Branding and Promotion in Business

 

Branding and Promotion allows a business to present itself in an identifiable way to the consumer that allows them to leave a slight lasting impression of their existence that should aide repeat purchase or identification of their qualities.

Types of Business Promotion

  • Advertising – The most common way of increasing brand coverage is through advertising, because of the potential reach and scale of platforms advertising is available on it is very easy to meet the metric a business desires, this also has become more easy to segment further by having online advertising to deliver ads on a uniquely measurable and quantifiable scale, whereas before the amount of impressions and effectiveness of the adverts was not individually classifiable in the real world, using online advertising changes the game as advertisers are able to segment the market down to the age, location and interest.
  • Promotions – Offering promotions allow a business to make itself more noticeable to the consumer as they will see the promotion as a deal, and then associate the product and brand. Promotion may also increase brand awareness by sponsoring a stadium or event, that allows them to receive some of the publicity that the stadium has with it.
  • Direct Marketing – Marketing to the customer directly through more orthodox methods, such as telemarketing or shopping channels, typically requires a lot of sales cost and sometimes isn’t always effective expenditure, whereas advertising or promotion is more effective at reaching consumers as they are able to form their own opinions, rather than have one forced upon them.

Benefits of Strong Branding

Having a strong brand enables a business to sell to their consumers consistently as consumers will actively recognize and seek out their brand. A strong brand is identifiable, recognizable, aspirational and flexible.

Having a strong brand should enable a business to sell its added value effectively to customers, provide the brand with the ability to charge for the brand at a premium rate and have a reduced price elasticity of demand; enabling them to sell to customers even though there are competitors.

Branding and Promotion Word Cloud

Building a Strong Brand

Building a strong brand can be hard to get right.

  • Having a Unique Selling Point allows the customer to differentiate their brand from the others, having something other than a generic product allows the business to market on that principal and build their brand on its effectiveness to the consumer.
  • Using Advertising should increase coverage of their brand and make it recognizable to potential customers.
  • Sponsorship enables businesses to build a positive relationship with their customers, sponsoring a racing event, for example, presents a positive relationship for customers who watch the race, and need one of the sponsor’s products.
  • Social Media and Online presence allow a business to be seen from the internet.
    • Viral Marketing and Guerrilla Marketing allow a business to sell its products, often without the need for expensive advertising budgets. However, this tactic can often be hit and miss.
    • Emotional Marketing can be used to target the emotions of a customer, by playing on the nostalgic or romantic side of individuals for example.
  • Seasonal Marketing can be used to reach customers during festivities and events.

 

How Customers Associate Quality with a Brand

brand qualityWithin any business there are multiple factors that a customer can imprint on to recognise a brand and associate with quality. Businesses can use the customers intuition to their advantage, targeting on the key aspects of a quality product in order to maximise return. Here is a list of the common points a business can tailor in order to maximise their revenue;

 

trusty tea co allows product association quality brand reputation

  • Profitability, Businesses must decide how much profit each product or service should undertake, whether it be a large return or a small one. Customers may be willing to buy a product purely on its premium price point.
  • Customer Service, Businesses may wish to place the quality of their product on par with the quality of its customer service. Poor customer service could reflect badly on a quality product and vice versa.
  • Competitiveness, Businesses may wish to use pricing in order to undercut the cost of its competitors. Businesses may also want to take on new locations and footfall in order to maximise profitability.
  • Supply Chain, Business may cut costs and use cheaper suppliers, however unethical or environmental considerations could be overlooked and come back to haunt businesses later.
  • Reliability, A product that is unreliable or prone to failure may mean that customers look elsewhere for new products, defined obsolescence could damage the perceived quality of the product as well, If it were to fail after a certain time because of a weak part, customers may feel frustrated having to buy new ones.
  • Brand Image, For some customers a brand could be vital to what product they purchase, If a brand is damaged, it could affect the sales of businesses massively. Some businesses may also struggle to maintain a positive reputation if the business specialises in cheap services, such as transport or hotels and may not be too affected by bad publicity as the cheap price point means the demand for the product does not change (it is inelastic).
  • Quality Control could also mean that products are of a constant high quality and should in tern allow a business to work effectively on producing high quality products for the consumer, who will hopefully repeat purchase. Kaizen and Total Quality Management can allow a business to excel at creating a quality product that is lean and high quality as it forces the product to be a standard that the business expects and what the customer wants.
  • Brand Awareness, A customer who does not know a product exist may not buy it, additionally any customer who recognises a product may choose to buy it over a generic product because of it. Advertising and promotion can artificially create the connection between the customer and the brand of trust and safety in a product, that this is the product they should buy.

Capacity Utilisation

Capacity utilisation within a business can be easy or hard to calculate, for a printing shop, it is easy to calculate how many sheets they can produce per hour for example and in a metal fabricators, it is easy to calculate how many sheets of metal they can produce per hour, however for a company that has varied demand, it can be very hard to predict how much the business should utilise its capacity, a clearly noticeable example would be an understaffed restaurant, although they have staff working the shift, it is clear that they did not account for the demand that the customers require.

Capacity Utilisation = Actual level of output / Maximum possible output x 100

Productivity = Total output / Number of workers

Capacity utilisation should never be at 100%, as this could mean that if something were to fail, the business may not be able to fulfil the orders, Companies may choose to ask multiple ‘what if?’ questions that may indicate if the business may want to reconsider its utilisation levels.

  • What if the employment rate fell?
  • What if workers were too highly skilled?
  • What if forecasts are not conservative?
  • What if costs increased?
  • What if minimum wage increased further?

The Impact on EU Trade Imports and Exports vs Capacity Utilisation

For UK Businesses, there is a handy acronym when working with exchange rates, SPICED. ‘ strong pound imports cheap, exports dear ‘. This applies to any companies in the UK who may wish to export or import goods from elsewhere.

If the UK were to leave the EU, the cost of imports/exports could be greater/lesser depending on the trade deals we could secure with countries.

  • Specialised workers would find it harder to move freely into the UK.
  • Tariffs are not imposed in the EU, tariffs could cost businesses money, however it could be argued that they increase competition.
  • The Common Market could potentially be lost.
  • The work ethic of some foreign national employees could change.

These factors could all affect the overall capacity utilisation of UK companies.

 

Sources of Finance

What are Sources of Finance

dollar symbol sources of finance

There are three different sources of finance, Short Term, Long Term and Medium Term. The most popular way of attaining funds for a business is through equity (money flowing into the business) with over 39% of businesses using this method, examples of this would be retained profit or capital from shares.

Short Term (30 days or less) Medium Term (less than 6 months) Long Term (6 months+)
Sale of assets, selling business assets, such as product stock or vehicles. Overdrafts Lease-Back, Selling company property, then leasing it back. similar to rent to own, however the business owned it previously, but sold it to use the cash. This is usually very extreme and would only happen when a company is becoming insolvent. Sometimes can be longer than 30 days. Sponsorship, sometimes sporting companies can sponsor businesses. Trade Credit, retrieving goods and delaying payment for up to 30 days, usually this is enough time to sell the finished product, so prevents bad cash flow. Debt Factoring, Selling debt to companies, for less than its worth, allowing them to chase up debtors. Can be instant Could be cheaper than perusing the debt. Could generate a bad reputation if they are harsh. Short Term Sources of finance usually are less than they are worth, and usually allow a business to continue trading and prevent insolvency. Family Loans, does usually not require payback for a long time. Returns can also be small. Donations Crowd Sourcing Government Grants Leasing Collateral. A Bank Loan Stocks and Shares Personal Finance Venture Capitalists Business Angels Generally they come to a business, rather than the other way around. Generally they do not inter-fear with the business. They may not want payback. Floatation requires $50,000 Mortgage Debentures/Bonds Very Long term Usually a significant amount of money Fixed rate of interest Reduces Collateral Interest is payable Companies may have invested interest Retained Profit You have to have money to make money. May cause insolvency Needs time to re-build prevents investment in other areas

Sources of Finance in IT

Some Sources of finance can be de-facto, because it is easier. examples would be the IT industry, it is easier to lease IT equipment because it can allow for no capital outlay, meaning that they do not have to pay in full to have the equipment, but can pay in instalments.

Peer-to-Peer Funding is also becoming increasingly popular, whereby companies borrow money from large businesses and cut out banks to save cost on interest.

Business Failure

meh-face-emoticon business failure common causesBusinesses just starting out have a generally low rate of success, 50% of businesses fail within the first two years. Some of the common causes of business failure are avoidable, however there are some examples that businesses may not predict.

Could Leadership Cause Business Failure?

Leadership in a business is vital to its survival, but failure to identify where they need to straighten up and fly right again could mean that a business is left behind, unable to correct it’s course.

  • Loss of Control, Just short of divorce of ownership, an owner unable to make effective and authoritative decisions could mean that a business could start to lack innovation or a competitiveness that every business needs to get an advantage over competition. At the same time, an owner making too little decisions could also mean a business effectively has no leader, which in small business could be the difference between growth and decline.
  • Overtrading could see a business go into liquidation, it is important that a business can fulfil its promise and deliver too customers and HMRC, if a business does not identify when it needs to have some liquid assets or a financial cushion, it could loose out on future repeat purchases. Bad leadership could be the root cause of overtrading, however poor management and/or communication could also make overtrading the determinate factor. Machinery breaking may also mean that overtrading orders that they can no longer fulfil could cause massive cash flow problems for a business
  • Ineffective Expenditure could mean that a business could go quick. Inability to manage finance and good investments could see even the largest business fail. Even if a business does not invest in merit-less research and development, a lack of innovation or diversification in their products could also see them fail as a result. 
    • Poor cash flow could lead to insolvency.
    • No profit made
    • Margins are too high, not enough return.
    • No Inflows, Product is not developed effectively.
    • Pressure groups prevent business from making enough money or attract too much of a negative stigma.
    • Interest rates mean business cannot afford premises.
    • Business unable to move product as price is too high because ingredients are too expensive.

Business can also fail if they do not have enough profit,companies that can’t expand due to financial and logistical restraint, greed and overheads being too high could mean that a business is unable to continue trading.

Key Terms

  • Business Administration – A management firm (usually accountants) come into a business in order to improve spending and save a business from collapse.
  • Liquidation – Selling assets to cover costs. Usually as a last resort to pay debtors.

Common Business Failure

 

Financial
  • Minimum wage has increased (living wage)
  • Economy is bad (or not favourable)
  • Inadiquate Finance
  • Majour Bad Debt
  • Inadiquate shareholder capital
  • Employees are not getting paid, so stop working
  • Greed or Theft
  • Dominant sales from a now dead source
Non-Financial
  • Legal and Social Change
  • Consumer Protection Laws
  • Poor Management
  • No Interest in Business
  • Poor Idea
  • Poor Execution
  • Poor Tourism/Footfall

Trade-offs and Opportunity Cost

What is Trade-offs and Opportunity Cost?

Trade-offs are choosing one thing over another, if you choose to invest in paint over pencils, your opportunity cost, is that you can no longer colour with pencils. This is a poor example, so lets look at some real data so we can get a good understanding of what opportunity cost is really about, and for that we need an example.

Nails and Hammers LTD.

A company, called Nails and Hammers LTD, produces hammers and nails, they have a good reputation, but are not really known, they also manufacture their hammers cheaply and therefore some of them are not exactly to the highest quality. in their first year, they only sell 100 units, this is barely enough sales to keep the business going, so they decide to invest in one of two strategies. Investing in Machinery, in order to produce better quality hammers, or Invest in Advertising, to get the word out about their Hammers and Nails. They decide that they will spend $300 dollars in the second year and see how it goes. They do their market research and come up with these two graphs.

 

tradeoffs and opportunity cost of both types proving advertising is optimal

 

It can be seen from these graphs, that investment in advertisements will produce more sales than investment in machinery, therefore investment in Advertising is the way forward for Nails and Hammers LTD. This is called a trade-off, without the graph, it wouldn’t be known which is better for sales until the second year had ended. The same investment of $300 produced more sales. Lets, look at more data.

Opportunity Cost

Opportunity cost is essentially what you could have won if you had invested in something else, if you can only learn piano or tennis, and you choose piano, the opportunity cost is that you could have learnt tennis.

Trade offs and Opportunity cost orange showing 200 after 3rd year

Let’s take our previous example, and pretend that we invested in the lesser option, Machinery, we can see that we didn’t make as much as we would have if we had invested in Advertising. The opportunity cost in the third year would have been 200, because the investment in advertising, produced 700 sales, minus our 500 sales.

 

Advantages and Disadvantages of a Public Limited Company

What is a Public Limited Company?

A Public Limited Company is a business that has decided to offer it’s shares on the public stock market. The Stock Market is where anyone can invest in a Public Limited Company. These are usually high value, large businesses that can have massive profits, and offer dividends to those who invest.

In order to become a Public Limited Company, PLC, you need;

  • At least two directors.
  • A Secretary
  • And you must float at least $50,000 shares on the stock exchange, to become a PLC.

Unlike other businesses, a PLC is often owned by a board of directors, that dictate the decisions of a business. PLC’s must also pay Dividend, which is money that the investors receive from the business, determined by their share value. As PLC’s have external influences, they also fluctuate in value and therefore can loose money. Some businesses owners also find that they can loose control. Being a PLC can bring in more capital and make the business more known publically on the sock exchange.chart market up of public limited company

For contrast, to become a Sole Trader. All you have to do is contact HMRC (Her Majesty’s Revenue and Customs) and every year fill in a self assessment. An LTD must send a Memorandum of Association and Articles of Association. For this reason it becomes a lot harder to do so and often people will employ a Secretary. To be a PLC can take lots of time and can sometimes not be possible for companies with a very bad image. Companies also may struggle if they are unreliable or have seasonal traits, such as a manufacturer of Christmas gifts.

Advantages of a Public Limited Company

  • Having Shares will fund expansion, allowing the business to grow.
  • This also raises company profile.
  • The business can raise a lot of capital because there is no limit for shareholders to invest.
  • Shares are transferable, so investors can split profits.
  • You can get input from investors.
  • Investors may try to grow the business, through things like discounted advertising, if they own part of another business.

Disadvantages of being a Public Limited Company

  • There could be a possible loss of control, as people may find that shareholders own over 50% of the shares, entitling them to the ownership of the business. This is also known as a divorce of control.
  • Shareholders may have other plans to maximise profits over social and ethical goals.
  • Share prices could collapse.
  • There are a lot of legal formalities.
  • Fluctuations in share price could make a company worthless overnight.
  • PLC’s are hard to maintain. As they are usually large, often everyone has their own ideas.
  • Some companies may be overvalued.
  • Some do not have $50,000 worth of shares to float.

A PLC is usually for large companies. Small businesses will not always expect to grow, Corner shops for example, will not grow beyond what is possible due to the local footfall. Therefore PLC’s are often global businesses.

Understanding Different Business Types

There are many business types of organisation, these all have their advantages, so it is important to know which is better for which task, otherwise a company may find some aspects harder than they should be. The main business types are;

Business Types  

  • A Sole Trader is a business owned by an individual, It can have many employees. Common sole traders could be corner shops or man-with-van businesses.
  • A Partnership is a business owned by two or more people (usually up to 20), the ownership of the business is split between them. A partnership may be a small manufacturing company or some large accountancy firms have larger quantities of partners.
  • A Franchise is a business that is owned by a franchisor, and the licensing to use the brand name is given to the franchisee to sell products under their name. Common examples would be fast food restaurants or garages.
  • A Private Limited Company (or ‘LTD’) is a company that offers shares, but does not sell them to the general public. Generally they will have either small amounts of capital, or very large amounts. The size of the business can vary, and can be a multinational company or a medium sized business.
  • A Public Limited Company (or ‘PLC’) is a company that sells it’s shares on the stock exchange, allowing members of the general public to invest capital into the business.
  • A Co-operative is a business set-up to serve the public, and may have ethical goals, over profits and sales. Some supermarkets work in this way.
  • A Social Enterprise is a business who’s money goes toward a social goal(s). Examples would be a company supporting people with an illness or disease.
  • There are also Lifestyle Businesses who’s owners work as part of their lifestyle. This can depend on the characteristics of the entrepreneur.

Most of these business types operate on two different types,

  • Limited Liability is when only the Business assets can be taken to recover debt. Limited Liability is where the owner is protected from any trouble the business suffers, and vice versa.
  • Unlimited Liability is when the business is not protected from such problems, and if the business were to get into financial trouble or insolvency, then the owners assets could be taken as a circumstance.

An LTD (Private Limited Company), must send a Memorandum of Association and Articles of Association. To receive a Certificate of Incorporation and Limited Liability. Becoming Incorporated means that the company and the owner are seen as two separate entities legally.

To be Unincorporated, would mean that the business and the owner are seen as one legal entity.

Limited Liability
AdvantagesDisadvantages
  • The owner is not responsible for the debts of the company.
  • The business is not effected by the owners problems.
  • Sole traders may find it easier to secure trade credit as it is checked against your credit rating.
  • The owner has to pay Corporation Tax.
  • It usually takes time to register.
  • There may be additional cost as the owner may have to hire an accountant.
  • The owner may face troubles moving profits or assets from the company to him.
  • It may be harder to secure good trade terms with suppliers as they may see the company as a potential liability.
  • This means your business type is Incorporated.