10) Fringe Benefits

11)Labour Relations

12)Employee Record Keeping

13)Personnel Research

1) Manpower Planning -Deals with determination of number & type of employees needed to accomplish organizations

objectives.

Here the basic work is staffing & employee development.

2) Job Analysis -

It is the process of describing the nature of a job & specifying the human requirements like skill,

competencies, experience, knowledge required to perform it.

Job Analysis process leads to Job Description which spells out work duties & activities of the employee.

Job content has great influence on personnel programs & practices.

3) Staffing

Includes recruitment & selection of the human resources. Human resource Planning precedes the actualselection of people for positions in the organization. The emphasis is on attracting qualified applicants to

fill job vacancies.

4) Selection -


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Most qualified applicants are selected for hiring from among those applications.Here the personnel

function is involved in developing & administering methods that enable the functional manager to

decide which applicants to be rejected & which are to be considered for the given job.

5) Orientation -

It is the first step towards helping a new employee adjust himself to the new job & the employer. It

involves acquainting the new employee with company rules, regulations & expectations, working hours,

grades, rewards, salary & other facilities as well as benefits.

6) Training & Development -

The objective of T & D function is to impart the skills & knowledge to the employee to perform his job

effectively. It includes-

- providing training to new or inexperienced employees,- re training experienced employees whose jobs are undergoing change or are being job rotated,- preparing employees for higher level responsibilities.

T & D is essential to ensure that the employees are capable of doing their jobs / performing their duties

at acceptable levels.

7) Performance Appraisal

Personnel function monitors employee performance to ensure that it is at acceptable level. Personnel

function is responsible for developing & administering performance appraisal system. ( Actual appraisal

is done by concerned function as per the guidelines laid down in P.A. system by Personnel department)

P.A. system is essential for fair rewards & penalties as a motivational & performance improvement

tool.

8) Career Planning -

It deals with assessing individual employees potential for growth & advancement in the organization.

9) Compensation

Provision of a rational method for determining the payment for different types of jobs is one of the

sensitive aspect of personnel function.

Pay structure is a major consideration in planning & maintenance of the human resources.

It is a major cost to many organizations.


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It directly affects staffing function ( inadequate compensation leads to high turnover of people.)

It is the most important incentive at lower & middle levels of the employees for motivating them to

higher levels of job performance & to shoulder greater responsibilities.

10) Benefits

They are another form of compensation to employees other than the direct pay.

They include legally required items as well as those offered at employers discretion.

Since they provide for many basic employee needs, they are primarily related to the maintenance area.

However the cost of (fringe) benefits have risen to such an extent that they become an important

consideration in human resource planning.

11)Labour Relations -

It refers to interactions with employees who are represented by a trade union.

Unions are organizations of employees who join together to obtain more voicein decision affecting

wages, benefits, working conditions, & other aspects of employment.

Here the responsibility of personnel function is primarily involved in negotiation with the union

regarding wages, service conditions, & to resolve disputes & grievances.

12) Employee Record Keeping

This is the oldest & the most basic personnel function.

It involves recording, maintaining & retrieving employee related information for a variety of purposes.

Employee records cover the entire spectrum of the inputs right from job application to retirement

stage.

They include family background, educational qualifications, employment history ( experience) , medical

& health reports, & records of all job related parameters like skills, competencies, training, attendance,

output, leave, rewards , promotions, penalties etc.

13) Personnel Research -

Research in personnel related issues is essential to prevent fires rather than putting them out. The

objective is to get the facts & information about personnel related issues through pre-planning & post

reviewing.

In fact any survey on any of the personnel policies & practices is a good research.


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The most common subjects for attitude survey or employee opinion include wages & salaries,

promotions, welfare services, working conditions, job security, leadership, industrial relations,

recruitment, employee turnover, training, terminations etc.

Human Resource Management

Human resource management is basically an approach to the management of people. Though it is an outgrowth of older & traditional process, it is much more than its parent

discipline viz. Personnel Management & behavioral sciences.

Unlike its parent it is more proactive rather than reactive. It is a scientific process of continuously enabling the employees to improve their competency &

capability to play their present as well as future expected roles so that the goals of the

organization are achieved fully and at the same time the needs of the employees are also met to

an adequate extent.

PM & HRM

The traditional approach of Personnel Management is non strategic, separate from the business,reactive, & of short term.

It is constrained by the limited definition of its role as dealing with mostly unionized & low levelemployees.

PM is curative while HRM is preventive. HRM essentially emphasizes & incorporates those expectations which are not being fulfilled by

the traditional approach.

Markt Finance

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