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Entrepreneurship and Business De

velopment

MGMT 102
CHAPTER 1: THE NATURE OF ENTREPRENEURSHIP

1.1 Introduction
• The word ‘entrepreneur’ is widely used, both
in everyday conversation and as a technical
term in management and economics.

• Its origin is from a French word, entreprend

re, where an entrepreneur was an individual c
ommissioned to undertake a particular com
mercial project.
• Entrepreneurship is then what the entrepre
neur does.

• The entrepreneurial process in which the

entrepreneur engages is the means through
which new value is created as a result of th
e project: the entrepreneurial venture.
1.2 Historical Origin of Entrepreneurship

What is entrepreneurship?
• Offering a specific and unambiguous defi
nition of the term entrepreneurship /entrepr
eneur presents a challenge.

• This is not because definitions are not avail

able, but because there are so many.
• During the ancient period the word entrepre
neur was used to refer to a person managin
g large commercial projects through the r
esources provided to him.
• In the 17th Century a person who has signed
a contractual agreement with the govern
ment to provide stipulated products or to per
form service was considered as entrepren
eur.
• In this case the contract price is fixed so a
ny resulting profit or loss reflects the effo
rt of the entrepreneur.
• In the 18th Century the first theory of entrepr
eneur has been developed by Richard Canti
llon.
• He said that an entrepreneur is a risk taker.
• If we consider the merchant, farmers and /or
the professionals they all operate at risk.
• For example, the merchants buy products
at a known price and sell it at unknown pri
ce and this shows that they are operating at
risk.
• In the late 19th and early 20th Century an en
trepreneur was viewed from economic p
erspectives.

• The entrepreneur organizes and operate

s an enterprise for personal gain.

• In the middle of the 20th Century the notion

of an entrepreneur as an inventor was es
tablished.
• “The function of the entrepreneur is to reform
or revolutionize the pattern of production
by exploiting an invention or more generally
untried technological possibility for produ
cing new commodities or producing an ol
d one in a new way or opening a new outlet
for products by reorganizing a new industry.”
• The concept of innovation and newness ar
e at the heart of the above definition.

• From the historical development it is possibl

e to understand the fact that the perception o
f the word entrepreneur was evolved from
managing commercial project to the appli
cation of innovation (creativity) in the bus
iness idea.
1.3 Definitions of Entrepreneurship and Entr
epreneur
• Common attributes of the definitions of ent
repreneurship and entrepreneur.
• Entrepreneurship is the process of identifyin
g opportunities in the market place, arrangin
g the resources required to pursue these opp
ortunities and investing the resources to ex
ploit the opportunities for long term gains.
• It involves creating incremental wealth by
bringing together resources in new ways to st
art and operate an enterprise.
1.Entrepreneurship is the processes throug
h which individuals become aware of busin
ess ownership then develop ideas for, and in
itiate a business.

2.Entrepreneurship can also be defined as the

process of creating something different an
d better with value by devoting the necessary
time and effort by assuming the accompanyin
g financial, psychic and social risks and receiv
ing the resulting monetary reward and perso
nal satisfaction.
 3.In this case an individual should come up
with something different and better in orde
r to be named as entrepreneur.
4.Entrepreneurship is the art of identifying v
iable business opportunities and mobilizin
g resources to convert those opportunities i
nto a successful enterprise through creativit
y, innovation, risk taking and progressive i
magination.
• Entrepreneurship is a practice and a process
that results in creativity, innovation and en
terprise development and growth.
• It refers to an individual’s ability to turn id
eas into action involving and engaging in so
cially-useful wealth creation through applicati
on of innovative thinking and execution to m
eet consumer needs, using one’s own labor,
time and ideas.
• Engaging in entrepreneurship shifts peopl
e from being “job seekers” to “job creato
rs”, which is critical in countries that have hi
gh levels of unemployment.
• It requires a lot of creativity which is the dr
iving force behind innovation.
• In general, the process of entrepreneurship
includes five critical elements. These are:
1.The ability to perceive an opportunity.
2.The ability to commercialize the perceived
opportunity i.e. innovation
3.The ability to pursue it on a sustainable b
asis.
4.The ability to pursue it through systemati
c means.
5.The acceptance of risk or failure.
• Based on the above concepts of entrepreneur
ship, an entrepreneur can be defined as follo
ws:
• 1.An entrepreneur is any person who creates
and develops a business idea and takes the
risk of setting up an enterprise to produce a
product or service which satisfies customer n
eeds.
• 2.An entrepreneur can also be defined as a p
rofessional who discovers a business opport
unity to produce improved or new goods a
nd services and identifies a way in which res
ources required can be mobilized.
• 3. An entrepreneur is an individual who:
has the ability to identify and pursue a busin
ess opportunity; undertakes a business vent
ure; raises the capital to finance it; gathers t
he necessary physical, financial and human
resources needed to operate the business v
enture; sets goals for him/herself and others
; initiates appropriate action to ensure succ
ess; and assumes all or a major portion of t
he risk!
• 4.An entrepreneur is a person who: creat
es the job not a job-seeker; has a dream,
has a vision; willing to take the risk and
makes something out of nothing
• 5.Other definition, views the term entreprene
ur from three perspectives; i.e. from the eco
nomist, psychologist and capitalist philosoph
er’s point of view.
1.4 Types of Entrepreneurs

• Entrepreneurship can take three different for

ms. They are:
1.The individual entrepreneur: An individu
al entrepreneur is someone who started; acq
uired or franchised his/her own independe
nt organization. The major portion of this m
odule is also devoted to describe the basic f
eatures and activities of the individual entrep
reneur.
• 2.Intrapreneur: An Intrapreneur is a person
who does entrepreneurial work within lar
ge organization. The process by which an i
ntrapreneur affects change is called Intrapre
neurship.

• 3.The Entrepreneurial Organization: The

entrepreneurial function need not be embo
died in a physical person. Every social en
vironment has its own way of filling the entr
epreneurial function.
1.5 Role of Entrepreneurs in Economic Dev
elopment
• Entrepreneurial development is the most im
portant input in the economic developme
nt of any country.
• The objectives of industrial development,
balanced regional growth, and generation
of employment opportunities are achieva
ble through entrepreneurial development.
• The entrepreneurs serve as a key to the cre
ation of new enterprises, thereby rejuvenat
ing economy and sustaining the process
of economic development in the following
ways:
1.Improvement in per capita Income/ Wealt
h Generation
2.Generation of Employment Opportunities
3.Inspire others Towards Entrepreneurship
4.Balanced Regional Development
5.Enhance the Number of Enterprises
6.Provide Diversity in Firms
7. Economic Independence
8. Combine Economic factors
9. Provide Market efficiency
10. Accepting Risk
11. Maximize Investor’s Return
1.6 Entrepreneurial Competence and Envir
onment

• Entrepreneurial Mindset
Who Becomes an Entrepreneur?
The Young Professional
The Inventor
The Excluded
• Qualities of an Entrepreneur
Opportunity-seeking
Persevering
Risk taking
Demanding for efficiency and quality
Information-seeking
Goal setting
Planning
Persuasion and networking
Building self-confidence
Listening to others, Demonstrating leadership
• Entrepreneurial Skills:

• General Management Skills- Strategy Skills,

Planning Skills, Marketing Skills, Financial
Skills, Project Management Skills, Time Ma
nagement Skills

• People Management Skills- Communication

Skills, Leadership Skills, Motivation Skills, D
elegation Skills, Negotiation Skills
• The Entrepreneurial Tasks:

Owning Organizations
Founding New Organizations
Bringing Innovations to Market
Identification of Market Opportunity
Application of Expertise
Provision of leadership
The entrepreneur as manager
1.7 Creativity, Innovation and Entrepreneurship

• Creativity, innovation and entrepreneurship,

have been recognized as important contribut
ors to a nation’s economic growth.

• These three terminologies are chronologically in

terrelated and it is very important to look into th
em to get their full picture.
• Creativity- Creativity is defined as the tend
ency to generate or recognize ideas, alter
natives, or possibilities that may be useful i
n solving problems, communicating with oth
ers, and entertaining ourselves and others.
• Steps in the Creative Process
Step1: Opportunity or problem Recogniti
on: A person discovers that a new opportunit
y exists or a problem needs resolution.

Step2: Immersion: the individual concentrat

es on the problem and becomes immersed i
n it. He or she will recall and collect informati
on that seems relevant, dreaming up alternat
ives without refining or evaluating them.
Step 3: Incubation: the person keeps the a
ssembled information in mind for a while. He
or she does not appear to be working on the
problem actively; however, the subconsciou
s mind is still engaged.

Step 4: Insight: the problem-conquering sol

ution flashes into the person’s mind at an
unexpected time, such as on the verge of s
leep, during a shower, or while running. Insi
ght is also called the Aha! Experience.
Step 5: Verification and Application: the
individual sets out to prove that the creati
ve solution has merit. Verification proced
ures include gathering supporting evidenc
e, using logical persuasion, and experim
enting with new ideas.
• Innovation

• Innovation lies at the heart of the entrepre

neurial process and is a means to the expl
oitation of opportunity. It is the implementat
ion of new idea at the individual, group o
r organizational level.
• There are four distinct types of innovation,
these are as follows:
• Invention - described as the creation of a n
ew product, service or process
• Extension - the expansion of a product, ser
vice or process
• Duplication - defined as replication of an al
ready existing product, service or process
• Synthesis - the combination of existing c
oncepts and factors into a new formulation
• The Innovation Process
1.Analytical planning: carefully identifying t
he product or service features, design as well
as the resources that will be needed.
2.Resources organization: obtaining the re
quired resources, materials, technology, hum
an or capital resources
3.Implementation: applying the resources in
order to accomplish the plans
4.Commercial application: the provision of
values to customers, reward employees and
satisfy the stakeholders.
• From Creativity to Entrepreneurship

Creativity is the ability to develop new idea

s and to discover new ways of looking at pro
blems and opportunities.
Innovation is the ability to apply creative so
lution to those problems and opportunities in
order to enhance people’s lives or to enrich so
ciety.
Entrepreneurship = creativity + innovation.
 CHAPTER 3

BUSINESS FORMATION
3.1 INTRODUCTION
• A business formation deals with the
formalization and actual implementation
of business ideas in to practice.

• In today’s economic development/

transformation, small businesses are
creating new jobs even as large
businesses continue eliminating jobs and
they are more flexible than large ones in
the products and services they offer.
3.2 The Concept of Small Business Development

• Specifying size and standard to define

small business is necessarily arbitrary,
because people adopt different standards
for different purposes.
• Based on socio- economic conditions,
countries define small business
differently.
• But all may use size and economic
criteria as a base to define small business.
• Size criteria include number of
employees and the startup capital.

• Small and medium enterprises (SMEs)

cover a wider spectrum of industries and
play an important role in both developed
and developing economies.

• Ethiopia is no exception and SMEs occupy

a prominent position in the development
of the Ethiopian economy.
3.3 Forms of Business (A Short Explanation)

• There are three basic legal forms of

business formation with some variations
available depending on the entrepreneurs’
needs.
• The three basic legal forms are:-
1. Proprietorship,
2. Partnership, and
3. Corporation, with variations particularly
in partnerships and corporations.
• Proprietorship- Form of business with
single owner who has unlimited liability,
controls all decisions, and receives all profits.

• Partnership- Two or more individuals

having unlimited liability who have pooled
resources to own a business.

• Corporation- Separate legal entity that is

run by stockholders having limited liability.
• These three basic legal forms are
compared with regard to ownership,
liability, start-up costs, continuity,
transferability of interest, capital
requirements, management control,
distribution of profits, and
attractiveness for raising capital.
3.4 Definition and Role/Importance of SMEs
in Developing Countries

3.4.1 Definition of SMEs

• Small businesses are playing an important
role in the industrial economy of the world.
• These are particularly important in the
developing economies.
• Small business is predominant even in
developed countries such as USA, Japan
etc.
• There is a difference between small
business owners and entrepreneurial
ventures as well.
• An entrepreneurial venture often is a
growth-oriented innovative company
with product or service offerings that are
new to the market.
• Small businesses could be entrepreneurial
ventures.
• Most entrepreneurial ventures start as a
small business.
• Most small business owners work with
known products and services aimed at
incremental growth, and their innovation is
focused on sales, marketing, and market
expansion.

• Entrepreneurial ventures incorporate a

different set of strategies.
• These entities are aimed at rapid growth
and apply innovation and creativity at
every node of the business process.

• They work with new offerings, and they face

a lot more uncertainties.
• There are two approaches to define small
business.
• They are: Size Criteria, and Economic/
control criteria.
 1. Size Criteria- Even the criteria used to
measure the size of businesses vary; size
refers to the scale of operation.

• Some criteria are applicable to all industrial

areas, while others are relevant only to
certain types of business.
• For instance, some of the criteria used to
measure size are: number of employees;
volume, and value of sales turnover, asset
size, and volume of deposits, total capital
investment, volume/value of production,
and a combination of the stated factors.

• The following general criteria for defining a

small business are suggested by Small
Business Administration (SBA).
• Financing of the business is supplied by
one individual or a small group. Only in a
rare case would the business have more than
15 or 20 owners.
• Except for its marketing function, the firm’s
operations are geographically localized.
• Compared to the biggest firms in the industry,
the business is small.
• The number of employees in the business is
usually fewer than 100.
• This size criteria based definition of SMEs
varies from country to country.
• All over the world, number of employees
or capital investment or both has been
used as the basis for defining SMEs.

2. Economic/Control Criteria
• Size does not always reflect the true nature
of an enterprise. In addition, qualitative
characteristics may be used to differentiate
small business from other business. The
economic/control definition covers:
• Market Share,
• Independence,
• Personalized Management,
• Technology, and
• Geographical Area of Operation.
 3.4.2 Role/Importance of MSEs in
Developing Countries

• Small and medium enterprises (SMEs) cover

a wider spectrum of industries and play
an important role in both developed and
developing economies.

• Ethiopia is no exception and SMEs occupy a

prominent position in the development of
the Ethiopian economy.
• Over the years, the number of SMEs is
growing from time to time and they need a
strong support on Scio- economic and
political ground. Some of the contributions
are hereunder.

1.Large Employment Opportunities: MSEs

are generally labor-intensive.
2.Economical Use of Capital: MSEs need
relatively small amount of capital. Hence it
is suitable to a country like Ethiopia where
capital is deficient.
3.Balanced Regional Development/
Removing Regional Imbalance: Generally
small enterprises are located in village and
small towns. Therefore it is possible to have a
balanced regional growth of industries.
Ethiopia is a land of villages.

4.Equitable Distribution of Wealth and

Decentralization of Economic Power: It
removes the drawbacks of capitalism,
abnormal profiteering, concentration of wealth
and economic power in the hands of few etc.
 5.Unregulated Growth of Large-scale
industries results in concentration of
economic power in the hands of a few; and
consequently, gross inequalities in the
distribution of income and wealth will occur.

• On the other hand; income generated in a

large number of small enterprises is
dispersed more widely and its benefit is
derived by the large segments of the society.
6.Dispersal over Wide Areas- SMEs has a
tendency to disperse over wider areas and
they play a key role in the industrialization
of a developing country.
7.Higher Standard of Living: MSEs bring
higher national income, higher purchasing
power of people in rural and semi-urban
areas.
8.Mobilization of Locals Resources/
Symbols of National Identity: The
spreading of industries even in small towns
and villages would encourage the habit of
thrift and investment among the people of
rural areas.
 3.5 Setting up Small Scale Business
• Once an individual decides to take up
entrepreneurship as a career path, to be a
job provider instead of a job seeker, s/he
has to establish an enterprise.

• The entrepreneurial process of launching

a new venture can be divided into three key
stages of: Discovery; Evaluation; and
Implementation.
• Discovery: The first stage of discovery is to
identify opportunities that may form the
basis of an entrepreneurial venture.

• Evaluation: By the end of first stage of

discovery, you should have selected an idea
worthy of further detailed investigation.
• Exploitation: By the end of the second
stage of evaluation, you should have
identified an opportunity that has
reasonable prospects of success, and
analyzed what is required to launch it.

• Environmental Analysis: Entrepreneurship

does not exist in a vacuum. It is affected by
and affects the environment.
 3.6 Small Business Failure and Success
Factors
3.6.1 Small Business Failure Factors

• Causes of Business Failure

• The rates of business failure vary greatly
by industry and are affected by factors
such as type of ownership, size of the
business, and expertise of the owner.
• The causes of business failure are many and
complex; however, the most common causes
are inadequate management and financing.

• Business Termination versus Failure

• There is a difference between a business
termination and a business failure.
• A termination occurs when a business no
longer exists for any reason.
• A failure occurs when a business closes
with a financial loss to a creditor.
• 3.6.2 Small Business Success Factors
1.Conducive Environment- Political,
economic, technological and socio-cultural
factors in the environment impinge upon the
life of the small enterprises and generate
much of the needs required for their
existence.
2.Adequate Credit Assistance- Adequate
and timely supply of credit is critical for
new entrepreneurs to emerge especially from
a wide base.
3.Markets and Marketing Support- The
small business entrepreneur will be in
competition not only with locally mass-
produced goods but even imports.
 3.7 Classification of Enterprises in
Ethiopian Context
• I. In Case of Manufacturing Enterprise (Manufacturing,
Construction and Mining):

• a) A Micro Enterprise is one in which the

investment in plant and machinery (total
asset) does not exceed birr 100,000 (one
hundred thousand); and operates with 5
people including the owner.
• b) Small Enterprises is one in which the
investment in plant and machinery (a paid up
capital of total asset) of birr 100,000 (one
hundred thousand) and not more than Birr
1.5 million; and operates with 6-30 persons.

II. In Case of Service Enterprise (Retailing,

Transport, Hotel and Tourism, ICT and
Maintenance):
a) A micro enterprise is one with the values
of total asset is not exceeding Birr
50,000(fifty thousands); and operates with 5
persons including the owner of the
enterprise.
b) Small Enterprise is one in which the total
asset value or a paid up capital of birr
100,000 (one hundred thousand) and not
more than Birr 1.5 million; and operates
with 6-30 persons.
 Priority Sectors and Sub-Sectors for MSEs
Engagement In Ethiopia
• 1.Manufacturing Sector- This is the one which
comprises textile and garment;
leather and leather products; food processing
and beverage; metal works and engineering
wood works including furniture and ornaments
service; and agro-processing.
• 2.Construction Sectors- This is the one which
comprises sub-contracting; building materials;
traditional mining works; cobble stone;
infrastructure sub-contract; and prestigious
goods
• 3.Trade Sectors- This is the one which
comprises whole sale of domestic products;
retail sale of domestic products and raw
materials supply.
• 4.Service Sectors- This is the one which
comprises small and rural transport service;
café and restaurants; store service; tourism
service; canning/packing service;
management service; municipality service;
project engineering service; product design &
development service; maintenance service;
beauty salon; and electronics software
development; decoration and internet café.
• 5.Agriculture Sector (Urban Agriculture) -
This is the one which comprises modern
livestock raring; bee production; poultry;
modern forest development; vegetables and
fruits; modern irrigation; and animal food
processing.

3.8 Main Supporting Packages for MSEs

Development in Ethiopia
• When entrepreneurs decide to involve and
develop MSEs in Ethiopia, they are more
likely entitled with some supporting
packages which include awareness creation
about the sector; provision of legal services,
to form legal business enterprises; providing
technical and business management training;
financial support based on personal saving,
20/80 (the beneficiaries save 20% and the
MFIs provide loan of 80% for the projects);
facilitate working premises; industry
extension services and BDS provision;
bookkeeping and audit services.
 3.9 Problems of Small Scale Business in
Ethiopia
• Small-scale businesses have not been
able to contribute substantially to the
economic development, particularly
because of financial, production, and
marketing problems.
• These problems are still major handicaps
to their development.
• Lack of adequate finance and credit has
always been a major problem of the
Ethiopian small business.
• Small-scale units do not have easy access
to the capital because they are mostly
organized on proprietary and partnership
basis and are of very small size.

• They do not have easy access to industrial

sources of finance partly because of their
size and partly because of the fact that their
surpluses which can be utilized to repay
loans are relatively small.
• Because of their size and partly because of
the limited profit, they search for funds for
investment purposes.

• Consequently, they approach traditional

money lenders who charge extra high rate
of interest hence small enterprise continue
to be financially weak.
• Small scale enterprises find it difficult to get
raw materials of good quality at
reasonable prices in the field of production.

• Furthermore, the techniques of

production, which the enterprises have
adopted, are usually outdated.

• Because of their poor financial position

they are not able to buy new equipment,
consequently their productivity suffers.
 3.10 Organizational Structure and
Entrepreneurial Team Formation

• 3.10.1 Introduction
• Significant to potential investors is the
management team and its ability and
commitment to the new venture.
• Investors will usually demand that the
management team not attempt to operate
the business as a sideline or part-time
venture while employed full time elsewhere.
• It is unacceptable for the entrepreneurs to try
to draw a large salary out of the new
venture, and investors may perceive any
attempt to do so as a lack of psychological
commitment to the business.
• 3.10.2 Designing the Organization
• The entrepreneur may find that he or she
performs all the functions of the
organization alone.
• This is a common problem and a significant
reason for many failures.
• The entrepreneur sometimes thinks that he
or she can do everything and is unwilling to
give up responsibility to others or even
include others in the management team.

• Regardless of whether one or more

individuals are involved in the start-up, as
the workload increases, the organizational
structure will need to expand to include
additional employees with defined roles in
the organization.
• 3.10.3 Building the Management Team
and a Successful Organization Culture

• In conjunction with the design of the

organization, the entrepreneur will need to
assemble the right mix of people to
assume the responsibilities outlined in the
organization structure.
• In essence, the team must be able to
accomplish three functions:-
-Execute the business plan;
-Identify fundamental changes in the
business as they occur; and
-Make adjustments to the plan based on
changes in the environment and market
that will maintain profitability.
 CHAPTER 4

PRODUCT/SERVICE DEVELOPMENT
 4.1 INTRODUCTION
• The new product development process
involves the idea generation, product
design, and detail engineering; and also
involves market research and marketing
analysis.
• Intense global competition, short product
and technology lifecycles, unpredictable
consumer buying patterns and possible
market stagnation makes new product
development a critical activity in most
businesses.
 4.2 The Concept of Product/Service
Technology

• Many entrepreneurs find it difficult to identify

a new product/service or a new market
opportunity.

• To start and expand a small venture, an

entrepreneur needs to identify
opportunities for domestic and/or
international expansion.
• As the new venture grows and matures a
need for different management skills
can occur as well as for a new infusion of
the entrepreneurial spirit (corporate
entrepreneurship).

• Organization's success is dependent on

customer satisfaction and delight.
• Customer satisfaction is achieved through
the development of product and service,
which have all attributes required by the
customer.
• Successful products or services do not only
have an attractive package design but
should be also able to provide robust
performance.
• Thus, product design must be practical
enough for production and powerful
enough to provide a competitive
advantage.
• The essence of product design is to
satisfy customer and maximizes the
value for the customer at minimum cost.

• The merchandise or service should also be

able to meet primary needs and desire of
the customer.

• This may not require development of

new merchandise, but an enhancement
to existing merchandise or service.
• The merchandise or service will succeed
most if it either eliminates an existing pain
or adds significant tangible benefits.

• It is easier to sell/deliver a new

merchandise/service that eliminates a
well-known existing pain, as opposed to
sell an item or service that doesn’t clearly
solve a potential client’s pain.
 4.3 Product/Service Development
Process

• One of the essential characteristics of a

successful business is exemplified by its
ability to continuously and rapidly
develop new or improved versions of
existing products that deliver values more
than customers expect.
• Product development is the process
through which companies react to market
signals, respond to changes in customer
demand, adopt new technologies, foray
into new areas, and ensure continuous
growth.
• It is a core process in achieving strategic
objectives, renewal of the company
business model and deterring competition
from displacing the company from its market
position.

• Product/service development process is part

of the overall new-venture creation
process.
• Even though there are many models that
advocate what the product/service
generation process should look like, for this
purpose we shall adopt four distinct stages.

These stages can be referred to as:

1. Idea Generation
2. Incubation
3. Implementation
4. Diffusion
 New Idea Generation

• The new product development process

starts with search for ideas.

• Companies have to encourage any new

idea coming.
• The key to successful domestic and
international entrepreneurship is to develop
an idea that has a market for the new
product/service idea conceived.

• Some of the more fruitful sources of ideas

for entrepreneurs include consumers,
existing products and services,
distribution channels, the federal
government, and research and
development.
 Idea Screening
• In the 2nd stage, the purpose is to lessen
the number of ideas to few vital/valuable
ideas.

• The ideas should be written down and

reviewed each week by an idea committee
who should sort the ideas into three groups-
Promising Ideas, Marginal Ideas, and
Rejects: Each promising idea should be
researched by committee member.
 Concept Development and Testing

• Attractive ideas must be refined into fast

able product concepts since people do not
purchase ideas but they buy concepts.

• Any product idea can be turned into several

product concepts.
• The questions asked probably include:-
Who will use the product?
What benefits should the product provide?
When will people consume the produced?
• Concept Testing: - calls for testing product
concepts with an appropriate group of
target consumers/customers, and then
getting the consumers’ reactions.

• At this stage, the concepts can be in words

or picture description.
 Marketing Strategy Development

• After testing the new product the

concerned body must develop a
preliminary marketing strategy plan for
introducing the new product into the
market.

• The marketing strategy will undergo

further refinement in subsequent stages.
The marketing strategy plan consists of
three parts:

(1) Market size, structure, behavior ;

( 2) Planned price, distribution strategy,

and marketing budget of the 1st year; and

(3) Long run sales and profit goals,

marketing mix strategy.
 Business Analysis

• After management develops product concept

and marketing strategy, it can evaluate the
proposals’ business attractiveness.

• Management needs to prepare sales, cost

and profit projections to determine
whether they satisfy the company's
objective or not.
 Product Development

• If product concept passes the business

test, it moves to R&D or engineering to be
developed to one or more physical version
of the product concept.

• Its goal is to find a prototype that the

consumers/customers see as embodying the
key attribute described in the product
concept statement.
 Market Testing
• After management is satisfied with the
products’ functional and psychological
performance, the product is ready to be
dressed up with the brand name.

• The goals are to test the new product is

more authentic consumer/customer settings
and to learn how large the market is and
how consumers/customers and dealers react
to handling, using and repurchasing the
actual product.
 Commercialization
• When (Timing):- In commercializing, market
entry timing is critical.

• If the company hears about a competitor

nearing the end of its development work,
it will face three choices.
• The 1st choice is First Entry. Under this
category, the firm usually enjoys the "first
mover advantage" of locking up key
distributors & gaining reputation.
• The 2nd choice goes with Late Entry
Strategy

• The 3rd strategy- Parallel Entry- can be

also chosen by the company to get in the
market.
 4.4 Legal and Regulatory Frameworks for
Entrepreneurs

• Since there are many options that an

entrepreneur can choose in setting up an
organization, it will be necessary to
understand all the advantages and
disadvantages of each regarding such
issues as liability, taxes, continuity,
transferability of interest, costs of setting
up, and attractiveness for raising capital.
 4.5 Intellectual Property
Protection/Product/Service Protection

• 4.5.1 What is Intellectual Property?

• Intellectual Property which includes

patents, trademarks, copyrights, and
trade secrets represents important assets
to the entrepreneur and should be
understood even before engaging the
services of an attorney.
• Intellectual property is a legal definition of
ideas, inventions, artistic works and other
commercially viable products created out
of one's own mental processes.
 4.5.2 Patents
• An entrepreneur who invents a new thing or
improves an existing invention needs to get
legal protection for her invention through
a patent right.
• A patent is a contract between an inventor
and the government in which the
government, in exchange for disclosure of
the invention, grants the inventor the
exclusive right to enjoy the benefits
resulting from the possession of the patent.
• A patent provides the owner with exclusive
rights to hold, transfer, and license the
production and sale of a product/process.

• It is an intellectual property right and It is

issued by government to the inventor.
• This exclusive property right can be
granted for a number of years depending
on the countries laws and type of property.

• Patents are property rights that can be

sold and transferred, willed as well as
licensed and at times used as collateral.
 4.5.3 Trademarks
• A trademark may be a word, symbol,
design, or some combination of such, or it
could be a slogan or even a particular
sound that identifies the source or
sponsorship of certain goods or services.

• These are distinctive names, marks,

symbols or motto identified with a
company’s product or service and
registered by government offices.
• Unlike the patent, a trademark can last
indefinitely, as long as the mark continues
to perform its indicated function.

• Trademarks unlike patents are

periodically renewed unless invalidated by
cancellations, abandonment, or other
technical registration/renewal issues.
 Benefits of a Registered Trademark

• It provides notice to everyone that you

have exclusive rights to the use of the
mark throughout the territorial limits of the
country.

• It entitles you to sue in federal court for

trademark infringement, which can result
in recovery of profits, damages, and costs.
• It establishes incontestable rights
regarding the commercial use of the mark.
• It establishes the right to deposit
registration with customs to prevent
importation of goods with a similar mark.
• It entitles you to use the notice of
registration (®).
• It provides a basis for filing trademark
application in foreign countries.
 4.5.4 Copyrights

• Copyright is a right given to prevent

others from printing, copying, or
publishing any original works of
authorship.

• Copyrights provide exclusive rights to

creative individuals for the protection of
literary or artistic productions.
• It protects original works of authorship
including literary, dramatic, musical, and
artistic works, such as poetry, novels,
movies, songs, computer software, and
architecture.

• They pertain to intellectual property.

• Usually copyrights are valid for the life of

the inventor plus a few decades.
 4.6 The Intellectual Property System in
Ethiopia

• Ethiopia became a party to the convention

establishing the World Intellectual Property
Organization (WIPO) in February 1998 right
after some time the Country had joined the
Nairobi Treaty on the Protection of the
Olympic Symbol in 1981.
• It is a member of the Treaty establishing
the Common Market for Eastern and
Southern Africa (COMESA) which was
formed in 1994, the Partnership Agreement
between members of the African,
Caribbean and Pacific (ACP) Group of
States and the European Union (EU).
• The Ethiopian Government established the
Ethiopian Intellectual Property Office in the
year 2003 containing the understated
Objectives:-

• To facilitate the provision of adequate legal

protection for and exploitation of intellectual
property in the country;

• To collect, organize and disseminate

technological information contained in patent
documents and encourage its utilization;
• To study, analyze and recommend policies
and legislation on intellectual property to
the government; and

• To promote knowledge and understanding

of intellectual property among the general
public;
CHAPTER 5

MARKETING
• Business firms and non-profit
organizations engage in marketing.

• Products marketed include goods as well

as services, ideas, people, & places.

• Marketing activities are targeted at

market consisting of product purchasers
who may be individuals and groups that
influence the success of an organization.
• The foundation of marketing is exchange.

• In which one party provides to another

party something of value in return for
something else of value.

• In a broad sense, marketing consists of all

activities designed to generate or facilitate
an exchange intended to satisfy human
needs.
• The concept of market is very important
in marketing.

• The American marketing Association

defines a market as “The aggregate
demand of the potential buyers for
product or a product or services “.
 5.1 Meaning and Definitions of Marketing

• Marketing consists of activities designed to

generate and facilitate exchange intended
to satisfy human needs or wants.

• Marketing has been defined in various

ways.
• Marketing is a social and managerial
process by which an individual or group
obtain what they need and want through
creating, offering and exchanging of
product of values with others (Philip
Kotler,2012).

• Marketing is the total business activity

designed to plan, price, promote and
distribute want satisfying products to target
market to achieve organizational goal
(William J.Stanton, 1984).
• Marketing is the creation and delivery of
standard of living to society (Paul Mazor,
2005).

• Marketing management is the process of

planning and executing, the conception,
pricing, promoting and distributing of
ideas, goods and services to create an
exchange that satisfy individual or group
objectives (American Marketing Association,
2015).
• Marketing is the effort to identify and
satisfy customers’ needs and wants.

• It involves finding out who your

customers are, what they need and want,
the prices, the level of competition.

• It involves the knowledge and all the

processes you undertake to sell your
product.
Marketing answers the following questions:

• Who are my customers?

• What are my customer’s needs and wants?
• How can I satisfy my customers’?
• How do I make a profit as I satisfy my
customers?
 5.2 Core Concepts of Marketing

5.2.1 Needs, Wants and Demand

• A person at any given time has a need.

• This need arises out of physical or

psychological imbalances.

• Marketing starts with human needs and

wants.
• Need: - Human Need is a state of
deprivation of some basic satisfaction.
People require food, clothing, shelter, safety
and belonging and esteem.

• Wants: - Wants are desires for specific

satisfiers of needs. Human wants are
continually shaped and reshaped by social
forces and institutions including churches,
schools, families and business cooperation.
Eg. A person needs food but wants spaghetti
• Demands: - Demands are wants for
specific products that are backed by
ability and willingness to buy them.

• Wants become demand when supported

by purchasing power.
• Companies must therefore measure not
only how many people want their product
but, more importantly how many would
actually be willing and able to buy it.

• Product: - is anything that can be offered

to satisfy a need or want.
• Products broadly classify as tangibility and
intangibility features.
• Value: - is the consumer’s estimate of the
products overall capacity to satisfy his or
her needs.

• Cost: - is the amount of money that are

going to be expended or already incurred
to acquire a product.

• Exchange: - is the act of obtaining a

desired product from someone by
offering something in return.
• Transaction: - is the trade of values
between two parties.

• Market: - consists of all the potential

customers sharing a particular need or
want who might be willing and able to
engage in exchange to satisfy their need
or want.
 5.3 Importance of Marketing
• A customer purchases a product because it
provides satisfaction.

• That something that makes a product

capable of satisfying want is its utility.

• And it is through marketing that much of a

product’s utility is created.
• Then potential buyers must be informed
about the product’s existence and the
benefits it offers through various forms of
promotion.

• The kinds of utility that marketing

provides in the process are as follows:
 1. Form Utility: Form utility is associated
primarily with production- the physical or
chemical changes that make a product
more valuable.
• When timber is made into furniture, form
utility is created.
2. Place Utility: Place utility exists when a
product is readily accessible to potential
customers.
• So physically moving the products to a
store near the customers add to its value.
 3. Time Utility: Time utility means having a
product available when you want it.

• Having a product available when we want it

is very convenient but it means that the
retailer must anticipate our desires and
maintain an inventory.
 4. Information Utility: Information utility is
created by informing prospective buyers
that a product exists.
• Unless you know a product exists and where
you can get it, the product has no value.

5. Possession Utility: Possession utility is

created when a customer buys the
product-that is, ownership is transferred to
the buyer.
 5.4 Marketing Philosophies

• Marketing activities should be carried out

under a well-thought out philosophy of
efficient, effective and socially responsible
marketing.
• There are six competing concepts under
which organizations can choose to
conduct their marketing activities:
namely, the production concepts, the
product concept, the selling/sales concept,
the marketing concept, the societal
marketing concept and the relationship
marketing concept.
 1. The Production Concept
• The production concept is one of the oldest
concepts in business.
• The production concept holds that
consumers will favor products that are
widely available and low in cost.

• Managers of production-oriented organization

concentrate on achieving high production
efficiency and wide distribution.
 2.The Product Concept

• Other businesses are guided by the

product concept.

• The product concept holds that consumers

will favor those products that offer the
most quality, performance or innovative
features.
• Managers in product oriented organization
focus their energy on making superior
products and improving them over time.

• Under the concept, managers assume that

buyers admire well-made products and
can appraise product quality and
performance.
 3. The Selling Concept/Sales Concept

• The selling concept holds that consumers,

if left alone, will ordinarily not buy enough
of the organization product.

• The organization must therefore undertake

an aggressive selling and promotion
effort.
• This concept assumes that consumers
typically show buying inertia or
resistance and must be coaxed into
buying.

• It also assumes that the company has

made available a whole battery of
effective selling and promotion tools to
stimulate more buying.
 4. The Marketing Concept
• The marketing concept is a business
philosophy that challenges the three
concepts we just discussed.

• The marketing concept holds that the key to

achieving organizational goals consists
of being more effective than competitors
in integrating marketing activities toward
determining and satisfying the needs and
wants of target markets.
• The marketing concept has been
expressed in many colorful ways:

“Meeting needs profitably”

“Find wants and fills them”
“Love the customers, not the product
etc.”
 5. The Societal Marketing Concept
• The societal marketing concept holds that
the organization should determine the
needs, wants and interests of target
markets.

• It should then deliver the desired

satisfactions more effectively and
efficiently than competitors in a way that
maintains or improves the consumers and
the society’s well-being.
 6. Relationship Marketing
• Relationship marketing is the practice of
building long term satisfying relations
with key parties-customers, suppliers,
distributors- in order to retain their long
term preferences and business.
• The ultimate outcome of relationship
marketing is the building of a unique
company asset called a marketing network.
• In this case, customer experience rather than
customer satisfaction is the most critical
component in relationship marketing.
 5.5 Marketing Information Systems
• Every firm must organize the flow of
information to its marketing managers.
• Companies are studying their manager’s
information needs and designing
marketing information system to meet
these needs.
• A marketing information system consists of
people, equipment and procedure to
gather, sort, analyze, evaluate and
distribute needed timely and accurate
information to marketing decision makers.
• The marketing managers to carry-out their
analysis, planning, implementation, and
control responsibilities, they need
information about development in the
marketing environment.

• The needed information is developed through

internal company records, marketing
intelligence activities, marketing research,
and marketing decision support analysis.
• 5.5.1 Marketing Research

• Marketing research is the systematic and

objective identification, collection,
analysis, and dissemination of information
for the purpose of assisting management in
decision making related to the identification
and solution of problems and opportunities in
marketing.
 5.5.2 Marketing Intelligence

• Market intelligence is the systematic

process of gathering, analyzing,
supplying and applying information (both
qualitative and quantitative) about the
external market environment.

• Intelligence is evaluated information.

 5.5.3 Competitive Analysis

• Competitive analysis refers to determining

the strengths and weaknesses of
competitors and designing ways to take
opportunities or tackle threats posed by
competitors.
 5.6 The Marketing Mix Strategy

5.6.1 The 4 P’s Of Marketing/The

Marketing Mix

• These are marketing variables that the

marketing manager can manipulate as
controllable variables.
• They include product, pricing, place
(channel) and promotion.

1. Product: refers to goods/services

produced for sale, the product /service
should relate to the needs and wants of
the customers.
 2. Pricing: refers to the process of setting a
price for a product/service.

• Your prices must be low enough to

attract customers to buy and high enough
to earn your business a profit.
 3. Place: means the different ways of
getting your products or services to your
customers. It is also referred to as
distribution.

• If your business is not located near your

customers, you must find ways to get
your products/services to where it is
easy for customers to buy.
 4. Promotion: Refers informing your
customers of your products and services
and attracting them to buy them.

• Promotion includes advertising, sales

promotion, publicity (non-paid promotion)
and personal selling.
• Use advertising to make customers more
interested in buying your products or
services.

• Some useful ways of advertising include

signs, boards, posters, handouts,
business cards, pricelists, photos and
newspapers.
 5.6.2 What Is Marketing Strategy?

• A marketing strategy is a process that can

allow an organization to concentrate its
limited resources on the greatest
opportunities to increase sales and achieve
a sustainable competitive advantage.
• Marketing strategy is a method of focusing
an organization's energies and resources
on a course of action which can lead to
increased sales and dominance of a targeted
market.

• A marketing strategy combines product

development, promotion, distribution,
pricing, relationship management and
other elements; identifies the firm's marketing
goals, and explains how they will be
achieved, ideally within a stated timeframe.
• Marketing strategy determines the choice
of target market segments,
positioning, marketing mix, and allocation
of resources.

• It is effective when it is an integral

component of the overall firm strategy,
defining how the organization will
successfully engage customers, prospects,
and competitors in the market arena.
 1. Pricing Strategy
• Price is the value placed on what is
exchanged. Something of value is
exchanged for satisfaction and utility,
includes tangible (functional) and intangible
(prestige) factors.
• It relates directly to total revenue
TR = Price * Quantity
Profit = TR – TC
Where, TR=Total Revenue, TC=Total Cost
• To come up with this situations marketers use
dynamic pricing strategies.
• The following are some of pricing strategies
mostly applicable in the real world scenario.
• i. Price Skimming: this is a type of
marketing strategy that firms use by
charging the highest possible price that
buyers who most desire the product will pay.
• It attracts a market segment that is more
interested in quality, status, uniqueness
etc. In this case, consumers’ demand must
be inelastic.
• ii. Penetration Pricing: In this strategy,
prices of products are reduced compared
to competitors’ price for the same product
to penetrate into markets and to increase
sales.
• This is appropriate when the demand is
elastic.

• iii. Cost-plus pricing: Any amount that is

above unit cost may be considered.
• iv. Mark-up pricing: A certain percentage
of the selling price is added to unit cost.

• v. Competition Oriented Pricing:

Considers competitors prices primarily;
but the market type matters.
• vi. Odd-even pricing: This is psychological
pricing method based on the belief that
certain prices or price ranges are more
appealing to buyers.

• This method involves setting a price

in odd numbers (just under round even
numbers) such as $49.95 instead of $50.00.
 2. Promotion Strategies
• Promotion is the communication of the
company and its products to customers.
• Promotional strategy is choosing a target
market and formulating the most
appropriate promotion mix to influence it.

• i. Advertising: It is any paid form of non-

personal, one-way, mass communication
about an organization, good, service, or idea
by an identified sponsor.
• ii. Personal selling: This is the two-way
flow of communication between a buyer
and seller, often in a face to face encounter,
designed to influence a person’s or group’s
purchase decision.

• iii. Public relations: Public relation is a form

of communication that seeks to change
the perceptions of customers,
shareholders, suppliers, employees and
other publics about a company and its
products.
• iv. Sales promotion: This promotion type
involves short term incentives of value
such as discounts, free samples, and
prizes to be offered to arouse interest of
customers in buying the good/service.
 3. Distribution Strategies
• A successful product or service means
nothing unless the benefit of such a service
can be communicated clearly to the target
market.

• For product-focused companies,

establishing the most appropriate
distribution strategies is a major key to
success, defined as maximizing sales and
profits.
• Marketing channels are individuals/
organizations involved in the process of
making the product available for use or
consumption by consumers.

• Channels are used to improve exchange

efficiency.

• It is divided into Direct and Indirect

channels.
• Direct channels: In this type of channel,
producers and end users directly interact.

• Indirect channels: In this type of channel

intermediaries are inserted between
seller and buyer.

• Intermediaries include merchant

wholesalers, retailers, dealers, agents,
brokers; and manufacturer’s branches and
offices.
 5.7 Selling and of Customer Service

5.7.1 The Concept of Service

• Service refers to any activity undertaken to

fulfil customer’s needs.

• It is any act or performance that one party

can offer to another that is essentially
intangible and does not result in the
ownership of anything.
• Its production may or may not be tied to a
physical product.

• Distinctive features of services include

intangibility, inseparability, variability,
and perishability as opposed to goods.
• The feature of intangibility shows that pure
services cannot be defined in terms of
the physical dimensions; or the customer
cannot see or feel them before purchase.

• The concept of inseparability, on the other

hand, refers that production and
consumption of services are inseparable;
the 'sale' occurs just before both.
• There are also features of variability and
perishability associated in service.

• Services are highly variable, because

they depend on who provides them, and
when and where they are provided.

• In addition to this, services are produced

and consumed at the same point, and are
totally perishable right after use.
• Service cannot be reproduced as a concert
object and it can vary from one moment to
the next.

• Based on this concept, service is

characterized as; situational, difficult to
measure, subjective and influenced by
the service provider.
 5.7.2 The Concept of Customer

• Customer is a person or organization that

buys a product or service either for use or
for resale.

• Customers can be internal (e.g. member of

the organization) or external (customers
coming from outside).
5.7.3 Strategic Activities needed for Quality
Customer Service Delivery

i. Establishing a clear customer service

strategy.

ii. Ensuring that correct people are in place,

with the correct skills to deliver outstanding
personal service.
iii. Establishing clear material service
delivery processes.

iv. Improving in terms of process

improvement, quality monitoring and
recovery continuously.

v. Participatory Management.
 5.7.4 Customer Handling and Satisfaction
• Customer handling and satisfaction is a
key for successful organizations.
• Managers and employees should work hand-
in-hand to improve their service delivery
programs.

• Existing customers must be satisfied with

the existing service.
• Existing customers are also means of
potential customers.