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ROLE OF MARKETING IN SME – III

Product Mix

It refers to number of products offered by a company. It is not uncommon to find small firms selling ultiple products. Product mix is done to optimize profits.

Advantages of product mix

1. It enables the firm to serve different segments of the market.
2. It gives steady sales & profits to the firm.
3. The firm can keep all its bases covered.

Demerits of Product Mix

1. It makes greater demand on firm’s resources in the form of increased investment in production facilities and inventory.
2. Marketing Problems.

The firm should weigh the pros and cons of a wider versus narrow product mix. The ultimate decision would rest on such considerations as the available resources, existing and future market opportunities and strategies of competitors. Phillips kotler has suggested the following indicators of firm’s sub optional product mix;

1. Disproportionately high percentage of total profits from a few products;
2. Insufficient product breadth to exploit sales force;
3. Excessive productive capacity on a chronic or seasonal basis;
4. Steadily declining sales or profits.



Read more: MGT601 - SME Management - Lecture Handout 34

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PRO FORMA SOURCES AND USES OF FUNDS

1. To identify the types of financing available.
2. To understand the role of commercial banks in financing new ventures, the types of loans available, and bank lending decisions.
3. To discuss Small Business Administrative (SBA) loans.
4. To understand the aspects of research and development limited partnerships.
5. To discuss government grants, particularly small business innovation research grants.
6. To understand the role of private placement as a source of funds.

AN OVERVIEW

Different sources of capital are generally used at different times in the life of the venture.

Debt or Equity Financing

1. Debt financing involves an interest-bearing instrument, usually a loan, the payment of which is only indirectly related to sales and profits.
   • Debt financing (also called asset-based financing) requires some asset be used as collateral.
   • The entrepreneur has to pay back the amount of funds borrowed plus a fee, expressed in terms of interest.
   • Short-term money is used to provide working capital.
   • Long term debt (lasting more than a year) is frequently used to purchase some asset, with part of the value of the asset being used as collateral.
   • Debt has the advantage of letting the entrepreneur retain a large ownership position and have greater return on equity.
   • If the debt is too great payments become difficult to make and growth is inhibited.
2. Equity financing offers the investor some form of ownership position in the venture.
   • The investor shares in the profits of the venture.
   • Key factors in choosing the type of financing are availability of funds, assets of the venture, and prevailing interest rates.
   • Usually a combination of debt and equity financing is used.
3. In a market economy all ventures will have some equity, as all are owned by someone.
   • The equity may be entirely provided by the owner or may require multiple owners.
   • This equity funding provides the basis for debt financing, which makes up the capital structure of the venture.
   
   

   Read more: MGT602 - Entrepreneurship - Lecture Handout 32