Business Studies

Business plays a vital role in lives, not only by providing various goods and services but also by offering many opportunities to earn livelihood.

Some restaurants, card and gift shops, ready-made garments shops carry the same brand name or trademark and have almost the same decoration. They sell the same products, yet they are not chain stores or multiple shops. This is because they are not controlled and managed by a single owner.

This form of retailing makes use of the mail system (postal and courier) to communicate with and deliver the goods to the customers. The mail order retailers place the advertisements in newspapers, magazines, etc. or publicise about their products in booklets, catalogues, brochures and handouts. These advertisements, leaflets, brochures, etc. contain an order form or other details on how to order the product apart from a detailed description of the product being sold.

Consumer Cooperative Store is another form of large scale retail trade which is owned by the cooperative society. When the consumers of a particular area or group find it difficult to get the items of daily necessity they usually form a cooperative society and run the retailing business.

Super Market is another kind of large-scale retail organisation from where we can buy most of our household requirements for a week or a month in one visit. Super Market is a large scale retail store that sells a wide variety of products like food items, vegetables, fruits, groceries, utensils, clothes, electronic appliances, household goods, etc. all under one roof.

In a departmental store, the whole business is carried on in one building and the customers are drawn to it. In multiple shops, big manufacturers approach customers by setting up shops near the customers.

Departmental Store is a large-scale retail shop where a large variety of goods are sold in a single building. The entire building is divided into a number of departments or sections. In each department specific type of goods like stationery items, books, electronic goods, garments, jewellery, etc. are made available. All these departments are centrally controlled under one management.

Small Scale

In every locality, you find fixed shop retailers dealing with goods and services on a small scale. They deal with limited variety and limited quantity of goods and cater to the needs of a local area. They require less capital and provide goods to a limited number of customers. The grocery shops of your locality come under the category of small-scale fixed shop retailing.

You can classify the retailing business on the basis of size as small scale, medium scale and large scales. On the basis of forms of ownership, it may be sole proprietorship, partnership, cooperative society or joint stock company. But the most common way of classifying retailing business is whether they have any fixed place of business or not.

Wholesale trade

  1. Number of items: Deals in a few items.

  2. Quantity of goods bought and sold: Large

  3. Source of purchase: Manufacturers

  4. Main activity: Sells goods for resale.

  5. Amount of capital required: Large

  6. Nature of relationship with producers or consumers: Direct link with the producers and indirect link with the consumers.

  7. Location: Located in the same area along with other wholesalers dealing in similar product.

  8. Display: Does not require elaborate display of goods.

Both wholesalers and retailers act as a link between producers and consumers in the chain of distribution of products. They are called middlemen as they come in the middle, i.e., between the producers and the consumers in the chain of distribution.

Retail trade refers to buying goods from the manufacturers or wholesalers and selling the same to the ultimate consumers. The retail trader generally deals in a variety of goods. Those who are engaged in retail trade are called retailers. Retailers sell goods in small quantities as per the requirement of consumers.

Wholesale trade refers to buying of goods in large quantity from producers or manufacturer for sale to other traders or buyers in small quantities. Those who are engaged in wholesale trade are called wholesalers. They act as a link between the manufacturers or producers and the small traders. Generally, they specialise and deal in one or a few products.

The goods produced in a country may be sold within the country or outside the country. When buying and selling of goods and services takes place within the geographical boundaries of a country, it is referred to as internal trade. It may take place between buyers and sellers in the same locality, village, town or city; or may be in different states, but definitely within the same country. Internal trade is also called domestic trade or home trade.

Sometimes we get a small pack of tea, shampoo, soap or floor cleaner free from the manufacturer or producers. Have you ever thought why do companies distribute their products free like this? Because, their main intention is to attract the consumers’ attention towards the product and then make them feel tempted to buy the product. This is a tool of sales promotion.

Advertising

  1. Objectives: Objectives of advertising is to to create a favourable consideration for the product.

  2. Effect: It has a long term effect.

  3. Nature: Advertising is recurring in nature.

In the market, sometimes we see the special offer like "Buy one get one free offer"; on a particular brand of tea there was 50 gm extra in a 250 gm pack or one glass or bowl free with 500 gm. pack. There are innumerable examples where the manufacturer or the seller tries to tempt you to buy his product by offering discounts, extra quantity or a chance to win grand prizes, etc. All such activities are known as sales promotion.

In the market, you find a number of shops selling the same product but you prefer to go to a particular shop only. Why? This happens primarily because of the way the staff of the shop attend to you. The salesperson at the counter welcomes you with a smile, shows keen interest in your purchase and explains about the different varieties of the product in such a way that it become easier for you to take a decision.

Once your friend had gone to a readymade garment shop to buy a pant for his younger brother. The salesperson showed him the latest collection of garments. By the time the process of sale concluded, he had also purchased one for him. The reason for such unplanned purchase was the effect of salesmanship. The salesperson at the counter first assessed his interest in the new fabric available and then persuaded him to buy it.

Advertising media are the means through which messages regarding products and services are transmitted from the advertising firm to people at whom that product is targeted. Many types of media are available for the purpose.

In today’s competitive world there are innumerable products competing with each other. Hence, it is necessary that information regarding features, prices and availability of the product is frequently communicated to the consumers so as to ensure a reasonable market share for the manufacturer. Not only that, it also helps the consumers to make a right choice.

Publicity is like advertising. But it is the news carried in the mass media about a product or about an organisation. But money is not paid for it publicity. Publicity can be positive or negative. Publicity is a powerful tool of communication as it can make or break a product or company.

While watching a movie in the cinema hall or a television at home you must have noticed that suddenly there is a break and a model appears on the screen displaying a product, indicating its special features, prices, etc. This is followed by similar appearances relating to other products before the movie is resumed. These displays are known as advertisements which are used by different firms to inform a targeted group of customers about their product, its quality, availability, price etc.

Promotion refers to the process of informing and persuading the consumers to buy certain product. By using this process, the marketeers convey persuasive message and information to its potential customers.

Choice of an appropriate distribution channel is very important as the pricing as well as promotion strategy are dependent upon the distribution channel selected. Not only that, the route which the product follows in its journey from the manufacturer to the consumer also involves certain costs. This in turn, affects not only the price of the product but also the profits.

While a manufacturer of a product is located at one place, its consumers are located at innumerable places spread all over the country or the world. The manufacturer has to ensure the availability of his goods to the consumers at convenient points for their purchase. He may do so directly or through a chain of middlemen like distributors, wholesalers and retailers.

1. Cost Based Pricing

Under this method, price of the product is fixed by adding the amount of desired profit margin to the cost of the product. If a particular soap costs the marketeer Rs. 8 and he desires a profit of 25%, the price of the soap is fixed at Rs 8 + (8 x 25 / 100) = Rs. 10. While calculating the price in this way, all costs (variable as well as fixed) incurred in manufacturing the product are taken into consideration.

Price is the consideration in terms of money paid by consumers for the bundle of benefits he or she derives by using the product or service. In simple terms, it is the exchange value of goods and services in terms of money. Pricing (determination of price to be charged) is another important element of marketing mix and it plays a crucial role in the success of a product in the market.

In order to optimise the product requirements by the consumers, importance should be given to the following elements or components of product mix:

Product refers to the goods and services offered by the organisation for sale. Here, the marketers have to recognise that consumers are not simply interested in the physical features of a product but a set of tangible and intangible attributes that satisfy their wants.

Marketing involves a number of activities. To begin with, an organisation may decide on its target group of customers to be served. Once the target group is decided, the product is to be placed in the market by providing the appropriate product, price, distribution and promotional efforts. These are to be combined or mixed in an appropriate proportion so as to achieve the marketing goal.

Marketing is the performance of those business activities that direct the flow of goods and services from producers to consumers or users.

Importance of Marketing

Marketing is important to the business, consumer as well as the society.

Market

Normally people understand the term market as a place where goods are bought and sold. But, in the context of Marketing, it refers to a group of buyers for a particular product or service. For example, the market for Accountancy textbooks consists of students in Commerce and specialised Accountancy Programmes. Similarly, the market for ladies ready-made garments consists of girls and women, and so on.

The terms marketing and selling are related but not synonymous. Marketing emphasises on earning profits through customer satisfaction. In marketing, the focus is on the consumer’s needs and their satisfaction. Selling, on the other hand, focuses on product and emphasises on selling what has been produced. It is a small part of the wide process of marketing wherein emphasis is initially on promotion of goods and services and eventually on increase in sales volume.

The businessman produces goods and services for consumer's use. These are not necessarily produced at the places where they are consumed or used. Even in villages, now-a-days you find the products manufactured all over India and in other countries are used. This implies that the manufacturers must be making efforts to ensure that their products are in demand and reach the ultimate consumers all over the globe.

The Depositories Act 1996 introduced the depository service system in India. Under the depository system, physical securities are converted into electronic form through the process of dematerialisation.

National Stock Exchange of India was recognised in 1992 and started working in 1994. Ringless trading takes place in NSEI i.e., the trading of securities takes place through network of computers. NSEI provide a nationwide transparent market for different types of securities.

As part of economic reforms programme started in June 1991, the Government of India initiated several capital market reforms, which included the abolition of the office of the Controller of Capital Issues (CCI) and granting statutory recognition to Securities Exchange Board of India (SEBI) in 1992 for:

The first organised stock exchange in India was started in Mumbai known as Bombay Stock Exchange (BSE). It was followed by Ahmedabad Stock Exchange in 1894 and Kolkata Stock Exchange in 1908. The number of stock exchanges in India went up to 7 by 1939 and it increased to 21 by 1945 on account of heavy speculation activity during Second World War.

The buyers and sellers at the stock exchange undertake two types of operations, one for speculation and the other for investment. Those who buy securities primarily to earn a regular income from such investment and possibly make some long-term gain on account of price rise in future are called investors. They take delivery of the securities
and make full payment of the price. Such transactions are called investment transactions.

Advantages of stock exchanges can be outlined from the point of view of:

  1. Companies
  2. Investors
  3. Society as a whole

Stock exchange is the term commonly used for a secondary market, which provide a place where different types of existing securities such as shares, debentures and bonds, government securities can be bought and sold on a regular basis. A stock exchange is generally organised as an association, a society or a company with a limited number of members. It is open only to these members who act as brokers for the buyers and sellers.

Money always flows from surplus sector to deficit sector. That means persons having excess of money lend it to those who need money to fulfil their requirement. Similarly, in business sectors the surplus money flows from the investors or lenders to the businessmen for the purpose of production or sale of goods and services.

Capital Market may be defined as a market dealing in medium and long-term funds. It is an institutional arrangement for borrowing medium and long-term funds and provides facilities for marketing and trading of securities. So it constitutes all long-term borrowings from banks and financial institutions, borrowings from foreign markets and raising of capital by issue various securities such as shares debentures, bonds, etc.

The money market is a market for short-term funds, which deals in financial assets whose period of maturity is up to one year.

Money market does not deal in cash or money as such but simply provides a market for credit instruments such as bills of exchange, promissory notes, commercial paper, treasury bills, etc. These financial instruments are close substitute of money. These instruments help the business units, other organisations and the Government to borrow the funds to meet their short-term requirement.

The capital requirement of any business unit can be broadly divided into two categories:

  1. Fixed capital requirement
  2. Working capital requirement

In order to ascertain the amounts of such requirements for any business, one must understand the exact nature of fixed and working capitals and also the various factors that influence their requirement.

In every business unit the amount of profit earned (or loss incurred) during a financial year is ascertained and distributed among its owners. In case of a proprietary concern, the whole amount of profit or loss so ascertained is added to proprietor’s capital and whatever amount is withdrawn by him is termed as drawings and is deducted from his capital.

The financial requirement of a firm can be met through ownership capital or borrowed capital. The ownership capital refers to the amount of capital contributed by the owners. In case of a company, it refers to the amount of funds raised by issuing shares. The main characteristic of the ownership capital is that its contributors are entitled to get dividend out of earnings after the payment of interest and taxes. Hence, the rate of return on such capital depends upon the level of profits earned, and, if there are no profits, no dividend may be paid.

Planning is a systematic way of deciding about and doing things in a purposeful manner. When this approach is applied exclusively for financial matter, it is termed as financial planning. In connection with any business enterprise, it refers to the process of estimating a firm’s financial requirements and determining pattern of financing.

The main objective of financial management is to maximize the wealth of shareholders. The other important objectives of financial management are:

  1. To provide maximum returns to the owners on their investment.
  2. To ensure continuous availability of sufficient funds at reasonable cost.
  3. To ensure effective utilisation of funds.
  4. To ensure safety of funds.