Page 273 - Encyclopedia of Business and Finance

eobf_E 7/5/06 3:00 PM Page 250

Entrepreneurship

The third form of ownership is the corporation. A product is introduced to the market, it is in the introduc-
corporation is a group of individuals who obtain a charter tion phase. Over time, it may grow in popularity and
giving the organization formed by the group legal rights sales, reaching a point of maturity. Maturity is then fol-
and privileges. This organization can perform such func- lowed by decline. An entrepreneur must be careful to
tions as buying and selling, as well as owning property, as avoid offering products or services that are in decline.
if the group were an individual person. The corporation is That is one of the reasons for continually monitoring the
actually owned by individuals who purchase stock. A sales of products and adjusting the product mix to reflect
major advantage of this form of ownership is that the such changes in the product life cycle.
stockholders themselves have limited liability, thus mini- Place: Another factor in the marketing mix is place.
mizing financial risks. Marketers often say that the success of a business is
The Small Business Administration (1999) reports dependent upon “location … location … location.”
that in 1996, according to the Internal Revenue Service, Choosing the location of the business is an important
16,471,000 sole proprietorships, 1,679,000 partnerships, decision that must take into consideration such factors as
and 5,005,000 corporations filed nonfarm business tax the chosen target market, traffic patterns, parking avail-
returns. ability, population trends, competitive businesses, rental
A business plan often contains three major sections: costs, and other expenses. The place function also includes
the marketing plan, the management plan, and the finan- business activities that involve physical distribution, such
cial plan. as transporting goods, handling the goods, storing the
goods, and keeping track of the goods (inventory).
Marketing Plan. Marketing is a process in which the deci- An increasing number of businesses are locating on
sions of the business are based upon the goals of the the Internet. Entrepreneurs create World Wide Web pages
organization. One of these goals is usually that of satisfy- on which they promote their offerings. Consumers may
ing the needs and wants of potential customers or a target either telephone the business to order the product or serv-
market. Potential customers can be divided into specific ice or use a credit card to purchase the item over the Inter-
market segments that represent groups based on specified net. The actual location of the business is less important
characteristics. For example, a business may strive to serve since the Web is available throughout the country and,
those in their late teens and early twenties who live prima- indeed, the world. However, the location still must be
rily in large cities. Narrowing the segment even further, considered relative to business expenses (e.g., rent, utility
the business may offer goods or services for those inter- prices) and transportation prices (e.g., cost of transporting
ested specifically in sports—both as active players and as products purchased on the Internet from the business to
spectators or fans. Thus the business may sell athletic the customer).
shoes and clothing, sports equipment, and how-to books. Businesses can also be located in the home. In fact,
The owner(s) would locate this business in an area with a home-based businesses represent a large portion of busi-
large number of people in that age group. Other factors to nesses in the United States. Many entrepreneurs begin
consider when defining a target market include such their businesses in the home and eventually outgrow the
demographic factors as income level, sex, marital status, space available there, at which point the owner usually
and ethnic group, and such geographic factors as climate seeks an outside facility.
and region of the country. Price: Price is the third component of the marketing
Part of the marketing plan is the marketing mix. A mix. A pricing structure must be developed that includes
marketing mix has four basic components: product, place, specific goals and reflects policies of the business. A goal
price, and promotion. may reflect an intended image of the business or a particu-
Product: The product is the goods and/or services lar profit margin that is sought. Factors to consider when
offered by the business. A travel agent may offer the serv- identifying goals and policies related to price are: the
ice of arranging any type of trip to anywhere in the world amount of sales that are sought, pricing policies of competi-
or may specialize specifically in cruises. Choosing prod- tors, profits that are projected, supply of the product that is
ucts is dependent on the market segment the business available and projected demand for that product, the loca-
intends to serve. Other considerations include the amount tion of the business, and the expenses of the business.
of physical space available for storing the product, the Promotion: The fourth component of the marketing
amount of funds needed to purchase the product from the mix is promotion—the activities of the business that are
wholesaler or manufacturer, and the profitability potential intended to inform potential customers about the product
of offering the product. Another important consideration or service and persuade them to purchase it. Methods
is the product’s life cycle. A life cycle has four sections: include personal selling, advertising, visual merchandising
introduction, growth, maturity, and decline. When a new (the coordination of all physical elements in a business

250 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION