Question No. 2 - Principles of Marketing BCOE - 141

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BCOE - 141 - Principles of Marketing

Question No. 2

What do you mean by consumer buying behaviour? Explain the factors influencing consumer buying behaviour. 

Consumer behavior is the study of consumers and the processes they use to choose, use (consume), and dispose of products and services, including consumers’ emotional, mental, and behavioral responses. Consumer behavior incorporates ideas from several sciences including psychology, biology, chemistry, and economics. 

Studying consumer behavior is important because it helps marketers understand what influences consumers’ buying decisions. By understanding how consumers decide on a product, they can fill in the gap in the market and identify the products that are needed and the products that are obsolete. Studying consumer behavior also helps marketers decide how to present their products in a way that generates a maximum impact on consumers. Understanding consumer buying behavior is the key secret to reaching and engaging your clients, and converting them to purchase from you.

Consumer behavior is often influenced by different factors. Marketers should study consumer purchase patterns and figure out buyer trends. In most cases, brands influence consumer behavior only with the things they can control; think about how IKEA seems to compel you to spend more than what you intended to every time you walk into the store.

• What affects consumer behavior?

Many things can affect consumer behavior, but the most frequent factors influencing consumer behavior are:

1. Marketing campaigns

Marketing campaigns influence purchasing decisions a lot. If done right and regularly, with the right marketing message, they can even persuade consumers to change brands or opt for more expensive alternatives. Marketing campaigns, such as Facebook ads for eCommerce, can even be used as reminders for products/services that need to be bought regularly but are not necessarily on customers’ top of mind (like an insurance for example). A good marketing message can influence impulse purchases.

2. Economic conditions

For expensive products especially (like houses or cars), economic conditions play a big part. A positive economic environment is known to make consumers more confident and willing to indulge in purchases irrespective of their financial liabilities. The consumer’s decision-making process is longer for expensive purchases and it can be influenced by more personal factors at the same time. 

3. Personal preferences

Consumer behavior can also be influenced by personal factors: likes, dislikes, priorities, morals, and values. In industries like fashion or food, personal opinions are especially powerful. Of course, advertisements can influence behavior but, at the end of the day, consumers’ choices are greatly influenced by their preferences. If you’re vegan, it doesn’t matter how many burger joint ads you see, you’re not gonna start eating meat because of that.

4. Group influence

Peer pressure also influences consumer behavior. What our family members, classmates, immediate relatives, neighbours, and acquaintances think or do can play a significant role in our decisions. Social psychology impacts consumer behaviour. Choosing fast food over home-cooked meals, for example, is just one of such situations. Education levels and social factors can have an impact.

5. Purchasing power

Last but not least, our purchasing power plays a significant role in influencing our behavior. Unless you are a billionaire, you will consider your budget before making a purchase decision.The product might be excellent, the marketing could be on point, but if you don’t have the money for it, you won’t buy it. Segmenting consumers based on their buying capacity will help marketers determine eligible consumers and achieve better results.

Question No. 1 - Principles of Marketing BCOE - 141

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BCOE - 141 - Principles of Marketing

Question No. 1 

What is marketing? Explain the different marketing concepts. 

Marketing refers to activities a company undertakes to promote the buying or selling of a product or service. Marketing includes advertising, selling, and delivering products to consumers or other businesses. Some marketing is done by affiliates on behalf of a company.

Professionals who work in a corporation's marketing and promotion departments seek to get the attention of key potential audiences through advertising. Promotions are targeted to certain audiences and may involve celebrity endorsements, catchy phrases or slogans, memorable packaging or graphic designs and overall media exposure.

Marketing as a discipline involves all the actions a company undertakes to draw in customers and maintain relationships with them. Networking with potential or past clients is part of the work too, and may include writing thank you emails, playing golf with prospective clients, returning calls and emails quickly, and meeting with clients for coffee or a meal.

At its most basic level, marketing seeks to match a company's products and services to customers who want access to those products. Matching products to customers ultimately ensures profitability.

Marketing is the process of “creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large,” according to the American Marketing Association. This process is done in a number of different ways; marketing professionals use one or more of the five concepts of marketing in order to earn consumer confidence and create profitable, long-term relationships with consumers. But not all the concepts are equally effective.

Robert Katai, an experienced marketing strategist, provides the definition of a marketing concept: “A strategy that companies and marketing agencies design and implement in order to satisfy customers’ needs, maximize profits, satisfy customer needs, and beat the competitors or outperform them.” The main five include the production, product, selling, marketing, and societal concepts, and they have been evolving for decades. Not every concept is beneficial to every business, so here is a timely and convenient opportunity to learn more about each one.

• The Production Concept

The production concept is focused on operations and is based on the assumption that customers will be more attracted to products that are readily available and can be purchased for less than competing products of the same kind. This concept came about as a result of the rise of early capitalism in the 1950s, at which time, companies were focused on efficiency in manufacturing to ensure maximum profits and scalability. 

This philosophy can be useful when a company markets in an industry experiencing tremendous growth, but it also carries a risk. Businesses that are overly focused on cheap production can easily lose touch with the needs of the customer and ultimately lose business despite its cheap and accessible goods.

• The Product Concept

The product concept is the opposite of the production concept in that it assumes that availability and price don’t have a role in customer buying habits and that people generally prefer quality, innovation, and performance over low cost. Thus, this marketing strategy focuses on continuous product improvement and innovation. 

Apple Inc. is a prime example of this concept in action. Its target audience always eagerly anticipates the company’s new releases. Even though there are off-brand products that perform many of the same functions for a lower price, many folks will not compromise just to save money. 

Working on this principle alone, however, a marketer could fail to attract those who are also motivated by availability and price. 

• The Selling Concept

Marketing on the selling concept entails a focus on getting the consumer to the actual transaction without regard for the customer’s needs or the product quality — a costly tactic. This concept frequently excludes customer satisfaction efforts and doesn’t usually lead to repeat purchases. 

The selling concept is centered on the belief that you must convince a customer to buy a product through aggressive marketing of the benefits of the product or service because it isn’t a necessity. An example is soda pop. Ever wonder why you continue to see ads for Coca Cola despite the prevalence of the brand? Everyone knows what Coke has to offer, but it’s widely known that soda lacks nutrients and is bad for your health. Coca Cola knows this, and that’s why they spend astonishing amounts of money pushing their product. 

• The Marketing Concept

The marketing concept is based on increasing a company’s ability to compete and achieve maximum profits by marketing the ways in which it offers better value to customers than its competitors. It’s all about knowing the target market, sensing its needs, and meeting them most effectively. Many refer to this as the “customer-first approach.”

Glossier is a recognizable example of this marketing concept. The company understands that many women are unhappy with the way that makeup affects the health of their skin. They also noticed that women are fed up with being told what makeup products to use. With this in mind, Glossier introduced a line of skincare and makeup products that not only nourish the skin but are also easy to use and promote individualism and personal expression with makeup.

• The Societal Concept

The societal marketing concept is an emerging one that emphasizes the welfare of society. It’s based on the idea that marketers have a moral responsibility to market conscientiously to promote what’s good for people over what people may want, regardless of a company’s sales goals. Employees of a company live in the societies they market to, and they should advertise with the best interests of their local community in mind. 

The fast-food industry is an example of what the societal concept aims to address. There’s a high societal demand for fast food, but this food is high in fat and sugar and contributes to excess waste. Even though the industry is answering the desires of the modern consumer, it’s hurting our health and detracting from our society’s goal of environmental sustainability.

BCOE 141 Principles of Marketing Assignments Solutions

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BCOE - 141 - Principles of Marketing

Section A

Question No. 4 - Accounting for Managerial Decisions

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MCO-05 Accounting for Managerial Decisions

Question 4

(a) What do you mean by accounting reports? What are the different types of reports for internal use? 

An accounting report is a financial report that a business files to show its past and present financial situation. With this report, businesses and financial analysts can also predict their financial situation in the future more easily.

An accounting report might include information from every part of the business, or it might only focus on a small goal, such as determining which department uses the most cash flow. Many businesses that closely follow their finances report accounting at least once per month. They might even do it more often, particularly if they are pursuing company-wide goals related to finances.

An accounting report is typically made up of three types of reports:

• Income statement

• Cash flow statement

• Balance sheet

With these reports, a company can see its financial status over time as well as at one specific snapshot in time. All accounting reports should follow Generally Accepted Accounting Principles (GAAP) as established by the Financial Accounting Standards Board (FASB). These ensure accounting reports follow a set of principles, which include, but are not limited to, consistency, sincerity and good faith.

Consistency means a business is following the same accounting practices from month to month and year to year. Sincerity means the person creating the report (the accountant) is being honest. When people are acting in good faith, it means that everybody involved in every transaction is honest.

When all businesses follow the same principles, it's easier to compare one business to another. This ensures companies do not misrepresent their information so that investors and others outside the company are not misled regarding the company's financial standing.

Types of accounting reports

Accounting reports come in different forms depending on what information a company needs to know. Below are three common types of accounting reports:

Income statement

An income statement is a report that details overall expenses and revenue to determine a company's overall net profit. Sometimes an income statement is called a profit-and-loss report.

To prepare an income statement, accountants use data from ledgers and accounting journals. The statement includes both primary and secondary sources of income to get an accurate number. Similarly, primary and secondary expenses are included in the income statement.

Cash flow statement

A cash flow statement shows where cash is coming from (cash flow sources) and where cash is going (cash flow expenditures). This helps a business see how well they are generating cash. Executives and decision-makers can use this report to see where cash is coming from and then where it is going, which could include:

Business operations

Financing

Investments

A cash flow statement measures the cash flow between two dates. To prepare a cash flow statement, an accountant looks at the cash flow in every account, which may include equity accounts, liability accounts, expense accounts, revenue accounts and asset accounts.

Balance sheet

A balance sheet shows an ending balance at one specific point in time. It often includes balances for assets, liability and equity. The balance sheet gives the business an opportunity to evaluate its financial reserves as well as liquid assets. It also helps potential investors or lenders see the financial state of the company.

Typically, a business sets an accounting cycle, and someone prepares a balance sheet at the end of each cycle. Like an income statement, data for a balance sheet comes from the ledger.

Question No. 2 -Accounting for Managerial Decisions

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MCO-05 Accounting for Managerial Decisions

Question 2

(a) What do you understand by zero base budgeting? How is it different from traditional budgeting?

Zero-based budgeting (ZBB) is a budgeting approach that involves developing a new budget from scratch every time (i.e., starting from “zero”), versus starting with the previous period’s budget and adjusting it as needed. In theory, this forces decision makers to constantly look at the business with fresh eyes, free from the limitations of past assumptions and targets.

Implemented effectively, ZBB is a cost discipline enabling businesses to improve resource planning, employee engagement, and organizational collaboration. Although ZBB is often credited with measures to reduce costs, its approach doesn’t exclusively focus on savings and can help test assumptions, solve problems, and ensure spending is aligned to the growth objectives of the organization. If performance does not meet expectations, ZBB can empower businesses to identify how to best course-correct for the months ahead.

Done right, ZBB can translate into cost savings that fund future strategic initiatives and drive growth.

• Examples on Zero based Budgeting

The good news for zero-based budgeting users is they appear to be moderately more successful at meeting their cost targets. Sixty-three percent of respondents, globally, who did not conduct ZBB did not meet their cost targets, while the same is true for 58 percent of those that did use ZBB. Although ZBB users in the US reported higher cost program failure rates than non-ZBB users (65 percent vs. 57 percent), in all other regions the failure rate for ZBB users was lower than for non-ZBB users (57 percent failure rate vs. 68 percent in Latin America; 52 percent vs. 56 percent in Europe; and 60 percent vs. 71 percent in the Asia Pacific).

However, companies using ZBB tend to report higher barriers to effective cost management, which suggests ZBB may be more difficult to implement and use than other cost management methods. Two barriers that ZBB users rate particularly high are “weak/unclear business case” (42 percent vs. 25 percent for non-ZBB users) and “poorly designed tracking and reporting” (43 percent vs. 23 percent for non-ZBB users)

In the US, high-cost targets and high failure rates suggest companies might be misapplying zero-based budgeting, using a tactical approach to pursue aggressive targets that likely require strategic cost actions. In Brazil, where ZBB first rose to prominence, declining usage seems to be driven by implementation challenges.

Use of ZBB is expected to remain flat in the Asia Pacific, except in China, where it is expected to rise—perhaps due to lower implementation barriers and lower failure rates.

In Europe, use of zero-based budgeting is relatively low but expected to hold steady. Cost targets in the region are much less aggressive than elsewhere; also, structured approaches to cost management are much less common. In this environment, ZBB—as a structured approach—may be appealing to some companies simply because it is better than nothing.

• How zero-based budgeting is different from traditional budgeting

The ZBB methodology operates in stark contrast to traditional annual budgeting approaches. Traditional annual budgets are often produced by taking the previous year’s actuals and adding a few percentage points to account for wage rises and inflation. This simplified and incremental budgeting can lead to inefficiencies and missed opportunities for greater cost savings.

ZBB requires organizations to build their annual budget from zero each year (thus its name) to help verify all components of the annual budget are cost-effective, relevant, and drive improved savings.

Here is a brief outline of the principles of both traditional cost-cutting and a zero-based approach.

MCO-05 Accounting for Managerial Decisions

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MCO-05 Accounting for Managerial Decisions

Question No. 1 - MCO-05

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MCO-05 Accounting for Managerial Decisions

Question 1

(a) Distinguish among variable, fixed and semi-variable costs. Why is this distinction important?

• Fixed Cost

A cost that doesn’t change in a short term, irrespective of how the volume of production or the sales may change is the fixed cost. This cost is usually a constant cost for a basic operation of businesses or in other words it is a basic operating cost of a business which is crucial and can’t be avoided. The value of fixed cost determines the cost of the product and thus the profit and loss incurred by the business.

We can understand the fixed cost with the help of many examples. For example, if you are living in a rented place, you must have negotiated the cost of the place or the rent for a term that is on the rental agreement. This cost will not change as long as the rental agreement is valid. The rent is the fixed cost here. Similarly, another example is the property tax. Fixed costs are usually incurred at regular intervals (for example monthly rent) so sometimes we call them the period costs.

• Variable Cost

These are the costs that vary as the total cost to the organization when the output (number of items or services produced by the unit/business) varies. In other words, we say that a variable cost varies in exactly the same proportion as the output varies.

Therefore, as sales increase the variable costs will increase. For example, a variable cost for a bakery would be the cost of the flour. Similarly, in other businesses, the variable cost will be determined by the raw materials and the output of the business. For example, with massage therapy, oil may be used and there may be the cost of laundering one or two towels. This will constitute the variable cost.

Thus we see that the variable costs are those costs which vary directly in proportion to change in the volume of production/output. Hence we can say that the cost which changes in the same proportion as the units produced, is the variable cost. Some of the examples of variable cost are direct expenses, direct labour, direct material etc.

• Semi-Variable Cost

This cost is a cost which has elements of both fixed cost as well as the variable cost. So a cost that contains the components of both the fixed as well as the variable cost is said to be a semi-variable cost. In other words, we say that a cost that remains fixed up to a certain level of production and changes with the change in the volume of production beyond this level is a semi-variable cost. We can see the fixed part as a base level cost that is always incurred while as the variable portion of the cost is an additional cost which changes as we change the volume of production.

• Formula For Semi-Variable Costs

We can understand the concept of semi-variable cost with the help of some of the following examples. For example, a popular cellular network provides you with a certain service for a fixed nominal charge. Say, for example, you get 1 GB data per day if you subscribe to a monthly plan of ‘x’ rupees. So this ‘x’ rupees is a fixed cost which will not change unless you start to use more data than 1 GB. In case your data usage exceeds 1 GB, the same company will charge you extra money. This charge will be proportional to the amount of extra data that you use. Let this extra charge be ‘y’ rupees per unit of extra data used. Then the cost of the final bill will be:

Cost (C) = x + Ny; 

where ‘N’ is the number of units that you consumed apart from the 1 GB that cost you x rupees.

The semi-variable costs can thus be separated into two terms. The fixed cost portion and the variable portion. We write:

Semi-variable cost = Fixed cost + variable cost

Variable cost per unit = change in cost/change in output

As a result, the semi-variable cost is also called the mixed cost and a semi-fixed cost.

• Why Variable Costs Are Important

The important point about variable costs is that they do not rise and fall based upon the company’s activities. In fact, they can rapidly increase, decrease or eliminate your profit margin and lead your company into a sudden profit or a steep loss. In addition, variable costs are important to consider when establishing prices. In short, knowing and managing variable costs is essential as you respond to changes in the marketplace and in your company’s growth patterns.

• How to Use Costs to Your Company’s Advantage

A solid understanding of your company’s fixed and variable costs is what allows us to identify the profitable price level for its products or services. You can use this knowledge to identify your break-even point, which is the number of units or dollars at which total revenues equal total costs.

You can also use this information to identify economies of scale, which is rooted in the fact that as output increases, fixed costs are spread over a larger number of output items (products or services).

Break-even analysis is an important assessment method that all business owners should perform.

There is a lot more we could discuss when it comes to fixed and variable costs. To dig in deeper, we encourage you to review the resources shared below, and stay tuned for future articles on our blog with examples and other details relating to costs.

(b) How cash flow statement is different from income statement? What are the additional benefits to different users of accounting information from cash flow statement?

• Difference of Definition of Income Statement and cash flow statement 

The income statement is one of the major parts of the financial statement. It is used to represent the revenues, gains, expenses and losses from operating and non-operating activities of the company. When the total revenues (including gains) exceed the total expenses, then the result would be the net income while if the total expenses (including losses) exceed total revenues, then the result would be the net loss.

Here operating activities state the activities which are related to the day-to-day business of the company like manufacturing, purchasing, selling and distribution of goods and services. Non- operating activities means the activities which are related to purchase or sale of investments, assets, payment of dividend; taxes; interest and foreign exchange gains or losses.

The cash flow statement is also an important part of the financial statement of a company. It is used to represent the cash inflows and outflows during the year from operating, investing and financing activities. The statement reflects the position of cash and cash equivalents at the beginning and end of the accounting year. It shows the movement of cash during the period.

Here operating activities include the basic activities of the company like manufacturing, purchasing, selling and distribution of goods and services. Investing activities include the purchase and sale of investments and assets. Financing activities include the issue and redemption of shares or debentures and other financing activities related to the dividend, interest, etc.

• Other key differences 

The major difference between an income statement and cash flow statement is cash, i.e. the income statement is based on an accrual basis (due or received) while the cash flow statement is based on the actual receipt and payment of cash.

The income statement is classified into two main activities operating and non-operating, whereas the cash flow statement is divided into three activities operating, investing and financing.

The income statement is helpful in knowing the profitability of the company, but the cash flow statement is useful in knowing the liquidity and solvency of business which determines the present and future cash flows.

Incomes statement is based on accrual system of accounting, wherein incomes and expenses of a financial year are considered. On the other hand, cash flow statement is based on cash system of account, which only considers actual money inflows and outflows in a particular financial year.

The income statement by to taking into account various records and ledger accounts. As against this, cash flow statement is prepared considering the income statement and balance sheet.

Depreciation is considered in the income statement, but the same is excluded from cash flow statement because it is a non-cash item.

• Conclusion

The preparation of the income statement and the cash flow statement is mandatory for all business organisations. The two statements are used by the readers (stakeholders, i.e. creditors, investors, suppliers, competitors, employees, etc.) of financial statement to know about the company’s performance, stability and solvency position. These statements are also used for the purpose of internal and tax audit.