Language learning | English » EBC Keywords, Business Organisation

Source: http://www.doksinet EBC 1 Keywords UNIT 1 Business organisation – general Business organisations, also referred to as firms, businesses, business firms, companies (in the general sense of the word), concerns and enterprises, are economic units providing a legal, financial and organisational framework for the production and/or distribution of goods and services. From the point of view of economic history, they are the result of the continuing process of specialisation, which has become the hallmark of modern civilisation. Today it is often overlooked that, originally, production and consumption took place within a single economic unit. Business organisations should not be confused with business establishments, which are concrete physical facilities required to carry out production and distribution. Examples of establishments are plants, factories, mills, offices and shops. Business units may be organised in a variety of legal forms, each of which has different financial and

organisational implications. A firm may operate as a sole trade, as a partnership, or as a company (in the legal sense), i.e a business organisation with a legal existence independent of that of its members. Which type is chosen depends, among other factors, on the size of the enterprise, its capital requirements, and tax considerations. The above-mentioned forms of business organisation are sometimes classified as traditional (or mainstream) to contrast them with alternative forms, such as the various types of co-operative societies and the commune. Business organisation – objectives From the point of view of organisational theory, business organisations are social or rather sociotechnical, systems deliberately created for the purpose of achieving particular objectives. The two basic objectives are: firstly, to produce output (i.e goods and/or services) by combining and transforming resources (physical, financial, human and information resources) purchased, hired, or otherwise

acquired from its environment; and secondly, to sell this output to non-members at prices that more than cover costs (at least in the long run), thereby generating income for the providers of risk capital, i.e its members (profit objective) All this distinguishes business organisations from social groups that are not set up to achieve a particular purpose, e.g families and groups of friends, which exist for their own sake, basically to satisfy emotional needs of their members. They also differ from voluntary-sector, non-profit organisations, which do have a specific purpose and do produce output, but make that output available to non-members free of charge or at costs. The basic objectives outlined above can be refined upon and supplemented with subsidiary, or instrumental, aims. Production is only meaningful if it is capable of satisfying consumer needs Thus, the satisfaction of human needs might be regarded as an important – some would say the most important – goal of a business

enterprise, a goal it shares with non-profit organisations (NPOs). The profit goal may be expressed in absolute terms, as a growth rate, or as a rate of return on capital invested. Subsidiary objectives, which sometimes may become primary goals, are survival, maintaining the capital base of the company concerned, sales volume, efficiency (closely linked with the profit objective) but also employee welfare and prestige, which are less easy to pin down. The goals of a specific business organisation are the result of a balancing act between demands from the various groups involved (stakeholders) – primarily its owners, but of course also its suppliers, customers and employees, as well as trade unions and public authorities. S e i t e |1 Source: http://www.doksinet EBC 1 Keywords Business communication Business communication is the exchange of messages in a business context. Like any other form of communication, it involves senders and receivers of messages, media to convey them,

and the messages themselves. A typical business unit may send messages to, and receive messages from, customers, suppliers, banks, insurance companies, advertising agencies, shareholders, trade unions, environmental organisations and, alas, the revenue authorities (external communication). But corporate communication also has a role to play inside the unit (internal communication). Messages have to be exchanged between its various offices, sections or departments, such as Accounts, Goods Inwards, Goods Outwards, General Office, Mail Room, and Warehouse. Enterprises have a great variety of media available for internal and external communication. Messages may be transmitted by letter, postcard or telephone. Alternatively, one of the more modern media such as e-mail or fax can be used. Last but not least, face-to-face communication, as exemplified in meetings, sales talks, contract negotiations and the like, has to be mentioned in this context. The number of different types of messages is

legion. A useful distinction is that between external messages (such as inquiries, offers, orders and complaints) and internal ones, these latter frequently referred to as (internal) memos. The terminology describing business communication formats has recently been enriched by a few new buzzwords based on e-commerce jargon: B2E (business to employees) refers to electronic exchanges between superiors and subordinates at all levels, B2G denotes business-to-government interactions, while F2F is used for face-to-face communication in both internal and external contexts. Stakeholder This term has been modelled on stockholder, and the idea underlying it is, in effect, an extension of the stockholder concept. Originally, a company’s main responsibility was to its stockholders, whose benefits its management were supposed to maximise. In the course of time, however, more and more people have to think that a company has a wider responsibility and should not ignore the interests of other

groups that are affected by its activities. These groups, which include the firm’s employees, its suppliers and customers, the community where it is located, and the general public (acting, for instance, through the government or environmental organisations) are called stakeholders, because they too have a stake in the business, although not a financial one. The stakeholder concept represents a new and interesting way of looking at companies and their role in society. Quite a few have already incorporated it into their management philosophies, either because they really believe in social responsibility or because they have realised that a more responsible attitude towards society is likely to enhance their reputation. This may create a competitive advantage and help them achieve their true goals (e.g profit maximisation) more efficiently. Staff The term staff (or personnel) refers to a group of people carrying out work under common management. There is a tendency to use this term

for the employees of service businesses, eg insurance and newspaper companies. By contrast, those of steelwork and similar establishments are, as a rule, collectively referred to as the workforce. It should be noted that the work frequently takes the verb in plural, as in five staff were dismissed. S e i t e |2 Source: http://www.doksinet EBC 1 Keywords Supplier A supplier is typically a firm selling goods and/or services to other firms, private individuals, government agencies, etc. Sales (Umsatz) In accounting, the term “sales” refers to the total revenue derived by a firm from the sale of goods and/or services in the normal course of business. Gross sales in include returns, discounts and value added tax, if any while net sales exclude these items. Sales are always related to a specific period of time, i.e they represent a flow concept Sales (Gesamtabsatz) The term “sales” may also refer to the total quantity of products sold by a business organisation within a

certain period of time (e.g number of cars, tonnes of coal, barrels of oil) In contexts where is it necessary to clearly distinguish between the two concepts as defined in sales (Umsatz) and sales (Gesamtabsatz), the expression “value sales” (total revenue) and “volume sales” (total quantity sold) may be used. Turnover (Umsatz) In British usage, „turnover“ also refers to the total revenue derived by a firm from the sale of goods and/or sales in the ordinary course of business, i.e it is synonymous with sales (Umsatz) Return (Ertrag, Rendite) Return is one of the key concepts in economic analysis. It is a ratio used to measure the profitability of economic activities. In other words, it relates the financial result of an economic operation to the investment required to generate that result. To take a simple example: if a company with total assets of $30 million makes a profit (before interest expense) of $3 million in a particular year, the return of the money invested in

the assets of the company is ten per cent. This percentage is calculated by dividing $30 million into $3 million and multiplying the result by 100 to convert the ratio into a percentage. The return ratio is so important because, among other things, it enables the profits of economic units of different sizes to be compared in a rational manner, and appropriate investment decisions to be taken. Absolute profit figures do not tell us whether the business involved are doing well or poorly. A profit of $1 million can be a brilliant result for a small firm (with assets of, say, $5 million) but a catastrophe for a company twenty times its size with assets worth $100 million. The small company would have a return on total assets of 20 per cent, while in the case of the large company the same ratio would be a trifling one per cent. Other examples of the return concept are ROS (return on sales or margin) and ROE (return on equity). In the field of financial investment, return may be used as a

synonym for yield. An example is total return to shareholders, which relates the dividend and the capital gain/loss of a given year (or any other period of time) to the price of the share involved. In economics, the expression “return” may denote the physical output derived from a combination of inputs. The observation that the successive application of additional units of a variable input factor (e.g labour) to a fixed input (eg land) tends to generate lower and lower (marginal) outputs (eg wheat) is referred to as the Law of Diminshing Returns. ROI = return on investment S e i t e |3 Source: http://www.doksinet EBC 1 Keywords UNIT 2 Sole trader (Einzelunternehmen) The simplest form of a business organization is that run by one person. It is known as a sole trader, a one-man firm or, in American English, a sole proprietorship. A sole trader (US: sole proprietor) provides all the capital required (some o which he may borrow), makes all decisions, and bears all risks. The profit

he makes is his alone It includes elements of salary for his own services (earnings of management) and interest on the capital he has invested. He has unlimited liability, ie if his business fails his private fortune can be called upon to meet his business debts. This type of organization is suitable for small businesses in retailing and particular trades, or – more generally – wherever the element of personal service is important and little capital is needed. The advantages are flexibility, quick decisions, initiative in management, and a relative lack of legal formalities compared with other traditional forms of business organization. However, it is difficult for a sole trader to raise additional capital in order to expand his business, and to be his own buyer, sales manager, accountant, etc. all in one It is important to note that Austrian and German laws are relatively restrictive with regard to the kind of business that can actually be operated by a sole trader. In these two

countries, this form of business organization is available only to a person who carries on a “Handelsgewerbe” for his own account (and who is called a “Kaufmann”) and not, for instance, to a self-employed professional such as a lawyer, who is not a “Kaufmann”. Just for the record, the term “Kaufmann” is misleading, because in everyday usage it refers to businesses buying goods and selling them without substantial transformation, while “Kaufmann” as defined in Austria or German Law also includes the firms producing (and, of course, buying and selling) goods. Partnership (Personengesellschaft) In the United Kingdom, a partnership is an association of two or more individuals (the maximum number of being twenty) who, as co-owners, carry on a business for the purpose of making a profit. Unlike a company, it has no legal existence separate from that of its members. Although a partnership may be formed by tacit agreement, it is highly desirable that a tailor-made, formal

partnership agreement (also known as the articles of partnership) be drawn up, in which the rights, powers and duties of all partners are set out. The contents of such an agreement will vary with the nature of the partnership and the business concerned, but are likely to include the following: • • • • • • • • • The name of the firm and the names and addresses of the partners The nature of the business The capital of the enterprise and the contribution to be made by each partner (either in cash or in form of assets and/or services, that is, in kind) The extent to which the partners are to take part in managing the business The proportion in which profits or losses are to be shared The amounts that the partners may withdraw for their personal use The interest payable on loans and drawings The duration of the partnership and the conditions under which it may be brought to an end Provisions for its dissolution S e i t e |4 Source: http://www.doksinet EBC 1 Keywords

Partnerships may be classified into general and limited partnerships. The most important characteristic of a general partnership is that all members – referred to as general partners – have unlimited liability, which means that they are fully liable for all debts and obligations of the firm, and that even their personal assets can be called upon to meet any business debts. This is true of both active (or managing) partners, who take a full part in the running of the business, and silent (or sleeping) partners, if any, who agree to contribute capital and share in profits or losses but to take no part in management. It should be noted that under certain circumstances a general partner may have to meet more than his “share” of a particular obligation, namely in cases where his fellow partners are unable or unwilling to meet theirs (joint and several liability). From the above it is clear that a silent partner in a British general partnership is not the exact equivalent of a

“Stiller Gesellschafter” in an Austrian “Stille Gesellschaft”, the main difference being that the latter has only limited liability, whereas a silent partner in a general partnership is fully liable. To avoid confusion, we suggest rendering “Stiller Gesellschafter” as undisclosed partner (with limited liability). The limited partnership, which is very rare in Britain and the United States, has two different types of partners: general partners, with unlimited liability, and limited ones, whose liability is restricted to the amount of their agreed capital contribution. Every firm which is registered as a limited partnership must have at least one general partner. Its limited partners must not take part in its management. A new – and apparently more popular – type of limited partnership is the limited liability partnership (LLP). As the name suggests, all of its members have limited liability, but are nevertheless allowed to play an active role in managing their business.

Many law and accounting firms now operate as LLPs. The situation in Austria is characterized by a great variety of partnerships, including civil-law partnerships and “professional partnerships” (Erwerbsgesellschaften), the latter being tailored to the needs of self-employed professionals such as lawyers and tax consultants. The two main advantages of a partnership – as compared with a sole trader – are its ability to raise additional capital and the fact that duties and the burden of any losses can be shared among its partners. On the other hand, the most obvious disadvantages are the general partners’ unlimited liability and the sharing of any profits made. Company Companies (in the US referred to as corporations) are the most prominent form of business organisation in many fields of the economy. This is borne out by the fact that the majority of large, medium-sized and even small businesses in the United Kingdom and the United States are run as companies/corporations. A

company in the private sector is normally formed with a view to making a profit for its members by engaging in manufacturing, trading or the provision of services. The capital of such a company is divided into shares. It is raised by each member taking a certain number of shares, which are paid for in cash or, occasionally, given in exchange for some other consideration. The members, called shareholders (UK, US) or stockholders (US), share in the company’s profits, typically in accordance with the size of their holdings. Corporate profits are usually distributed in the form of a cash dividend, which is expressed as a percentage of the nominal value of a share. A company is a legal entity, which means that is has a legal existence separate from that of its individual members. As such, it is the owner of all business assets and liable for all its debts and obligations. The liability of its shareholders is limited to the issue price of the shared held by them Should the company fail,

there will be no call on individual shareholders to meet its debts, provided that they have fully paid up to their shared. In other words, a shareholder is personally liable only for any amount remaining unpaid in the shares held by him. S e i t e |5 Source: http://www.doksinet EBC 1 Keywords Ultimate control of a company is in the hands of its shareholders, who exercise this power by voting at meetings, in particular at the annual general meeting (AGM), but who are not allowed to participate in management. This is the responsibility of the board and directors (elected by, and accountable to, the shareholders) and of paid managers, who are selected from among the directors or recruited from outside. Company advantages and disadvantages The major advantages of company status may be summarised as follows: • • • A company has a continuous existence, independent of its members or directors Its shares are freely transferable, and therefore can easily be sold without affecting

its capital or existence. The liability of its members is limited to the issue price of the shares held by them. This limitation of the risks involved encourages individual and institutional investors (such as life assurance companies and pension funds) to put their money not only into government bonds but also into corporate equities. This makes it possible for companies to raise the huge amounts of capital necessary for large-scale operations, which in turn may result in considerable economies of scale. The advantages listed above may be offset by the following disadvantages: • • • • • Publicity, or disclosure requirements make it difficult for companies to conceal their business affairs. Their books must be available for inspection by their members and the general public Especially in a large company, the directors and managers have direct control over its affairs without being effectively accountable to the real “owners” (divorce of ownership from control). There

is room for conflict between a company’s shareholders (whose interests may be focused on a high dividend payout), its directors and managers (who tend to be keen on ploughing back profits) and its workers (interested in higher wages, job security and better working conditions) There may be a lack of personal contact with customers and employees. Companies may be prone to slow and inflexible decision-making. Corporation (Kapitalgesellschaft, Konzern) In general, an American corporation is the equivalent of a British private or public limited company. In business magazines and newspapers, however, the term is normally used in a narrower sense and refers to a publicly held corporation. Since many corporations have subsidiaries, it also denote a group of companies. Corporation (wirtschaftliches Unternehmen der öffentlichen Hand) In the United Kingdom, the term “corporation” is applied to a public corporation, i.e a business organization created by an Act of Parliament and both

owned and controlled by the government. S e i t e |6 Source: http://www.doksinet EBC 1 Keywords Share (Aktie) The Concise Oxford Dictionary defines the term “shares” as “any of the equal parts into which a company’s capital is divided, entitling its owner to a proportion of the profits” and, one must add, giving him certain other rights, e.g to vote at general meetings of the company and to share in the proceeds of a voluntary winding up. S e i t e |7 Source: http://www.doksinet EBC 1 Keywords UNIT 3 Management (Unternehmensführung) Management includes all activities involved in running a business organization. In particular, managers are concerned with preparing and making decisions, and ensuring that they are carried out. The management process can be broken down in various ways, but most books on management list some or all of the following activities as essential ingredients: • • • • • • • Identifying, formulating and setting objectives Planning

– drawing up long-term (i.e strategic) and short-term (ie tactical) plans Establishing and maintaining a suitable organization, which comprises an organizational structure and organisational procedures. Implementing – getting results through other people, which involves delegating, motivating and commanding Controlling – measuring performance, comparing results with predetermined standards, and taking corrective action if necessary. Communicating with other members of the business organisation Establishing and maintaining contacts with the outside world, and representing the organisation in negotiations with customers, suppliers, trade unions, the government, etc. It is clear, that some of the above-mentioned activities overlap to a certain extent. Communicating with other members of the organisation is obviously an all-pervasive function. In the course of the management process, managers rely on various techniques to achieve their goals. Qualitative management techniques

include management by objectives, management by result and management by exception, while network analysis, simulation, linear programming, risk analysis and decision trees are examples of quantitative techniques, which are roughly what is meant by the expression operations research. Another important consideration in this context is the style of leadership, or management style, used by executives. Management styles range rom very authoritarian (little confidence in subordinates; no employee participation in goal-setting and decision-making, motivation by fear, threats and punishment) to very co-operative (motivation of subordinates by participation and involvement, as well as complete trust and solidarity reasons, but also because enterprises with a co-operative management style are more likely to have a continuous record of high productivity, as Likert, an American researcher, has shown. Management (Management, Geschäftsleitung, Führungskräfte) The term “management” refers to

the group of people that control a business organisation, in particular a public limited company or a corporation, in which case it includes the executive directors and managers ranking below them. Although they all receive a salary from the company like other staff, managers are not normal employees but rather represent the interests of the company’s “owners” (its shareholders) vis-à-vis its workers, unless of course they pursue only their own interests. That is why they are rarely members of a trade union but have their own organisations Modern developments have somewhat mitigated this antagonism between workers (“us”) and management (“them”), although it can still be found in many traditional firms. A company’s management is commonly divided into senior, middle and junior management, although the first of these tiers is sometimes split into two separate categories, viz. top and senior executives. Senior management is usually led by the chief executive officer and

his deputy, who work closely with the board of directors, and includes the heads of the various divisions or departments. S e i t e |8 Source: http://www.doksinet EBC 1 Keywords Below them is the middle management team, to whom many of the responsibilities of the highestranking officers are delegated. The lowest level of management is called junior, or lower management. For instance, a company’s highest-level financial manager (US: vice-president in charge of finance, chief financial officer / CFO) belongs to the senior category, while those reporting to him (e.g the chief accountant and any regional finance managers) are middle managers Junior managers in the finance department will include bookkeepers and collection managers, while foremen and quantity supervisors can be found on the shop floor of the company’s production facility. Organisation One of the meanings of this exclusive term is “organisational structure” (e.g of social or sociotechnical systems such as

business enterprises) Organisational structures can be described in terms, either of the basis organisational units into which business organisations are divided, or of the formal relationships between these units. The structure of an organisation may be presented graphically in the form of an organisation chart, with boxes for its organisational units and lines for the relationships between them. In the case of a functional organisation, each basic organisational unit (usually called a department) is responsible for a specialist activity, or function. Thus, a functionally organised multi-product industrial enterprise will have a purchasing department, a production department, a marketing department, etc. , each subdivided into units (eg sections) with responsibility for a particular product or group of products. If the same firm is organised on divisional lines (divisional organisation), the basis units will be divisions, each being concerned, for example, with aa particular product,

a group of products, a certain territory, or a sub-group of customers. Of course, each division itself will comprise a number of functional units. Thus, a chemical group might have a plastic division, a pharmaceutical division and a pesticide division, each subdivided into organisational units dealing with research and development, production, marketing, etc. The distinction between a line organisation and a line-and-staff organisation is based on two important types of relationship between the organisational units of a company. A line relationship between two units implies that one (superior unit) has authority to give commands to the other (subordinate unit). Thus, in the case of a line organisation, there is a chain of command (or rather a number of chains) from the top to the bottom of the enterprise. Each unit (with the exception of the highest and the lowest) receives commands only from the one above it, and gives commands only to the one below it. In an organisation chart, such

a chain of command could be represented by a line starting, for instance, with the chief executive officer and running through the production manager, the works manager and the foreman, down to the machine operator. Hence the term line organisation. Staff relationships are of an advisory or service nature. The marketing manager of a company, a line manager, may be assisted by a marketing research unit, reporting to him but having no line authority, i.e no authority to give commands to other units An enterprise having both line and staff relationships between its units is said to have a line-and-staff organisation. Functional, divisional, line and line-and-staff organisations are only the most basic types of structures to be found in business firms. In reality, there is a much greater variety of organisational arrangements. Modern books on the theory of organisation also list matrix organisations, profit centres, project teams, working parties, and intrapreneurial units. Some of these

are only temporary organisational structures and reflect the greater flexibility observable of late in this field. Generally speaking, it is probably safe to say that the older, more hierarchical and centralised types of arrangements are gradually being replaced with organisational structures that put more emphasis on co-operation and decentralisation. S e i t e |9 Source: http://www.doksinet EBC 1 Keywords A discussion of the principal types of organisational structures, however brief, would be incomplete without mentioning organisational procedures, i.e those formal rules that govern the interaction of the various organisational units, and the great variety of informal relationships between theses units. Failure to pay enough attention to the latter type of relationship has often led to grave difficulties in otherwise efficiently organised enterprises. Line management (Linienmanagement) Line management consist of all those managers (line manager) directly responsible for the

functional activities of a company, e.g purchasing, production or marketing The word “line” indicates that they have authority over the people working under, and reporting to, them. Line managers have to be distinguished from staff managers, who head staff departments such as legal services and marketing research, and whose main task is to provide advice and assistance to line managers. That is why, especially in British English, “line manager” can also mean “superior” or “boss”. He is my line manager, therefore, indicates that I report to him. Staff 2 (Stab) In a narrower sense, “staff” is used to describe those people in a large organisation who are not in the direct command, but provide advice and assistance to line units instead of carrying out operational tasks. Public relations and marketing research departments are typical examples of staff units, the former frequently reporting to the chief executive officer (CEO) and the latter to the marketing manager of

the company involved. Corporate culture (Unternehmenskultur) “Corporate culture” is a buzzword in management, which – like many other concepts and terms in this field – has been imported from the United States. Its increasing popularity reflects the fact that a new way of looking at business organisations has finally come into its own. More and more experts and managers have realised that such organisations are not just complex mechanical systems that can be controlled by quanitative management techniques, but living social organism in which a decisive role is played by individuals and groups of people, with their emotional needs, beliefs and attitudes. “Corporate culture” is a comprehensive term used to describe the soft elements in a business organisation. Every company has a kind of informal corporate philosophy, ie a set of basic values and beliefs which are shared by most of its members and pervade all its activities. They determine its goals, structures and

procedures, its style of management, and the way in which its members interact with one another and the outside world. Moreover, every business firm has its myths, its heroes and legends, its rites and customs, and a certain atmosphere, which are all related to its core values and beliefs and give it its distinct profile. What are the practical implications and limitations of this new management concepts? Although nurturing the cultural aspects of a business organisation is likely to have a positive influence on its performance, corporate culture is not simply another management tool; since it has a life of its own, it is ultimately not amenable to manipulation. Corporate culture may develop in ways that clash with the official goals of profit-oriented organisations. If carried to its logical conclusion, this new concept may well break the mould of traditional enterprises and lead to an entirely new era in business life. S e i t e | 10 Source: http://www.doksinet EBC 1 Keywords

Intrapreneurship (Unternehmertum im Unternehmen) “Intrapreneurship” is a fairly new management technique. It involves encouraging entrepreneurial behaviour inside large business organisations which have become too rigid and inflexible for quick innovation. The usual method is to establish separate venture group with their own development, production and marketing units, and to set each of them a specific task. These groups are kept on a long leash and normally report to top management, by passing the often complex corporate hierarchy. Telecommuting (Telependeln) “Telecommuting”, also called teleworking, is an arrangement under which regular employees work primarily off-site, either at home or from a satellite office. A telecommuter’s personal computer, often provided by his company, is hooked up with the firm’s own computer system. This means, on the one hand, that it has direct access to all relevant company data and, on the other hand, that he can – or rather has to

– transfer worked-up data back to the central office. For employees, telecommuting may obviate the need to spend hours and hours of travelling to and from work, thus easing congestion on roads and pressure on public transport, but it will inevitably reduce the opportunity for social contacts. Whether this type of alternative work schedule makes it easier to square one’s job with private life (especially looking after small children) is a moot point. A lot depends on the children’s age and the telecommuter’s personality. For some people, keeping family life and work separate may prove more difficult than in traditional working arrangements. S e i t e | 11 Source: http://www.doksinet EBC 1 Keywords Unit 4 Personnel Management (Personalwirtschaft) Personnel management, also called personnel administration or human resource(s) management (HRM), is the application of the management process to a company’s human resources. More specifically, it is the management function

responsible for recruiting, selecting, training, placing, promoting, rewarding, motivating and, yes, dismissing employees with a view to achieving the overall goals and the organisation involved. Personnel management is an all-pervasive function, i.e one performed not only by specialists, but by anybody managing people. It can therefore be found both in large organisations with a personnel manager, who is responsible for some, but not all, matters relating to personnel management, and in firms without such positions. Moreover, in a large company, most executives (such as workers and sales managers) and even foremen influence and, perhaps, control the recruitment, training, promotion and pay of those who work under them, although they will be assisted, advised, guided and, to some extent, controlled by the personnel manager in doing this. Personnel management is influenced by certain explicit and/or implicit assumptions about human behaviour in organisations. Taylorism, or scientific

management, with its heavy emphasis on work measurement (e.g by time and motion studies) and purely monetary incentives, is based on a mechanistic view of human behaviour and regards employees simply as a particular form of input. Other management philosophies, such as the Human Relations Movement and the social systems model, show more respect for employees as human beings, setting greater store by motivation, job satisfaction, conflict solution, co-operation, and worker participation. Personnel consulting (Personalberatung) Finding the right person for a vacancy in business organisation is a difficult and time-consuming task, especially if the internal search process has produced no results. That is why more and more companies are availing themselves of the services offered by outside specialists, viz. personnel consulting agencies. Outsourcing parts of the human resources management process has become common practice, because it frees internal management capacity and enables

enterprises to concentrate on their core activities. Personnel consulting agencies are particularly useful when a company has decided to enter a foreign market and wants to, or must, hire local staff. Only a locallybased personnel consulting firm or the local office of an international agency will know how to word an appropriate job advertisement in the relevant language, where to place it, what criteria to apply in screening the applications received and interviewing the shortlisted candidates, or how to organise assessment centres. The recruiting process becomes even more complex if a firm has to find a top-level manager, e.g a new CEO (chief executive officer) In such a case, it is often not possible to use the procedure outlined above; instead, the personal contacts of a headhunter (business jargon for an executive search specialist) are much more important. In addition to assisting firms in recruiting suitable staff, personnel consulting agencies may offer personnel development,

training, and similar services. Like other management consulting agencies, personnel consulting is not cheap, and in spite of heavy competition in this field the fees charged by top-notch consultants may seem exorbitant. Some agencies have recently switched to a contingency fee system. This means their clients have to pay the fee in question only if the agency involved actually succeeds in filling the vacant position with a suitable candidate. S e i t e | 12 Source: http://www.doksinet EBC 1 Keywords Recruiting (Personalbeschaffung) One of the most important tasks of a personnel manager is to recruit suitable employees for his organisation. People can be recruited internally, ie he may try to find somebody inside his company to fill a vacant position, or vacancy. In many cases this will involve the promotion to a higher position of staff member who has shown promise. External recruitment means going outside the firm, eg by running job advertisements in newspapers and magazines, or

by enlisting the help of specialists such as governments-sponsored employment offices, private personnel consulting agencies, or executive search organisations, the latter often referred to as headhunters. The search process normally results in a large number of written applications, which will have to be screened to eliminate the most obvious “misifts” before a shortlist of suitable candidates can be drawn up. In the next stage of the selection process the shortlisted applicants are usually invited for a job interview. In addition, they may be asked to undergo aptitude tests and/or take part in even more complex evaluation exercises, like assessment centres, to enable the personnel manager and other executives to make their final choice. Whatever method is used in the final stage of the recruitment process, its basic purpose is to identify the ideal candidate by comparing the company’s requirements with the skills, attitudes, and (track) record, i.e the work experience and

achievements, of the applicants involved. It should not come as a surprise that recruiting activities have lent themselves to being conducted via the Net. Online recruiting, or e-cruiting, has grown by leaps and bounds, with 50% of Internet users in the United States giving paperless job-hunting as their number one reason for going on-line (according to a survey in the year 2000). Promotion (Vorrückung, Beförderung) In personnel management, the term is used to describe the advancement of an employee to a higher position, i.e an upward move on the career ladder Redundancy (Abbau (von Arbeitskräften)) In a labour context, “redundancy” refers to the dismissal of employees because there is no longer any work for them. Redundancies may be caused by falling demand or rationalisation, and should not be confused with dismissals for other reasons, e.g protracted absenteeism, theft, or unfitness for a particular job. The term is used in this sense only in the United Kingdom, where the

Redundancy Payments Act of 1965 requires an employer either to show that a particular dismissal is not due to redundancy or, if it is, to pay compensation (known as redundancy payment) to the employee concerned. S e i t e | 13 Source: http://www.doksinet EBC 1 Keywords Contract of employment (Arbeitnehmervertrag, Dienstvertrag) A contract if employment, or contract of service (not to be confused with contract for services), establishes an employer-employer relationship. In the United Kingdom, it can be made in any form, i.e by deed, in writing or orally, although under the Contracts of Employment Act of 1972 employers must give their employees detailed written information of the terms of their employment. These terms include: rate or basis of remuneration; hours of work, holidays and holiday pay, sickness and sick pay, and any occupational pension; length of notice to terminate employment; and the employee’s rights in respect of trade union matters and activities. With regard to

hours of work, various arrangements are possible: full-time employment and alternative work schedules such as permanent part-time employment, flex(i)time, telecommuting and job-sharing. Like any other contractual agreement, a contract of employment lays down or implies a number of obligations for the parties involved, i.e the employer and the employee The main duties of the employer are to pay the agreed remuneration, to reimburse the employee for expenditure reasonably and properly incurred, and to indemnify him against any liabilities arising in the proper performance of his duties. The employee’s responsibilities include his duty to obey any lawful instruction of his employer, to exercise care and skill in performing his tasks, to conduct himself properly (laziness, negligence and bad timekeeping being examples of misconduct) and, finally, to act in good faith all the time. In Britain, termination of a contract of employment is partly regulated by the Employment Protection Act of

1975, which specifies the minimum period of notice to which a full-time employee is entitled. Employee benefits (betriebliche Nebenleistungen/Sozialleistungen) Employee benefits (often called benefits or fringe benefits) are payments, either in cash or in a kind, made to an employee in addition to his “normal” wage or salary. Such benefits may be: statutory, ie based on legal provision; contractual, i.e incorporated in the contract of employment; or voluntary, which means that they can be withdrawn at the employer’s discretion. Examples of employee benefits are: holidays with pay (e.g in Austria), subsidised canteens, free use of recreational facilities, day care centres, relocation assistance, non-contributory occupational pensions, company cars, and stock options (which grant managerial personnel the right to purchase a specified number of shares of company stock at a favourable price during a predetermined period of time). Labour turnover (Flutation, Flutationsziffer,

Mitarbeiterfluktuation) Labour turnover – or, more precisely, the rate of labour turnover – is a measure of the stability or instability of a firm’s workforce. This ration can be calculated in various ways The most popular method is to express the number of workers leaving the business firm during a specified period of time (usually a year) as a percentage of its average workforce for the same period. A high rate of labour turnover means the opposite. If all the members of the workforce leave the enterprise during the period under review and are replaced with new staff, the labour turnover is 100 per cent. In view of the disruptive effects of large numbers of people leaving and joining a company, and given the high cost of hiring and training new employees, business have an inventive to keep their labour turnover as low as possible. S e i t e | 14 Source: http://www.doksinet EBC 1 Keywords Flexitime (flexible Arbeitszeit, Gleitzeit) Flexitime is an alternative work schedule

under which a company’s employees choose their daily arrival and departure times according to their needs, of course within the limits defined by, or agreed with, management. This arrangement does not affect the standard number of hours that each employee is required to work per week under his contract of employment. Flexitime work schedules are characterised by core periods, during which attendance is mandatory for all employees, and flexibands, i.e periods during which they may choose to be present or not There are many variations of this basis scheme. One is flexitime by the month or by the year, which offers the participating employees even more flexibility through credit hours. Whichever arrangement is chosen, flexitime involves both advantages and disadvantages for employees and employers. Thus, staff benefit as it normally improves the quality of their lives, increases job satisfaction by giving them more control, and makes it easier for them to square working life and

personal needs. This last aspect is particularly important for single mothers and employees with small children. The benefits to employers come in the form of fewer short-time employee absences, higher productivity, and more intra-company interaction. However, communication and co-ordination may become more difficult, time-recording may turn out to be more complicated, and certain overheads (e.g additional heating and lighting) may increase For employees there are very few disadvantages, although sometimes the introduction of flexitime may lead to a reduction of overtime. Worker participation (Arbeitnehmermitbestimmung) Worker, or employee, participation is based on the idea that working people should be involved in decisions affecting their working lives, instead of simply carrying out commands which are passed down to them from higher levels of management, and which they may not even fully understand. Worker participation may be implemented at various levels in a business

organisation. Shop-floor participation, for instance, involves workers engaged in the actual production and/or distribution of goods and allows them greater freedom to organise their work. In the case of boardroom participation, the workers, through their representatives, take part in the consultations and decisionmaking of the board of directors, laying down the fundamental objects of the company, reviewing and approving the corporate plans, deciding about mergers, takeovers, acquisitions and divestitures, etc. Worker directors, as these representatives are called, are rare in Britain, since worker representation on company boards is optional. In Germany and Austria by contrast, the law requires one third – or in some German industries even half – of the members of the supervisory boards of large companies to be workers’ representatives. Worker participation may be regarded as part of a wider movement seeking to apply the principles of political democracy to other fields of

life, and is therefore often referred to as industrial democracy. S e i t e | 15 Source: http://www.doksinet EBC 1 Keywords Unit 5 Industrial relations (institutionalisierte Arbeitgeber-Arbeitnehmer Beziehung) The term industrial relations (US: labour relations) does not, as might be supposed, refer to the relationships between industries, or between business firms within a given industry, but to those between the two sides of industry, viz. labour and management, within the framework provided by government. In British usages, it is normally restricted to the collective dealings between employers and employees, or rather between employers’ associations and trade unions, while the expression human relation describes certain aspects of the interaction between individual workers and their employers. Therefore, industrial relations is concerned with collective bargaining, national or industrial wage rates, trade union recognition, incomes policy, and related matters. In the United

Kingdom, industrial relations used to be characterised by conflict and industrial action (such as strikes), while the Austrian system (called Sozialpartnerschaft) put and – in spite of recent political developments – still puts a premium on negotiations and comprises. Trade association (Fachverband) A trade association is an organisation set up by firms in a particular industry. It is formed for the purpose of protecting the interests of its members, especially by representing them in negotiations with government, trade unions, or other associations. Trade Union (Gewerkschaft) Trade unions (called labour unions in the United States) are voluntary associations of employees created for the purpose of protecting the interests of all members, especially vis-à-vis their employers, in such areas as wage rates, working hours, working conditions, or redundancies. In general, they try to achieve their goals not only by negotiations with employers’ organisations or individual employers,

but also by taking industrial action, if necessary (e.g organising strikes or goslows) However, many unions additionally engage in other activities They may, for instance, provide educational and welfare services to their members (vocational training, strike pay, holiday homes, etc.) or support individual politicians and political parties in order to motivate them to further the cause of labour on the parliamentary level. Nowadays, we take the right of workers to establish and join trade unions for granted. It is often forgotten that this right of combination had to be fought for. In Britain, for instance, some 40 laws prohibiting the formation of unions in various trades were not repealed until 1824. Trade unions can be formed by combining workers in a particular craft (craft union), in a particular industry (industrial union) or according to some other principle (e.g white-collar union) Individual unions are usually affiliated to some national federation or umbrella organisation

(such as the Trades Union Congress / TUC in the United Kingdom or the American Federation of Labor and Congress of Industrial Organizations / AFL-CIO in the United States) to discuss and solve problems common to them all. S e i t e | 16 Source: http://www.doksinet EBC 1 Keywords Strike (Streik) A strike is a concerted stoppage of work as a protest by workers against low wages, poor working conditions, redundancies, plant closures, or some other ground for dissatisfaction. It may continue until the workers’ demands have been met, or the other party to the dispute agrees to have formal discussions or negotiations. A strike that has been ordered or condoned by the relevant trade union is referred to as an official strike, while one that has not been so endorsed is termed unofficial or wildcat. A strike, or walkout as it is sometimes called, is labour’s most powerful weapon in an industrial dispute. One aspect of strikes that has attracted a lot of attention lately is picketing.

Pickers are workers stationed outside a place of business during an industrial dispute to inform the public and dissuade other workers from entering. Secondary picketing, ie picketing by people not directly involved in a strike has been outlawed in the United Kingdom. Work-to-rule (Dienst nach Vorschrift, Aktion Vorschrift) Work-to-rule is a form of industrial action in which the employees involved remain at work, but slow down operations by observing the regulations relating to their work strictly and literally. In contrast to a go-slow, work-to-rule does not constitute of a breach of the contract of employment, and is therefore a safe and efficient measure of putting pressure on an employer. Lock-out (Aussperrung von Arbeitern) If an employer involved – either directly or indirectly – in an industrial dispute closes down his firm and prevents his employees from performing their work (and earning their wages) the action is called a lock-out. Lock-outs, which are practically

unknown is Austria, were not unusual in Germany, where employers in a particular industry used to retaliate against a partial strike by locking out the workers of firms not affected by it. S e i t e | 17 Source: http://www.doksinet EBC 1 Keywords Wage (Lohn) In its broadest sense, the term wage refers to the income derived from dependent employment, which at this level is contrasted with other factor incomes such as profit and rent. In a narrower sense, this expression is applied to the income of blue-collar employees and should be distinguished from salary, which denotes the income of white-collar (or salaried) employees. Another useful distinction is the one between wage(s) and earnings. The term wage(s) is usually restricted to the remuneration received for a standard working week (or any other unit of time choses as a basis for paying wages), while earnings include wages in this sense and, in addition, overtime pay and employee benefits. It is also important to distinguish

between nominal and real wages. The former are expressed in monetary terms, while real wage denotes the amount of goods and services that can be bought for a given nominal wage. Wages play an extremely important role in the economic life of a country, because they represent, on the other hand, the main source of income for the majority of the working population and, on the other, and important cost element for business organisations. The level of wages directly affects not only the standard of living of employees but, since it is a major determinant of profits, also that of employers as well as the volume of investment. Thus, inevitably, there is a constant tug-of-war between employees and employers, with the former trying to push wages up and the latter to keep them down. The actual level of wages at any given time is therefore determined by the balance of power in this struggle, the outcome being decided by such factors as demand for, and supply of, labour, the economic situation,

profit margins, trade union power and policy, and negotiation skills. In most countries, the government is also a force to be reckoned with. Most governments pursue some kind of incomes policy, e.g setting minimum wages, imposing wage freezes, or mandating compulsory arbitration. Wage system (Lohnformen) Wages are paid in two main ways: by time (time rates) or by piece, i.e output (piece rates) Time rates are usually in the form of hourly, shift or weekly rates for a specified number of hours. They are suitable for precision work and dangerous work, where a wage-induced increase in speed may lead to lower quality and a higher rejection rate or to more accidents. But this method is also used for work involving a large number of different activities, where output is difficult to measure (e.g repair work or material handling). In some cases, time rates are combined with a bonus element (bonus system). Ideally, time rates induce employees to work more carefully, but they may encourage

loitering and idleness if the employer does not use other (non-monetary) incentives or disincentives to maintain a reasonable level of output. In the case of piece rates, the remuneration paid to given worker depends on the output produced within a given period of time by him or by a group of workers of which he is a member. This is the least sophisticated version of piece rates. Most firms use slightly more complicated methods, for instance the task system of pay, which is based on a standard time allowance for a particular job or task. Under this arrangement, an employee working very quickly during an eight-hour working day may, for instance, be paid for ten hours. In a variant of this scheme, a bonus is paid for any time saved on the allowance. Piece rates and the bonus system are often referred to as payment by results or incentive payments, since their main purpose is to induce employees to work harder. The piece-rate system is a controversial method of remuneration. On the other

hand, it may enable an efficient worker to earn more but, on the other, it may become a dehumanising form of exploitation. S e i t e | 18 Source: http://www.doksinet EBC 1 Keywords Unit 6 Inquiry (Anfrage) Many business transactions start with an inquiry (also spelled enquiry) relating to goods or services. This is usually a letter addressed by a prospective customer, or prospect, to a supplier. In a letter of inquiry, prospective buyers have to state simply, clearly and concisely what they want – sales literature (e.g catalogues, leaflets), price lists, samples, quotations, estimates, and so on As the majority of such letters are short and simple, many firms have adopted the practice of sending printed inquiry forms, thereby eliminating the need for letters. It is also possible for prospects to make inquiries by telephone, telex, fax or e-mail. Businesspeople, as a rule, send inquiries to several likely suppliers, as they want to find out which of them offers the best quality,

the most favourable prices and terms, etc. From a legal point of view, it is important to note that an inquiry is without any obligation for the inquirer. Inquiries may be either general or specific. In a general (or routine) inquiry, the prospective buyer merely asks the supplier to provide general information on his products, such as catalogues, leaflets price lists and, where appropriate, samples. In a specific (or special) inquiry, the prospect indicates his interest in receiving a detailed offer, including prices, terms of payment and terms of delivery. In addition to this, if he has a special request – for example, if he wants to be granted a concessional price for regular orders, or exclusive selling rights for a particular area – his inquiry should specify full details of his requirements. Offer (of goods) (Angebot) By submitting an offer (also referred to as a quotation) the offeror, i.e a particular seller, declares his willingness to sell certain specific goods, at a

specified price and on specified terms. Such an offer can be made orally or in writing. A verbal offer should be confirmed by letter An offer is frequently prepared on a printed form (quotation form), which is mailed either with or without a covering letter. It may be submitted in response to an inquiry (solicited offer), or without an inquiry having been made (unsolicited, or voluntary, offer). A complete offer should cover: • • • • • • nature and quality of the goods offered quantity price(s) and any discounts delivery period terms of delivery terms of payment. As has already been mentioned in the previous entry, many communications that are called offers in commercial practice (e.g offers without engagement) are not offers in the legal sense of the word Terms of delivery (Lieferbedingungen) Terms of delivery are provisions in a contract of sale stipulation the time, place and mode of delivery of the goods. In international trade, the place and mode of delivery are

usually specified by standardised trade terms, e.g INCOTERMS S e i t e | 19 Source: http://www.doksinet EBC 1 Keywords The following are a few examples of delivery which may be found in a business letter: • • • • • At present our time of delivery is two to three weeks (Gegenwärtig beträgt unsere Lieferzeit 2-3 Wochen) Delivery will be effected f.ob Hamburg (Lieferung erfolgt f.ob Hamburg) Delivery is to be made not later than Oct. 10 (Lieferung muss bis spätestens 10. Oktober erfolgen) Delivery can be effected in Vienna within four weeks after receipt of order./ within four weeks of order./ within four weeks from (of) receiving order (Lieferung kann in Wien innerhalb von 4 Wochen nach Auftragseingang erfolgen.) Please arrange for the goods to be sent by air. (Bitte veranlassen Sie, dass die Waren per Luftfracht versendet werden.) INCOTERMS INCOTERMS (short for International Commercial Terms) are a set of international rules for the interpretation of specified

trade terms used in export sales. They were first published by the ICC (International Chamber of Commerce) in 1936. Amendments and additions were made in 1953, 1967, 1976, 1980, 1990 and 2000 in order to bring them broadly into line with current practice in international trade. The main purpose of these trade terms is to help the parties to an international contract of sale to define the contract price more accurately. This is achieved by specifying (1) the method of delivery, (2) the duties of both seller and buyer, and (3) the point(s) up to which the costs and risks of the goods are to be borne by the seller and from which they must be borne by the buyer, i.e the point(s) where these costs and risks pass from one party to the other. Costs of the goods in this context does not mean the cost price of the goods, but all costs incurred in getting them to the place of destination, such as the cost of packing, all loading and unloading charges, or the cost of insurance. Without an

indication of the point(s) where the costs and risks pass from the seller to the buyer, a price quotation would be completely meaningless. For example stating in a contract between an Austrian exporter located in Vienna and a Chinese importer in Beijing that a particular consignment of goods costs US$12,000 makes no sense unless some information is given as to what is included in this price. Two of the options available under INCOTERMS are based on whether the goods have to be picked up by the buyer at the seller’s premises in Vienna, or whether the seller has to deliver them to the buyer’s address in Beijing and bear the costs and risks involved. If the expression ex works is added to the price quotation, then all costs and risks are transferred at the seller’s premises (e.g his factory or warehouse) In other words, the cost of shipping the consignment to the buyer’s location and the cost of insuring it must be borne by the buyer, and are therefore excluded from the price. The

other extreme is represented by delivered duty paid (named place of destination in the country of importation). Under this clause, the costs and risks pass at the place of destination specified after delivered duty paid, and the price quoted accordingly includes all costs up to that point. Under some INCOTERMS, the points where the costs and risks are transferred do not coincide This is the case with C&F, C.IF, freight/carriage paid to , and freight/carriage and insurance paid to . From what has been said so far it should be clear that INCOTERMS do not determine the passing of title to the goods involved. S e i t e | 20 Source: http://www.doksinet EBC 1 Keywords It is also important to note that the application of INCOTERM clauses is completely voluntary. If, however, a contract is concluded on the basis of such a clause, the seller and the buyer know exactly what their duties are, which helps to avoid misunderstandings and disputes in international trade. In some instances,

INCOTERMS are used as a basis for calculation the purchase price, while delivery of the goods is governed by other terms. For instance, a seller’s price list or catalogue may quote ex works prices for the goods advertised, and a foreign buyer may order accordingly, but the parties could agree that the consignment be dispatched by mail, with the seller undertaking to pack, invoice, frank and insure it. In this context, it should be borne in mind that any special provisions in an individual contract will override whatever is stipulated in the rules. Contracting parties may adopt INCOTERM clauses as a general basis for their contracts, but they may also agree on particular variations of, or additions to, them. For instance, a buyer may require a cif supplier to provide not only marine but also war risks insurance. In such a case, the purchaser, will specify INCOTERMS CIF plus war risks insurance. The seller will then quote his price on that basis Although all INCOTERMS are primarily

designed for export sales, the following may also be used in domestic transactions: ex works, freight/carriage paid to , free carrier. The following are two illustrative examples of clauses which might be found in contracts of sale: • • Delivery c.if Alexandria (Lieferung c.if Alexandrien) Our prices are / are quoted / f.ob Hamburg (Unsere Preise verstehen sich f.ob Hamburg) Which clause is actually chosen in connection with a particular contract depends on a variety of circumstances. For instance, a Chines importer concluding a contract denominated in US dollars will normally prefer F.OB to CIF, because the former will enable him to arrange transport and insurance in his local currency (i.e the yuan), and thus to minimise the foreign exchange content of the total transaction value. FOB will also be preferred alterative in cases where the importer can arrange transport and/or insurance at more favourable rates than the exporter. For details of the individual INCOTERMS see:

C.&F; CIF; delivered at frontier, delivered duty paid, delivered ex quay, delivered ex ship, ex works; F.AS; FOB; free carrier; freight/carriage and insurance paid to ; freight/carriage paid to . In all these entries, the main emphasis is on when the costs and risks pass from the seller to the buyer, and on the most important types of costs to be borne by each. The question of who is responsible for procuring various shipping documents (eg a bill of lading) is too complex to be dealt with in this book. Information on this and related matters can be found in: ICC Guide to Incoterms 2000: Understanding and Practical Use, ICC Publishing, International Chamber of Commerce 2000. C.IF COST, INSURANCE AND FREIGHT (Kosten, Versicherung, Fracht benannter Bestimmungshafen) If an international contract of sale is based on this clause (c.if contract), the seller must bear all costs and freight charges necessary to bring the goods to the named port of destination, and he must, at his own

expense, procure marine insurance against the risk of loss or damage during carriage. The seller’s responsibility for the items ends when he delivers them on board ship into the shipowner’s custody at the port of shipment. S e i t e | 21 Source: http://www.doksinet EBC 1 Keywords DELIVERED DUTY PAID (Geliefert verzollt benannter Bestimmungsort im Einfuhrland) Whereas the clause ex works, when stipulated in an international contract of sale, represents the seller’s minimum obligation, delivered duty paid, is followed by words naming the buyer’s premises, denotes the other extreme – the seller’s maximum obligation. Under this arrangement, the seller has to bear all costs and risks of the contract goods until these have been placed at the buyer’s disposal at the named place of destination in the country of importation. The clause delivered duty paid may be used irrespective of the mode of transportation. EX WORKS (ab Werk) EXW If a contract of sale is based on ex work

terms, the seller’s sole responsibility is to make the contract goods available at his premises (e.g works or factory), which means that it is not his duty to load them on the vehicle provided by the buyer, unless otherwise agreed. The buyer bears all costs and risks involved in transporting the goods to the desired destination. This clause thus represents the minimum obligation for the seller. F.OB (Frei an Bord benannter Verschiffungshafen) If an international contract of sale is based on f.ob terms, the seller undertakes to place the contract goods on board a vessel at the port of shipment named in contract. The risk of loss, or damage to, the goods passes from the seller to the buyer when they cross the ship’s rail. Terms of payment (Zahlungsbedingungen) One of the most important aspects of a contract of sale is the terms of payment. Their main purpose is to define, in greater detail, the price agreed between the buyer and the seller by specifying the time, place and method

of payment, as well as any discounts. Each of these elements influences the true amount payable by the buyer and to be received by the seller. To mention one simple example: 300 dollars receivable on the first of February under cash terms are not equal in value to the same sum receivable three months later under three month’s credit terms. Terms of payment are negotiable between the contracting parties, and may be laid down explicitly in great detail. There are also “quasi-standardised” terms, which normally specify only one or two of the possible and necessary elements. The terms payment in advance and cash with order, for instance, provide information on the time of payment, while remaining silent on where and how payment has to be made, and on whether or not any discounts are applicable. 3/7 net 21, on the other hand, additionally highlights the fact that a 3% cash discount is deductible if, and only if, payment is effected within seven days. Documents against payment (D/P)

indicates that the amount owed to the seller/exporter has to be paid by the buyer/importer when specified documents representing the contract goods are handed over to him. This means that D/P details the time and method of payment. The UN and other international organisations are trying to remedy the present unsatisfactory situation by drawing up and recommending a set of fully standardised terms of payment (PAYTERMS), including all relevant elements listed in the introductory of this entry. Discount (Preisnachlass) Discount may be defined as a reduction in a list or invoice price. The most important types of discount are: cash discounts, quantity discounts, trade discounts and seasonal discounts. S e i t e | 22 Source: http://www.doksinet EBC 1 Keywords Cash discount (Skonto) Where goods or services are sold on credit, it is quite common for the supplier to offer the buyer a cash discount as an incentive for early payment. This discount – usually 2% or 3% - may be deducted from

the invoice price (i.e the list price less any quantity and/or trade discount) if payment is effected within a stated period of time (discount period). The terms 2/10, net 30, for example, indicate that a two per cent cash discount will be allowed for payment within ten days or the date of invoice. However, should the buyer fail to settle the invoice within the discount period of ten days, he must pay the full amount within 30 days. Quantity discount (Mengenrabatt) A quantity discount, in the United States known as a bulk discount, is a reduction on the list price of goods which depends on the quantity purchased. Such discounts are justified on the grounds of economies of scale. Orders for large quantities can lead to lower-cost production runs and lower unit costs of selling, packing, transportation and collection. Seasonal discount (Saisonrabatt) A seasonal discount is a price reduction of a certain percentage given to customer who places an order during the slack season. An

illustrative example is provided by the tourist industry, which offers its services at lower prices during the off-season. Seasonal discounts, however, are not limited to service industries. They are frequently offered by manufacturers because off-season orders enable them to make better use of their production facilities (e.g manufacturers of air-conditioners) In addition, retailers grant such discounts in order to clear residual stocks of seasonal goods, prices of sports articles being adjusted for this purpose. Trade discount (Handelsrabatt, Wiederverkäuferrabatt, Stufenrabatt) A trade discount is a reduction in the price of a product – usually a percentage of the list price – granted to a specific class of buyers, such as wholesalers or retailers, to compensate them for the performance of specific marketing functions. The size of a particular trade discount is ideally proportional to the cost incurred in reselling the item concerned. Retailers have the highest operating costs

per unit of sales, and therefore enjoy the largest trade discounts on the product’s retail price. For example, a manufacturer may quote a retail list price of €100, with trade discounts of 40 per cent and 15 per cent. The ultimate consumer pays the retailer involved 100€, the retailer pays his wholesaler €60, who in turns pays the manufacturer €51. The wholesaler is thus given both the 40 per cent and the 15 per cent discount. In selling to the retailer he passes on the 40 per cent, while retaining the 15 per cent to cover the cost of the wholesaling services he provides. It should be noted that the 40 and 15 per cent do not constitute a total discount of 55 per cent off the list price. Each percentage in the chain of discounts is computed on the amount remaining after the preceding one has been deducted. The practice of quoting retail prices and allowing trade discounts to different classes of buyers enables a manufacturer to use only one price list – and, what is more

important, to exercise a certain degree of control over pricing throughout the channel of distribution. S e i t e | 23 Source: http://www.doksinet EBC 1 Keywords Cash (sofortige Bezahlung) In a business communication context, the term cash is frequently applied to prompt payment, by whatever means. Paying cash, therefore, simply indicates that settlement is effected within a few business days of delivery or performance, whether by banknotes and coins, by cheque, or by transferring the amount owed from one bank account to another. Cash with order (Zahlung bei Auftragserteilung) The expression cash with order (CWO) refers to a condition of payment indicating that a seller, or vendor, is prepared to supply a buyer only if he receives a payment for the goods in question with the latter’s order. This means that he is paid before he parts with his goods, and thus eliminates any credit risk. CWO is, therefore, a variant of payment in advance C.OD (per Nachnahme) In connection with a

contract of sale, C.OD – which is the abbreviation of cash on delivery (UK) or collect on delivery (US) – means that payment has to be effected on delivery of the contract goods. When a consignment is delivered C.OD, the carrier involved (eg a postal service, parcel service or railway company) is entrusted with the collection of the invoice amount. Once the buyer has paid the amount due, the goods are released to him. This procedure ensures that the supplier will receive payment for items sold to a customer who is unknown to him. The only risk he runs when he uses this kind of arrangement is that the buyer may refuse to accept the goods (risk of non-acceptance). Sale on deferred terms (Zielkauf) A sale on deferred terms, also known as a credit sale, is a transaction under the terms of which a supplier sells goods to a customer on credit (or on deferred terms), which means that he grants a credit to the buyer (supplier credit). The supplier specifies the period of time allowed for

payment For example, the clause “our terms are net 30” indicates that the invoice involved must be paid within 30 days. In addition to extending credit, the seller may grant a cash discount if the invoice is settled during the early part of the credit period. Open account (offene Rechnung) Open account is a form of payment under which a customer who makes regular purchases from the same supplier does not pay for each of them separately; rather, he settles the related invoices monthly, quarterly or at any other predetermined interval, and on previously agreed terms (e.g payment has to be effected by the tenth of the succeeding month). The amount of credit extended on open account is usually limited, the maximum sum allowed being dependent on the customer’s creditworthiness. Down payment (Anzahlung) The term down payment or deposit is typically used in connection with instalment sales, where it refers to a certain percentage of the purchase price of goods which has to be paid on

delivery, the balance being payable in periodic instalments. S e i t e | 24 Source: http://www.doksinet EBC 1 Keywords Instalment (Rate) An instalment is any of a number of part payments, which are typically of equal amount and due at regular intervals. The term is used especially in connection with the purchase of consumer goods on an instalment plan, but may also be applied to part payments on a debt (e.g a term loan), each of which is specified as to amount and date due, interest often being included. Instalment sale (Ratenkauf) Where goods are bought on an instalment plan, the buyer is usually required to pay a certain percentage of the purchase price as a deposit (or down payment), while the balance has to be settled by means of a number of part payments of equal amount at stipulated intervals (instalments). Creditworthiness (Kreditwürdigkeit, Bonität) Creditworthiness, also referred to as credit standing, is a person’s, company’s or country’s ability and

willingness to pay his or its debts in due course, i.e when they become payable It is therefore a measure of financial strength and influences the amount of credit which suppliers or lenders are prepared to grant. The assessment of a debtor’s creditworthiness on the basis of a formal scale is known as credit rating. S e i t e | 25 Source: http://www.doksinet EBC 1 Keywords Unit 7 Contract of sale (Kaufvertrag) A contract of sale (also referred to as a sales contract or contract of sale of goods) is a contractual agreement by which a seller (also called a vendor) transfers, or agrees to transfer, property in goods to a buyer (vendee) for a consideration in cash (price). The word property here means rights of ownership of the contract goods. A contract of sale is one under which the consideration is payable in money. Consequently, barter transactions (where payment is made in kind) are not deemed to be contracts of sale, in spite of their obvious similarities. As is the case with

many other contractual agreements, a contract of sale need not be in written form, nor need it be embodied in a separate document. It may be implied in a series of actions, or established through an exchange of messages. For example, putting goods in a supermarket trolley, taking them to the checkout counter, and paying for them constitutes a contract of sale, although not a single word may be spoken and the only document involved is the sales slip, i.e a receipt for payment of the purchase price. In business-to-business contexts, contracts of sale are often made by an exchange of letters or telephone calls. Typically, the starting point is a special inquiry, which – from a legal point of view – is an “invitation to treat”, i.e the seller involved is asked to submit an offer. If the offer is firm, any order based on its results in a contract (provided it is placed within the time limit specified and constitutes an unqualified acceptance of the offer). By contrast, on the case

of an offer without engagement a confirmation of the buyer’s order is required. Firm offer (festes, fixes, bindendes Angebot) Every offer is firm unless it contains a clause to the contrary. Firm means that the offer is binding on the offeror. If a seller makes a firm offer, he undertakes to supply the goods or services in question at the price(s) and on the terms stated, provided it is accepted within reasonable time, or within the time limit for acceptance stipulated by him (e.g this offer is firm for three days only; we cannot leave our offer open for more than 48 hours; we offer you firm until Friday next; this offer is firm subject to acceptance by 10th June). In Britain, a firm offer can be withdrawn at any time before the buyer mails his acceptance, i.e his order, even if a time limit for acceptance has been stipulated. Once the acceptance has been posted, however, the seller can revoke his offer only with the buyer’s consent. By contrast, in Austria an offeror cannot

change or revoke his offer after it has been received by the offeree, unless the latter agrees. It is important to note that only a firm offer is an offer within the meaning of the law of contract, whereas an offer without engagement is merely an “invitation to treat”. This means that an order placed against a firm offer results in a contract of sale, provided that it is placed in time and constitutes an unqualified acceptance of the offer. Offer without engagement (freibleibendes, unverbindliches Angebot) An offer without engagement (also referred to as an offer subject to confirmation or offer without obligation) is one which is not binding on the party submitting it. If a seller does not want to be bound, he makes an offer subject to certain conditions. For instance, he may stipulate: • Prices are subject to change without notice S e i t e | 26 Source: http://www.doksinet EBC 1 Keywords • • • Subject to price ruling at time of dispatch Subject to prior sale /

Subject to being unsold / Subject unsold / This offer is made subject to the good being unsold when the order is received. Goods ordered can be supplied only until our stocks run out / are depleted / are exhausted Frequently suppliers, when submitting an offer, only use the phrase “this offer is subject to confirmation” or “this offer is without engagement”. An offer without engagement is not a offer within the meaning of the law of contract, but merely an “invitation to treat”. Consequently, an order placed by a buyer against a seller’s offer without engagement does not result in a contract. From a legal point of view, this order is an offer, which may be accepted or rejected by the seller. Order (for goods) (Auftrag, Warenbestellung) An order is a request by a prospective customer to a business firm to supply specific goods. It is placed either in response to an offer or on the buyer’s own initiative, without a preceding offer. This can be done orally or in writing.

If an order is made by telephone it should be confirmed in writing, in order to avoid misunderstandings. A complete order should cover the same points as an offer, ie quantity, quality, colour, packing and price; terms of payment and delivery; mode of transport; etc. A buyer who is not sure whether a new supplier will be able to meet his requirements, or whether the goods in question are suitable for his market, may place a trial order, i.e an order for a small quantity for testing purposes. This may be followed by a larger one if he is satisfied with the items, or if he finds that there is a market for them. From this it is clear that a trial order is usually an initial order, i.e the first order placed to a customer with a particular supplier A standing order, on the other hand, is an arrangement between a buyer and a seller under which the latter undertakes to deliver certain goods in specified quantities, at predetermined intervals, until further notice. It should be noted that an

order placed against a firm offer results in a contract, provided it is made in time (i.e within the time limit for acceptance) and constitutes an unqualified acceptance of the offer. By contrast, neither an order in response to an offer without engagement, nor one on the buyer’s own initiative, nor one that modified the terms of the offer on which is based, gives rise to a contract until it has been confirmed – and thus accepted – by the seller. In contract law, such an order is an offer by the buyer to purchase certain goods if the seller can supply them at the price(s) and on the terms stated therein. Confirmation (Bestätigung) Confirmation are business letters sent in connection with outgoing or incoming messages. It is, for instance, common practice to confirm an offer made orally, perhaps by telephone, in order to reassure the offeree and provide him with some evidence in writing. In all cases where a seller is free to accept or refuse an incoming order (e.g if the

buyer’s order is placed in response to an offer without engagement; if it is a qualifies acceptance of the seller’s offer, that is, a counter-offer; or if it has not been preceded by an offer), the seller’s confirmation constitutes his formal acceptance of the order, which results in a contract between the two parties. Both types of confirmation involve a repetition of the essential points and an indication that the confirming person or firm agrees to be bound by them. S e i t e | 27 Source: http://www.doksinet EBC 1 Keywords While confirmation refers to a business letter validating an incoming or outgoing message, acknowledgement relates only to the former variety. Moreover, the term acknowledgement tends to be restricted to situations where the intention is merely to inform the sender that his message has been received. This distinction also applies to the corresponding verbs, as can be seen in the following sentence from a business letter: “ I acknowledge receipt of

your order and confirm it as follows”. Counter-offer (Gegenangebot) A counter-offer is a statement by an offeree to the effect that he refuses to accept the offer submitted to him, but that he is willing to enter into a contract on his own terms. In connection with a sale of goods, a counter-offer may be submitted either by the buyer or the seller. If the buyer is interested in the items offered, but does not agree to the price and/or terms proposed by the seller, he may make a counter-offer – which is an offer within the meaning of the law of contract – he must decide whether or not to accept it. On receiving an order which – for whatever reason – he cannot meet, the seller may either make a counter-offer or regretfully decline the order. This is legally possible whenever the buyer’s order does not result in a contract, e.g if a firm offer is accepted after the time limit for acceptance has expired, or if the order is placed in response to an offer without engagement or

on the buyer’s own initiative, i.e without a preceding offer In all these instances, the order constitutes an offer within the meaning of the law of contract. If a supplier is unable to fill an order for some reason (e.g the goods ordered are no longer manufactured or held in stock), he – whenever possible – will not refuse the order outright, but make a counter-offer, for example by recommending substitutes. This means the buyer needs to be persuaded that the suggested substitutes are at least as good as the items originally ordered. Sample (Muster, Probe) In a commercial context, sample refers to a small portion or one unit of a larger quantity of goods. Since a sample is meant to display the same characteristics as the bulk from which it is taken (or drawn), using it is a convenient way of showing prospective customers what the items offered are like. Samples are often sent to enable prospects to test them carefully and decide whether or not to make a purchase. They may also

be distributed free of charge, for example by sales representatives or as a promotion in retail establishments. A contract of sale explicitly based on a sample is called a sale by sample or a sale according to sample. The term sample may be used for raw materials (such as wool, tobacco or cotton) or for finished goods (e.g toothbrushes, combs) Small cuttings of textiles intended to show what the whole piece is like are usually known as patterns. Consignment (Warensendung, Posten) In general, the term consignment is applied to a set of articles dispatched by a supplier at one time. In this sense, consignment is used as a synonym for shipment. S e i t e | 28 Source: http://www.doksinet EBC 1 Keywords Consignee (Warenempfänger) In general, a consignee is the recipient of a consignment of goods. Consignees may be private individuals, business firms, government agencies, etc. Consignor (Warenabsender) In general, the term consignor is applied to a business firm sending goods to

another firm, a private individual, a government agency, etc. Forwarding agent (Spediteur) A forwarding agent, or freight forwarder, acts as an intermediary between a party wishing to send or collect goods and another who is to transport them, i.e between a consignor or consignee and a carrier. Acting either on the consignor’s or on the consignee’s instructions, the forwarding agent arranges, in his own name but on his client’s account, for carriage of the contract goods to the agreed place of destination. To this end, he employs the services of a carrier, with whom he enters into a contract of carriage for his client’s account. The general course of business is that the forwarding agent collects the items to be transported from the consignor, delivers them to the carrier, and – through his branch offices or correspondents – makes arrangements for transhipments, if necessary. At the consignor’s request, he issues a document knowns as a forwarding agent’s (certificate

of) receipt. He usually has his own vehicles (lorries, vans, etc) and transports the goods himself, for example from the consignor’s warehouse to the railway station or airport. In doing so, he acts as a carrier. Since a forwarding agent handles goods for many different customers, he can obtain lower freight rates by combining several small consignments into a single, larger one. Such a grouped consignment (US: consolidated shipment) is addressed to a correspondent or branch office at the place of destination, which splits it up again and delivers the individual consignments to the various consignees. It is therefore often cheaper, and certainly much simpler, for suppliers to use the services of a forwarding agent than to deal directly with a carrier. A forwarding agent specialising in international dealing has a network of foreign correspondents or branch offices, and is therefore able to arrange for goods to be carried to all parts of the world. Consequently, the services of such

an intermediary are of great value to those engaged in exporting, particularly small firms which do not have their own export organisation and shipping department. In the case of an international contract of sale, it is customary for the forwarding agent to collect the goods from the exporter, make all arrangements for shipping them, and – after shipment – send an advice of dispatch to his branch office / correspondent in the importer’s country. The latter takes delivery of the goods, and then either forwards them to the buyer or arranges for them to be warehoused if he does not want them immediately. In addition to forwarding goods, a freight forwarder renders many important services to his customers, either directly or though his foreign contacts. Among other things, he obtains the relevant shipping documents, takes out marine insurance, and handles all customs formalities as well as documentary and clean collections. Many forwarding agents have special facilities for export

packing and warehousing, and some also provide container services. S e i t e | 29 Source: http://www.doksinet EBC 1 Keywords Carrier (Frachtführer, Verfrachter) A carrier is an individual or an organisation whose business it is to transport goods. He or it enters a contract of carriage with a shipper, undertaking – for a consideration (freight or carriage) – to carry the goods specified in the contract from the place named to the agreed place of destination. On the basis of the various modes of transport, carriers may be classified into land carriers, i.e rail carriers (railway companies) and road carriers (road hauliers, US: trucking firms), air carriers (airline operators), sea carriers (shipping companies) and inland waterway carriers. Acceptance (of goods) (Annahme von Waren) One important obligation of the buyer under a contract of sale is to accept the goods delivered to him by the seller. Acceptance of goods should not be confused with their mere receipt From a legal

point of view, the buyer is deemed to have accepted the contract goods: • • • when he intimates to the seller, after inspection, that he has accepted them when they have been delivered to him, and he acts as if he were the owner, e.g if he resells them or pledges them as security when, after expiry of a reasonable time, he retains them without intimating to the seller that he has rejected them. This shows that, in law, there is a clear distinction between accepting goods (Ware annehmen) and taking delivery of goods. An interesting legal problem is the buyer’s wrongful refusal or neglect to accept the contract goods. Rejection (of goods) (Annahmeverweigerung von Waren) In connection with a contract of sale, rejection means the buyer’s refusal or neglect to accept the goods delivered under the contract. He is entitled to reject them, thus repudiating the contract, only if the seller has failed to meet important contractual obligations, e.g if the items delivered are not in

accordance with their description in the contract; if they are unsuitable for the particular purpose for which, with the knowledge of the seller, they have been bought; of if, in the case of a sale by sample, they do not conform the sample. If the buyer wished to reject the goods, he has to intimate to the seller that he refuses to accept them. This notice may be given verbally or in writing, and he should make certain that it reaches the seller, otherwise it is ineffective. In the event of rejection, he is not bound to return the goods, unless this has been agreed upon. Of course, it is also possible for the buyer to reject the goods even if they have been tendered in conformity with the contract (wrongful rejection). The legal consequences of such a rejection depend on the type of transaction and the law governing the contract of sale involved. In Britain, a wrongful rejection constitutes a breach of an essential condition, viz. the buyer’s duty to accept the goods, and thus gives

the seller the right to sue for damages. Under Austrian law, in transactions where the buyer is a final consumer, a (wrongful) rejection is deemed to be, not a breach of contract, but only a minor infringement (called Obliegenheitsverletzung); even so, it does not deprive the seller of his claim for the purchase price of the goods. In a commercial transaction between businesses, however, the normal practice is for the seller to find another buyer for the rejected goods and claim damages for any loss and costs incurred in this procedure. S e i t e | 30 Source: http://www.doksinet EBC 1 Keywords Breach of contract (Vertragsverletzung, Vertragsbruch) Breach of contract means the unexcused non-performance of a contract. Such an infringement occurs when one party to the contract • • • fails to perform, wholly or in part, or makes performance impossible, for either party, or gives notice of intention not to fulfil the contract at the agreed time of performance A breach of

contract for sale of goods occurs, for example, if the seller fails to deliver the goods; if he delivers wrong quantities or defective goods; if the items delivered are not in accordance with their description in the contract; or if they are not up to sample. Likewise, if the buyer does not accept goods which have been delivered in conformity with the contract, or if he fails to pay for them, this also constitutes a breach of contract. If one party breaks the contract, the other has certain legal rights (or remedies), which depend, among other things, on the nature of the contract goods, viz. whether they are specific goods (eg a clearly identified racing horse), fungible goods appropriated to the contract (e.g a clearly ascertained cargo of wheat shipped in a particular vessel) or fungible goods not appropriated to the contract. It should also be noted that, in spite of attempts at unification, there are still considerable discrepancies between different national legal systems with

regard to the rights of an injured party under a contract of sale. The following is a short list of the most common remedies for breach of contract. • • • In the event of non-delivery by the seller, or non-acceptance of the goods by the buyer, the other party may sue for damages If defective goods are delivered, the remedies available to the buyer depend on the nature of the defect (major or minor). They include damages, rejection of the goods combined with legal action for damages, specific performance (involving a claim for replacement), and a reduction in price. If the buyer fails to pay for the contract goods within the time stipulated, the seller may sue for payment of the price, plus interest on the amount in arrears. Wrong goods (falsche Ware, Aliudlieferung, Anderslieferung) Wrong goods are goods delivered under a contract of sale that are different in nature from the ones specified in the contract. Should a buyer order umbrellas and receive a consignment of

cuckooclocks, this would be a clear-cut case of wrong goods From this it should be obvious that wrong goods are not the same as defective goods, and must therefore be strictly distinguished from them. From a legal point of view, delivery of wrong goods is deemed to be failure to deliver the contract goods, and therefore entails the same consequences as non-delivery or delay in delivery, viz. damages, specific performance, or rescission of the contract. Defective goods (mangelhafte Waren) Defective goods are items which have one or more major or minor defects. A major defect prevents the buyer concerned from using the goods in the ordinary way or as stipulated in the underlying contract. All other defects are deemed to be minor A car supplied without an engine is an obvious example of a major defect, while one whose body is slightly dented or scratched would exhibit only a minor defect. A defect, however, may also relate to the quantity of the contract goods Whether a S e i t e | 31

Source: http://www.doksinet EBC 1 Keywords defect of this type is a major or minor depends on the specific circumstances of the contract of sale involved. If, for example, a buyer places an order for 100 units but receives only 99, the defect will be deemed to be a minor one. If, however, he orders a pig weighing 200 kilos and that delivered weighs only 150 kilos, the defect will be major. The legal provisions governing the remedies of a buyer to whom defective goods have been delivered are quite complicated, and vary from country to country. Therefore, the following is of necessity only a short description of some of the options available in most countries to a buyer receiving defective goods. If the seller has delivered goods showing a major defect that cannot be repaired, they buyer may reject them, thus rescinding the contract. If, however, the goods show a minor defect that is irreparable, he has the right to claim a reduction in price (allowance) but he is not entitled to

reject them. In the case of a repairable defect, irrespective of whether it is major or minor, the buyer is given the right to choose between a reduction in price or having the goods repaired. Complaint (Mängelanzeige, Mängelrüge, Reklamation) In the context of a contract of sale, a complaint is an expression of discontent and may be made by the buyer to the seller if the goods delivered are defective, if the latter has delivered wrong quantities or wrong goods, if there is a delay in delivery, etc. It must be communicated to the seller, usually in the form of a letter of complaint, which should clearly indicate what is wrong. Unless he is informed of the exact nature of the defect and all other relevant details, the seller cannot take appropriate measures (e.g repair the goods, send a replacement, or grant a price reduction) to settle the complaint. Such a letter should also contain particulars like the order number concerned and the date of order so that the seller can readily

identify the consignment in question. Damages (Schadenersatz, Vertragsstrafe) Damages are remedies for breach of contract. They are money compensation for a loss suffered The purpose of awarding damages is to put the injured party, as far as money can do it, in the position in which he would have been, had the contract not been broken. S e i t e | 32 Source: http://www.doksinet EBC 1 Keywords Unit 8 Marketing (Absatzpolitik) Originally, marketing simply meant “selling goods in a market (or elsewhere)”. However, modern marketing, although it still involves selling, is a much more complicated thing. It may be described as a complex system, or programme, of business activities designed to plan, price, promote and distribute a firm’s products (goods and/or services) with a view to satisfying consumer wants and needs and, of course, to achieving certain organisational goals (such as minimum return on investment). Before such a programme can be started, it is necessary for the

firm to analyse the potential market to find out what its prospective costumers’ wants and needs are really are (market analysis). Alternatively, it may adopt a more aggressive approach and, instead of merely identifying existing needs, decide to create new wants and desires. (An example of this is the attempt of American food companies to interest Italians in breakfast cereals.) Another important preliminary step is for the business to segment the market in order to be able to identify a suitable target group, or several such groups, which it can serve efficiently (market segmentation and targeting). For mnemotechnical reasons, the main elements of a marketing programme, or marketing mix, are referred to as the four Ps: Product, Price, Place and Promotion. The first two and the last are more or less self-explanatory, and are discussed in greater detail under the headings of product policy, price policy and promotion elsewhere in the book. Place, which was obviously selected more for

the fact that it starts with a P than for its meaning, denotes “distribution” and is dealt with under that heading. Not only is modern marketing a much more complicated activity than selling, it even requires the whole business organisation to be subordinated to the marketing philosophy. Research and development, production, and finance are supposed to take their cues from marketing. This approach is reflected in the increasing importance of marketing departments and marketing managers within business firms. As has already been mentioned, in modern marketing the emphasis is on the satisfaction of consumer wants and needs rather than on products, which are regarded as tools for achieving that end. This may sound like splitting hairs but, from a modern marketing point of view, a company selling drill bits, for instance, is actually in the business of producing holes, for which other products (e.g laser beams) might be suitable The realisation that this is so may have important

consequences for its product policy. Although modern marketing was originally developed for consumer goods with special emphasis on the retail sector, the concept has – with suitable modifications – also been applied to industrial goods (industrial goods marketing) and, increasingly, to services (service marketing). The validity of the marketing concept as outlined in this entry has been questioned, because it fails to allow for long-run consumer and public welfare, leads to a misallocation of resources, and tends to neglect the social costs involved in concentrating exclusively on short-term consumer wants. Quick lunches may satisfy a genuine consumer need but are probably not very wholesome; disposable bottles may be very convenient but represent a waste of resources and a burden on the environment. A marketing concept that tries to avoid these pitfalls is called societal, or socially responsible, marketing and, by implication, acknowledges that marketing should also have an

“educational function”. Whether profit-oriented business can be expected to provide this quasipublic, or meritorious, good is a moot point S e i t e | 33 Source: http://www.doksinet EBC 1 Keywords Another new development is the application of the marketing concept to non-business organisations such as governments, political parties, museums, schools, universities, and charities (non-profit marketing). Although the relationships of such organisations with their respective target groups in a modern society may resemble the marketing of ordinary goods and services, some scholars think that more is lost than gained by this broadening of the marketing concept, and that it represents an unjustified encroachment on fields that are essentially not amenable to business analysis. Market segmentation (Marktsegmentierung) Market segmentation is a marketing strategy which divides a firm’s market into a number of smaller sub-markets, or target groups, each having different

characteristics. Consumer markets may be segmented on the basis of geographic, demographic or psychographic variables. Geographic segmentation calls for markets to be divided into different territorial units such as nations, states, regions, cities, or neighbourhoods. In demographic segmentation, the major segmentation variables are age, family size, sex, income, education, occupation, religion, race, nationality, and social class. In psychographic segmentation, buyers are divided into different groups on the basis of lifestyle and/or personality. Demographic variables are the most popular basis for identifying customer groups The general idea of market segmentation is to provide an alternative to undifferentiated mass marketing, which tries to reach as many customers as possible with one product range and one marketing programme. By contrast, a business firm employing market segmentation will target a relatively small number of sub-markets and tailor its products and marketing

programmes accordingly. A company may, for instance, focus on senior citizens, women, high-income earners, dinkies (double-income, no-kids household), university graduates, blue-collar workers, yuppies (young urban professionals, singles, gays, etc. Microsegmentation, a more recent development, carries the idea even further. Modern data processing methods (e.g POS systems, data banks) have made it possible for marketers to categorise customers into ever small groups and target them with great precision (precision marketing). This is particularly useful in what has come to be called direct marketing, which means, for example, using direct mail or telephone calls to contact potential buyers. In many cases, both traditional segmentation and microsegmentation will allow companies to make better use of their marketing resources, and may well be necessary to survive in an increasingly competitive marketing environment. Product policy (Produktpolitik) A company’s product policy – a key

element in its marketing mix – is the sum total of all decisions relating to its offering. The first task in this field is to determine what product(s) to buy or produce and sell. The enterprise may opt to concentrate on one product or offer a wide range of goods and/or services. Then it may be necessary to decided whether to expand or simplify the existing product range (diversification versus simplification). New products have to be identified and developed that fit the firm’s range in terms of profit, growth and risk. Product innovation is an extremely important area because survival may depend on the company’s ability to come up with new items when the existing ones reach maturity. Other decisions are concerned with the quality of the product(s) to be offered, or with branding, packaging, and other relevant issues. The firm may choose to go upmarket (trading up) or downmarket (trading down), which is obviously the opposite strategy. It may use one brand for its entire

offering, or a separate brand for each important line; or, alternatively, it may drop brands altogether and concentrate on generic items. The list of product decisions given here could be extended considerably, but its sufficient to give a rough idea of what is involved in this fundamental aspect of marketing mix. S e i t e | 34 Source: http://www.doksinet EBC 1 Keywords Product mix (Produktmix, Produktionsprogramm) A firm’s product mix – as the term suggests – comprises the full range of products (i.e goods and/or services) offered. Its structure is determined by the number of different lines carried (breadth, or width, of the range) and by the number of different items, models, etc. in each line (depth of the range). The terms product mix and product range have basically the same meaning The latter, however, is purely descriptive, while the former emphasis strategic aspects. It is essential for any company to get as close as possible to an optimal product mix in terms of

profit, growth and risk. Decisions in this area from part of the wider field of product policy, and are therefore concerned with diversification (e.g concentrating on one’s core business), product innovation, etc Product line (Produktlinie bei Herstellern; Warengruppe bei Händlern) A product line is a group, or class, of products which possess similar physical characteristics and are intended for broadly similar uses. The depth of a line is determined by the number of different items, colours, models, etc. it comprises (eg a line of shoes may consist of only one or two types, such as men’s and women’s shoes, or of many different types, such as men’s shoes, women’s shoes, ski boots, tennis shoes and slippers). A firm may decide to carry only one line, which will then be identical with its product range (or product mix), or it may have several lines. A department store, for instance, generally stocks a large number of lines (roughly corresponding to the number of

departments), while stockists often carry only one (e.g photographic supplies or electrical appliances). Product life cycle (Produktlebenszyklus) This expression denotes the typical pattern of the sales volume and profits generated by a particular product over its span of life. The cycle is generally divided into six stages: introduction (launch), growth, maturity, saturation, decline and abandonment. There are, however, a number of exceptions. A firm may, for example, decide to revive a declining brand by relaunching it; or, in special cases, the product involved is never really abandoned, but its sales and/or profits are allowed to stagnate at a low level (petrification). The product life cycle concept is a useful management tool. It can be employed by a company to forecast, plan and co-ordinate the sales, profits, and contribution margin of an individual product, a product line, or the whole product mix, thus helping it to avoid mistakes such as allowing all or most of its products

to reach the decline stage at the same time. S e i t e | 35 Source: http://www.doksinet EBC 1 Keywords Diversification (Diversifizierung, Diversifikation) According to Kotler, the doyen of marketing scholars, diversification is a product policy that offers “new products for new markets”. A firm may decide to expand its product mix by adding a new line, or new lines, which will presumably be sold to different target groups. The idea of diversifying out of a given product line into new fields is to create additional sources of income independent of existing ones, thereby spreading the risks inherent in relying on a single line. However, diversification carries risks of its own. Having to cope with an ever increasing range of new, and possibly unfamiliar, products may create management problems and lead to a loss of control over costs. Thus, it is not surprising that quite a few companies should resort to the opposite strategy, viz. product line simplification, perhaps

concentration on their original products, which they know best. This is particularly true in cases where companies have diversified on a larger scale by acquiring other businesses and creating conglomerate groups, or conglomerates. The trend towards greater diversity in the company and product portfolios of large groups, which predominated in the 1980s, has since been reversed to give rise to a new management philosophy epitomised in the slogans back to basics or focusing on one’s core business. For example, Volvo, a highly diversified group, has recently disposed of a large number of its subsidiaries operating in different industries, and has moved back to its original core business of developing, producing and marketing cars, trucks and engines. In conclusion, it should be noted that the term diversification is not restricted to product portfolio contexts, but can also be applied in the field of financial investment. Here it describes a policy of acquiring a wide range of

investment media, e.g shares of different companies, bonds or property, instead of “putting all your eggs in one basket”. Branding (Markenpolitik) Branding, i.e the use of brands, is an element of a firm’s product policy It is chiefly designed to help potential and existing customers to identify the products of a particular seller and differentiate them from those of his competitors. This is extremely important in today’s marketing environment, characterised by keen competition, self-service retailing, and heavy promotional activities. Putting a distinctive sign, word or symbol on a product or package does not in itself constitute a brand policy. It creates an opportunity, not more – an opportunity that must be exploited by skilful advertising, pricing and standardisation, as well as by emphasising quality and reliability, to create a positive brand image and brand loyalty among consumers. Ultimately, a particular brand must become a kind of unwritten guarantee for the

product features a customer is looking for, because only then will he be willing to pay a higher price than for a similar, but unbranded item. Originally, most brands were manufacturers’ brands, created and used by the producers of the goods involved. The articles so branded were then distributed by a number of competing retail organisations in a particular country or globally. In the meantime, however, retailers – especially large supermarket chains – have become more powerful than the manufacturers whose brands they sell. This has led to one of the most important developments in modern retailing, viz the increasing use of retailers’ brands (also called own labels, private brands, store brands or dealers’ brands). These are branded goods that are sold exclusively by a particular retailer, although they are often produced by manufacturers of national or global brands. Private brands have enabled the retailers concerned to reap some of the benefits of branding originally

accruing to the producers. In spite of the fact that such labels are typically sold at lower prices than comparable manufacturers’ brands, S e i t e | 36 Source: http://www.doksinet EBC 1 Keywords they carry higher margins (i.e higher profits expressed as a percentage of sales) for the retailers This, of course, is only possible because of the lower prices paid to the manufacturers. In some British supermarket chains, own labels already account for as much as 35% of turnover. The corresponding figure in Austria is lower (around 10%) but rising. A related, though less important, strategy is for retailers, especially discount stores, to drop brands altogether and concentrate on what are termed generic (or no-name) products. Under this strategy, a packet of sugar, for instance, would carry neither the producer’s nor the retailer’s label but would be sold in a brown bag under its generic name, viz. sugar, obviously at a lower price Another interesting aspect of branding is that a

firm may decide to have only brand for all of its products (family brand, umbrella brand or blanket brand) or a separate one for each line or product it sells. These decisions are influenced by various considerations For instance a company marketing baby food and dog food would be well advised to use a different label for each line. On the other hand, a strong brand name may be leveraged (i.e exploited) by extending it to other, maybe completely different, products. The Virgin label, for example, created by the youthful and dynamic British entrepreneur Richard Branson, can be found on everything from music stores to jumbo jets. S e i t e | 37 Source: http://www.doksinet EBC 1 Keywords Unit 9 Price policy (Preis- und Konditionenpolitik) Pricing products is an extremely complex and, at the same time, extremely important marketing activity: complex, because so many variables are involved; important, because – in the long run – the success and even the survival of a firm will

depend on the prices it charges for its goods and services. First, it should be quite clear what the price of a product really relates to. It may refer either to the naked physical item to be picked up and paid for immediately by its buyer (cash-and-carry price) or to the product plus any number of additional services (e.g delivery, modification, installation, credit, warranty). Moreover, since it is the amount actually paid by the customer that counts, discounts and similar allowances also form part of the price policy. A company’s price policy is influenced by a large number of external and internal factors. It will, for instance, be determined by the type of market the business operated in. Under pure (or perfect) competition, with many sellers and buyers, the former are simply price-takers, i.e they have to sell at market prices. A monopolist, on the other hand, has some discretionary power over prices, since he has no competitors. Oligopolistic markets, dominated by a few large

firms, are characterised by the mutually recognised interdependence of the rival seller’s price policies. Moreover, price policy cannot ignore the relationship between price and demand for a particular product. There are some cases where a small change in price will lead to a large change in the quantity demanded, while in others demand may be much less sensitive to price changes. Customer perception of the product to be priced and its tangible and intangible benefits, economic factors (e.g rate of inflation, variations in household incomes), government economic policy, and the price policies of suppliers are other important external influences on pricing decisions. Both suppliers and the government may restrict a seller’s room for manoeuvre. When resale price maintenance was still permitted in the United Kingdom, it was quite common for the suppliers to blacklist resellers that did not adhere to the prices they set. Governments may use their powers to control prices in various

ways, eg by freezing them for a certain period of time. Perhaps the most important internal factors are the company’s objectives and costs. Before setting a price, it must decide what it wants to achieve with its products and position this accordingly. For instance, a watch positioned and advertised as a prestige gift will command a higher price (premium price) than one cast as good value for money. Broader internal goals relevant for pricing decisions are survival, current profit maximisation, market-share leadership, and product-quality leadership. In the case of new and innovative products, for instance, a business firm may adopt either skim-the-cream pricing (also known as market-skimming pricing) or penetration pricing. The skimming strategy involves charging a high initial price to appeal to the high-income segment of a particular market. The idea is usually to lower the price later on when competitors have moved in, or when it is desired to tap the lower end of the market.

Polaroid is a prime practitioner of market-skimming pricing However, in order to achieve a large market share right from the start, a company will use penetration (or market-penetration) pricing, i.e it will set a low initial price in order to reach the mass market immediately and achieve maximum market penetration. This pricing strategy is pursued for example, by Texas Instruments. TI will build a large plant, set its price as low as possible, win a large market share, experience falling costs – and then cut its price still further. S e i t e | 38 Source: http://www.doksinet EBC 1 Keywords Costs (and therefore the determinants of costs such as raw material prices, wages, volume and capacity utilisation) have an important influence on price, since no firm can afford to sell below cost, at least not in the long run. A business would go bankrupt if it did Any discussion of a company’s price policy would be incomplete without mention of some other important pricing strategies

such as psychological, promotional, discriminatory and product-mixpricing. Let us take them in sequence In selecting the final price for a product, enterprises often consider, among other things, the psychology – and not just the economics – of prices. Many consumers perceive price as an indicator of quality. Image pricing is especially effective with ego-sensitive goods such as perfumes and expensive cars. Moreover, many sellers believe that prices should end in an odd number Thus, a TV set is priced at $299 instead of §300, many customers seeing this as a price in the $200 rather than $300 range. Firms employ several pricing techniques to stimulate, or promote sales. The best-known promotional pricing tools are loss-leader pricing, cash rebates, low-interest financing, and longer payment terms, as well as warranties and service contracts. Discriminatory pricing occurs when a company sells a product at two or more prices that do not relect a proportional difference in costs. It

takes several forms, eg customer-segment pricing (ie different customer groups are charged different prices for the same products – for example, museums often charge a lower admission fee to students and senior citizens), location pricing (the same product is priced differently at different locations – for example, a theatre varies its seat prices according to audience preferences for different locations) and time pricing (prices are varied by season, day or hour – for example, it costs more to make a long-distance call during the week than it does on the weekend). It the item to be priced is part of a product mix, the business concerned may search for a set of prices that maximises profit on the mix as a whole. A typical variant of product-mix pricing is captiveproduct pricing Some goods require the use of ancillary (or captive) products, examples of these being razor blades (razors are useless without them) and camera film. Manufacturers of the main products (razors and

cameras) often price them low and set high mark-ups on the captive products, or supplies. Kodak, for instance, prices its cameras low because it makes money on selling film Loss leader (Lockvogelangebot) Loss leaders, or leader items, are articles offered by retailers at lower than regular prices (e.g at, or even below, costs) to attract customers. The idea is that they will come into the shop in question to buy the advertised loss leader(s) and will also purchase other, regularly priced items. Leader pricing, a variant of promotional pricing, is prohibited in a number of countries. S e i t e | 39 Source: http://www.doksinet EBC 1 Keywords Premium (Spitzenqualität, Qualitätsmarke, Prestigepreis) Another marketing application of the term premium is in compound words like premium price, premium quality or premium brand. In all these examples it is used to indicate the price (and, by implication, the quality) of the product involved is above the usual average (however vaguely

defined), and that the article is therefore clothed in an aura of prestige. Especially if their quality is in fact not significantly higher, premium brands have to be supported by heavy advertising and other promotional activities to create and sustain a prestige image. Promotion (Kommunikationspolitik) In marketing, the term refers to one of the subsystems of a firm’s total marketing effort. In this context, promotion is an exercise in persuasive communication, the idea being to inform, persuade and influence consumers in order to increase sales without resorting to price competition. In economic terms, the policy goal is to shift the demand curve of the product involved to the right, which means that more can be sold at any given price. Promotion – which should not be confused with sales promotion – includes advertising, public relations, personal selling, sales promotion, and direct marketing. Promotional mix (Kommunikations-Mix) The term promotional mix or marketing

communications mix refers to the combination of promotional tools, viz. advertising, public relations, personal selling, sales promotion, and direct marketing, used by a firm to inform, persuade and influence a particular target group it has identified. The structure of its promotional mix, ie the promotional tools selected and the weight assigned to each, is determined, among other things, by the size of the promotional budget, the nature of the market targeted and the product(s) to be sold, legal restrictions, and technological progress. Consumer goods companies, for instance, will probably spend most of the money available for promotional activities on advertising on the popular national press or on TV, while businesses selling industrial goods (e.g machine tools) will mainly rely on their sales force and specialist trade journals to reach the chosen target group. Bans on tobacco advertising have forced tobacco firms to put more emphasis on public relations, e.g by sponsoring sports

and cultural events On the other hand, advances in data processing have enabled consumer goods and service companies to target their customers much more precisely, thus increasing the importance of direct marketing (e.g direct mail and telephone marketing) as compared with conventional advertising. Advertising (Werbung) Advertising is undoubtedly the most important and best-known promotional tool. As is the case with all other forms of promotion, its main purpose is to inform, persuade and influence the general public or the members of a selected target group with a view to modifying their behaviour in some way desirable for the advertiser, e.g increasing their purchases of a particular product In contrast to the other promotional tools, advertising involves the dissemination of messages over the mass media (e.g the press, TV and, increasingly, the Internet) and is paid for directly by an identified sponsor Product advertising, as the term suggests, is geared to the goods and services

offered by the advertiser, while the institutional variety is intended to create a favourable attitude towards the advertising organisation and to build a goodwill. S e i t e | 40 Source: http://www.doksinet EBC 1 Keywords Advertising medium (Werbeträger) Advertising media are all those means used to communicate advertisements to a chosen audience. Usually, the term refers to the major, or mass, media (radio, television, the press, outdoor media such as hoardings, and the Internet). The lesser media include direct mail (eg sales, letters), directories, fairs, exhibitions and motion pictures. Advertisers of their advertising agencies have the task of selecting the advertising medium or media suitable for a particular purpose or situation, and – within each medium – a vehicle and an advertising schedule. For example, a decision may have to be made on whether to use radio or press advertising. Then it will be necessary to choose a specific radio programme or journal (vehicle)

and the appropriate time or times for running the advertisement in question (advertising schedule). Factors to be allowed for in media selection include the type of product to be advertised, the selected target group, and the cost involved. Advertisement (Werbemittel, Inserat, Annonce) An advertisement, or ad, is a message or announcement presented in a medium (e.g TV, radio, magazine) at the expense of an identified organisation or person (advertiser) to persuade a particular target audience to accept an idea, buy a product or service, or take some other action desired by the advertiser. Examples are classified ads, posters, electric signs, commercials (either radio commercials or TV spots), skywriting, full-page and double-spread ads in newspapers or magazines, or icons, banners, buttons and pop-ups on websites. Depending on the medium used, advertisements may be composed of pictures (either still or moving), drawings, and text (often called advertising copy) in the form of

descriptions, slogans, etc., but may also include musical elements such as songs, signature tunes or jingles. Advertising agency (Werbeagentur) Advertising agencies are business firms providing not only advertising services, such as planning and implementing advertising campaigns, creating actual advertisements and arranging for their placement in appropriate media, but increasingly also other marketing services, e.g sales promotion, direct marketing, test campaigns, preparation of sales manuals, and market research. Public relations (PR, Öffentlichkeitsarbeit) The expression public relations denotes the deliberate effort to establish and maintain mutual confidence between an organisation and its publics. In the case of a business organisation, these will include the general public, and the company’s employees, customers, shareholders, etc. Public relations involves, first of all, ascertaining and evaluation public opinion, i.e trying to find out what the public think and feel

about the enterprise and its products; secondly, advising the firm’s manager on how to deal with public opinion as it exists; and, finally, trying to influence it with the help of various communication techniques. Public relations departments, which are usually corporate staff units reporting to top-level management, or outside public relations consultants carry out a great variety of activities. For instance, they supply the media with interesting information about the business firms concerned, arrange press conferences, sponsor cultural events, handle major customer complaints, and organise lobbying efforts – all with a view to creating goodwill and projecting a positive corporate image. S e i t e | 41 Source: http://www.doksinet EBC 1 Keywords Personal selling (persönlicher Verkauf) Personal selling is the most important promotional activity. This is reflected by the fact that in the early 1990s the “personal selling industry” in the United States, for instance,

employed as many as 13 million people, the corresponding figure for advertising being a mere 500,000. However, the weighting of personal selling in the promotional mix varies from industry to industry, and even from company to company. In general, products, which have a high unit value and require demonstration, e.g computers and other high-tech equipment, are sold by this method Personal selling may be carried out either behind the counter (e.g in retail outlets) or in the field by people referred to as sales representatives, sales reps, sales engineers, or (collectively) as the sales force. Managing – that is, recruiting, training, scheduling and compensating – a company’s sales force is a complex and essential task, usually entrusted in one of its executives, viz. the sales manager Personal selling has great advantages over all other promotional activities. Since it involves face-toface contact with prospective customers, it permits the salesperson involved to use customer

feedback and modify his presentation in mid-course. Moreover, it is a form of promotion that tends to lead directly to a sale. In many cases, the salesperson not only arouses interest but actually sells the product in question. Sales force (Vertreterorganisation, Mitarbeiter im Außendienst) Sales force is a collective term denoting those employees of a firm who are engaged in selling its product(s). Although, strictly speaking, the expression can be applied to both staff taking orders behind a sales counter and those actually calling on prospective and existing customers, it normally refers only to people selling in the field, variously called sales representatives, sales reps, commercial travellers, field executives, sales engineers, etc. Managing a company’s sales force is a complex task, usually entrusted to the firm’s sales manager. It involves, among other things, selecting and training the members of the sales force, assigning particular territories to them, fixing sales

quotas, developing a call policy, digesting information passed on by the salespeople, fixing their compensation and, finally, evaluation their performance. S e i t e | 42 Source: http://www.doksinet EBC 1 Keywords Trade fair (Messe) Trade fairs are complex promotional events staged to enable companies to exhibit their products, meet customers and, possibly, snoop on competitors. Although participating in a fair is quite expensive, many business firms consider the money well spent because fairs offer a number of benefits as compared with other promotional instruments. The most important such advantage is certainly the opportunity for face-to-face contact with visitors, be they trade or private. The feedback they provide, e.g in the form of spontaneous comments, criticism or praise, may be difficult to obtain in any other way. To be successful, participation in a fair has to be planned carefully by the exhibiting enterprise. A suitable event has to be selected, the organisers have

to be contacted, and information in the costs involved must be obtained. Then a decision has to be made on whether to go it alone and invest in an individual stand (or booth) or to participate in a joint stand, often organised by the company’s trade association or its government. If the firm opts for a stand of its own, a favourable location has to be chosen on the fair site or in the fair building(s). The stand can be designed, built and erected by the exhibitor in-house, or the job may be farmed out to specialists, called stand designers or fair contractors. Alternatively, it may be rented from the organisers of the event under what is commonly known as a shell-stand scheme. Then the products to be displayed at the fair have to be selected, packed and shipped, perhaps together with the knocked-down stand, staff have to be recruited and trained, and promotional literature has to be prepared. On the fair site itself, the firm’s managers may want to supervise the erection and

furnishing on the stand as well as the final positioning of the exhibits. During opening hours, the stand has to be manned by a sufficient number of polite and we informed staff, who are able and willing not only to provide information and answer questions but also to drink with existing or prospective customers – all exclusively to promote saes, of course. After closing day, the firm’s manager and other employees may be involved in dismantling the stand and getting it shipped back to home base, together with the exhibits. More important, however, is the evaluation of the whole exercise, often facetiously referred to as the “post-mortem”. Criteria useful in evaluation participation in a fair are: the number of visitors to the stand, the amount of promotional literature distributed, the volume of orders placed at the fair, the volume of follow-up orders, and so on. Sales promotion (Verkaufsförderung) According to Kotler, sales promotion is a collection of promotional tools not

formally classifiable as advertising, personal selling, public relations, or direct marketing. It can be subdivided into consumer promotion (e.g special offers, free samples, coupons, premiums, contests), trade promotion (eg dealer sales contests) and sales-force promotion (e.g bonuses or contests) In contrast to other elements of the marketing mix, sales promotion, especially consumer promotion, tends to have a short-term focus. For example, a price cut intended to remain in place for a considerable period of time forms part of a company’s price policy, while this week’s special offer would be classified as sales promotion. Moreover, consumer promotion is typically geared to the point of sale, although instore promotional efforts are often supported by mass-media advertising A TV commercial calling the audience’s attention to short-term price cuts offered by a supermarket chain would be a case in point. From a global marketing perspective, it is worth mentioning that sales

promotion is perhaps more difficult to standardise than other elements of the promotional mix. S e i t e | 43 Source: http://www.doksinet EBC 1 Keywords Premium (Werbegeschenk, kleine Zugabe) One of the many applications of the term premium is in retailing, where it may refer to a small item given away – or sold at a favourable price – in conjunction with the purchase of another article. The small plastic toys sometimes found in packets of breakfast cereals are called premiums, as are the slightly more valuable toys which can be obtained from the seller of a particular product by sending in a coupon detachable from its package. Direct marketing (Direktmarketing) Direct marketing is a rather diffuse concept. Sometimes the expression simply covers direct mail and telemarketing (or telephone marketing), two promotional activities which fall somewhere between personal (i.e face-to-face) selling and advertising, and represent a useful addition to the range of classic promotional

tools. Some authors, however, regard it as a catch-all term for the various different types of non-store, or home, retailing (e.g mail order, catalogue and TV retailing, electronic selling), in which case direct marketing is seen as a special channel of distribution. The best plan is to combine the two approaches. In all three senses, direct marketing is characterised by microsegmentation and precision targeting, i.e the identification of very small groups of consumers to be targeted by a company’s marketing efforts. This involves using data bases, which may be acquired from outside or developed in-house, e.g from point-of-sale data captured by EFTPOS systems. It follows from the above that direct marketing makes it possible for companies to access fairly small target groups and adjust their marketing activities accordingly. This tailor-made approach avoids waste and enable them to better satisfy the wants and needs of consumers. As already indicated, direct mail and telemarketing,

i.e the use of the telephone in the selling process, are the most important delivery systems employed in this field. Both methods are cheaper and, if planned carefully, not much less efficient than personal selling. Whether Internet marketing (also termed online marketing or e-marketing) is a form of direct marketing or not depends on the definition of the term and on what is actually done through the Internet. Just opening a homepage including the company’s offering and maybe some information on how to order the products offered (e.g by email) does not itself constitute direct marketing Successful examples of direct marketing can be found both in the field of consumer goods (e.g motor cars) and in the service sector (e.g air travel, insurance, banking) One only has to think of the large number of frequent-flier programmes, or the many direct banking and insurance operations set up in the past few years (e.g HSBC’s First Direct) It is not impossible to apply the same principles to

the marketing of industrial goods, in which case experts sometimes use the expression business-tobusiness marketing. S e i t e | 44 Source: http://www.doksinet EBC 1 Keywords Unit 10 Distribution Distribution, in the broadest sense of the term, refers to all economic activities concerned with getting goods from manufacturers to final consumers. In other words, distribution provides a link between production and consumption. It includes buying and selling (ie transfer of ownership) as well as other activities of marketing intermediaries in the channel of distribution, physical distribution (i.e transportation and storage), but also such auxiliary services as banking, finance, insurance and promotion, which speed up and generally facilitate the distribution process. Distribution creates utility and adds value, not by changing the form of products (as is the case with production) but by making them available to ultimate consumers where and when required. Distribution creates time and

place utilities, and is therefore productive in the wider sense of the word. From a marketing point of view, the distinction between the two concepts of “channel of distribution” and “physical distribution” is very important. A typical channel decision would be concerned with the number and types of intermediaries to be used in the distribution process. By contrast, physical distribution decisions focus on selecting the most suitable mode of transport (e.g Should we send the goods by rail or air?) and proper storage methods (e.g Should we erect our own distribution depot or use public warehouses?). In view of the ever increasing importance of the tertiary sector in today’s economies, it is relevant to add that the concept of distribution is also applied, mutatis mutandis, to the service industries. Logistics Logistics can be defined as the process of planning, implementing and controlling the cost-efficient flow and storage of materials, equipment, in-process inventory (e.g

components, subassemblies), semi-finished and finished goods, and related information between the point of production and the point of consumption. Increasingly, this concept is being interpreted to include recycling and disposal. Strictly speaking, this is a definition of business logistics, because the term logistics can also be applied in military contexts, where it was first used. One of the differences between military logistics and the business variety is that the former additionally involves the movement and accommodation of people. Although the definition of business logistics given above refers primarily to managing the flow of goods, the concept can also be usefully applied to service organisations. S e i t e | 45 Source: http://www.doksinet EBC 1 Keywords Channel of distribution (Absatzweg) A channel of distribution, also referred to as a chain of distribution or marketing channel, is a set of marketing intermediaries between the manufacturer or a particular product and

its final user. Channels of distribution can be characterised as having a certain number of stages. A zero-stage channel is one which leads from the producer directly to the final user (e.g door-to-door selling and direct mail). A one-stage channel features one type of intermediary, eg retailers that are supplied by the producer direct. A two-stage channel includes two types of middlemen, eg wholesalers and retailers, intervening between the producer and the final users. The selection of a proper chain of distribution, i.e deciding on the number and types of intermediaries to be used in the distribution process, is an important aspect of marketing management. Decisions in this area will affect, among other things, the total cost of the product to be distributed as well as the volume of sales. A long channel of distribution, including a large number of intermediaries, will – all other things being equal – increase the cost of the product, while the volume of sales will be closely

related to the quality and extent of the intermediaries’ own marketing efforts. Retailer (Einzelhändler, Detaillist) Retailers, i.e firms that specialise in catering to the final consumers, are the last link in the chain of distribution, which starts with the manufacturer. However, retailing is not the exclusive domain of retailers. In fact, any company that sells to final consumers make retail sales A manufacturer distributing cosmetics door-to-door is engaged in retailing, and so is a farmer selling apples from a roadside stand. Conversely, there are many big retails firms that deliberately combine manufacturing and retailing. Examples can be found in the field of consumer co-operatives and grocery chains The Swiss Migros chain, for instance, itself produces a fairly large proportion of its product range (e.g coffees, jams and chocolates) in its own factories. It is, however, difficult for customers and analysts to determine the exact mix between goods produced in-house and those

procured from outside suppliers (brought-in goods) because large retailers often put their own labels (referred to as dealer brands, retailer brands, store brands, private brands and private labels) on both types of goods. Retailing proper is a vast industry with millions of outlets, catering for every conceivable need, and with sales running into hundreds of billions of dollars. Since retail stores must be close to the final consumer, only a limited degree of centralisation (e.g in shopping centres) is possible, which explains the large number of individual shops. To a large extent, retailing used to be, and still is, a national – or even a local – activity, far more so than, for instance, heavy industry and manufacturing in general. The reasons for this are not difficult to find. The marketing of consumer goods is much more dependent on national or local preferences and tastes, and retailers prefer to serve markets which they understand. Only fairly recently – due to a number

of factors which cannot be discussed here in detail – has the pace of internationalisation in retailing quickened, with big retail firms starting to generate an ever increasing proportion of their revenues and profits outside their home countries. The preferred method of entering foreign markets seem to be franchising. Retail shops may be classified in a number of different ways: according to size (e.g supermarkets, hypermarkets, neighbourhood stores), according to type and range of goods sold (e.g hardware S e i t e | 46 Source: http://www.doksinet EBC 1 Keywords stores, food stores, limited-line stores, department stores), according to price policy (e.g discount stores, upscale retailers), according to selling method (e.g mail-order firms, catalogue operators, automatic vending machine operators) or according to ownership (e.g independent retailers, chain stores). However, any classification in this field is bound to be incomplete, because modern retailers are great innovators

and keep coming up with new retail formats such as in-store boutiques, teleshopping, warehouse clubs and, last but not least, e-tailing. Department store (Kaufhaus, Warenhaus) Department stores are large retail establishments offering a wide range of goods, the main emphasis being on such shopping items as furniture, women’s clothing, curtains, flooring and bedding. Other lines carried are leather goods, cameras, radio and TV sets, personal computers, toys and games. In addition, department store customers are offered services, including travel, sports, insurance, investment, cleaning, and car hire. The term department store obviously derives from the fact that the assortment of goods, as well as many activities related to them (e.g buying and selling), are segregated into separate departments, each under its own “buyer”, as a department manager is known in this context. Advertising, delivery, staff training, and other general activities are, however, carried out centrally for

all departments. The main selling point of department stores is their ability to supply all, or at least most, of a customer’s retail needs under one roof. Slogans like “one-stop shopping” or “we supply everything from a needle to a crocodile” (the latter being used by Harrods in London) testify to this fact. The convenience of one-stop shopping may help to offset certain disadvantages such as the rather impersonal atmosphere and the limited range of goods (especially if compared with stockists) in individual departments. Stockist (Fachhändler, Fachgeschäft) Stockists (also called limited-line stores) are retail outlets which carry a restricted range of goods. They may be independently owned or belong to a larger organisation (e.g a chain) Usually, they specialise in one particular line of products, e.g electrical appliances, shoes, consumer electronics, furs, or men’s fashions. Their appeal to the consumer is based on a carefully selected range of highquality products,

personal service, export advice, and after-sales service These advantages help to offset the somewhat higher prices associated with relatively low sales volumes (especially in comparison with discount stores). S e i t e | 47 Source: http://www.doksinet EBC 1 Keywords Unit shop (Einzelgeschäft) A typical unit shop is a small, independent, owner-operated retail establishment. The term emphasises the fact that, in contrast to multiple stores, there is only one outlet. Unit shops which can be found in many different lines (groceries, hardware, electrical appliances, etc.), are facing heavy competition from large retail concerns, especially supermarkets and discount stores, In spite of this, many are able to hold their own and at least eke out an existence, because they enjoy certain advantages inherent in small-scale operations. These include: flexibility, absence of red tape, personal interest of the owner and his family (reflected in the expression mom-and-pop store), friendly

atmosphere, personal service, convenient location (reflected in the terms convenience store, neighbourhood store and corner shop), low overheads, etc. The disadvantages are equally obvious: low volume, higher prices (due to the inability of small stores to obtain quantity discounts), small catchment area, small number of customers, limited range of goods, low profits and low return on capital invested, especially if determined after allowing for what the owner-operator would earn as an employee in a comparable job, i.e the earnings of management Multiple store (Filialunternehmen, Filialist, Ladenkette, Filialkette) A multiple store (also multiple shop, US: corporate chain store) consists of two or more (according to another definition, eleven or more) outlets which are centrally owned and operated. This centralised method of operation offers a number of advantages. It permits the standardisation of shopfronts, store layouts, product range, advertising, displays, etc., as well as the

use of highly trained marketing specialists, all of which tends to make for economies and higher productivity. As a result, multiples are frequently able to sell their goods at lower prices than small independent retailers with only one or two outlets. There are, however, a number of offsetting disadvantages Multiple stores are less flexible than unit shops, and less able to react quickly to changes in local demand and meet competitors’ price reductions. That is why some multiples have begun to give their local managers more discretion in certain areas of management, with the consequent loss of some benefits of centralisation. Mail order (Versandgeschäft, Versandhandel) Mail order is a system of retailing under which a customer places an order with a specialist retailer by mail or, increasingly, by telephone, and the goods so ordered are delivered to his home, either through the post or by one of the modern parcel services. Shopping is done from a catalogue produced by the

mail-order firm concerned and sent to prospective customers direct or shown to them by part-time agents. That is why the system is sometimes referred to as catalogue selling or catalogue retailing, and the operators involved may be called catalogue firms or catalogue operators, although these latter terms also have a more restricted meaning. Like other retailers, mail-order firms can offer a greater or a more limited variety of goods. Some emphasis value, others try to create an upscale image. Generally speaking, there has been a tendency for companies in this field to move upmarket, adding more expensive items to their range of products. Payment for goods bought by this method can be based on COD (cash on delivery), which means that the invoice amount, including a handling charge, is collected by the organisation delivering them. Alternatively, the mail-order company may be prepared to grant credit, allowing its customers to pay by credit transfer or cheque some time after they have

received their goods. The most convenient method, however, is to use a credit card, with the buyer giving the retailer his credit card number and permitting him to charge the invoice amount in the usual way. S e i t e | 48 Source: http://www.doksinet EBC 1 Keywords Wholesaler (Großhändler) Typically, a wholesaler buys in large quantities from manufacturers and sells in smaller quantities to retailers. But strictly speaking, wholesale transactions need not be carried out by wholesalers, nor need the quantities involved be large. Any sale to a business customer or institution (the government, a hospital, etc.) of goods or services not intended for personal use, ie any sale to any customer that is not an ultimate one, represents a wholesale transaction. This means that retailers (e.g when selling to restaurants) or manufacturers (eg when selling to other manufacturers or retailers) can also engage in wholesaling. The term wholesaler, however, is normally reserved for firms whose

principal business activity is wholesaling. Another distinction that should be observed is the one between (merchant) wholesalers and (agent) wholesaling middlemen. A wholesaler buys and sells for his own account, taking title to the goods, while a wholesaling middleman (such as a broker) acts for his principal’s (e.g manufacturer’s) account Wholesalers, in the United States also referred to as distributors or jobbers, provide marketing services that are essential in the process of moving goods from manufacturers to consumers – services that would have come from somebody else (e.g manufacturers or retailers) if wholesalers did not exist. Being specialists, wholesalers are, however, more likely to provide these services efficiently and at low cost. A simple example should serve to highlight the potential economies involved in wholesaling. Six manufacturers selling to four retailers would result in 24 transactions By using the services of one wholesaler, the number of transactions

can be reduced to ten. Specialised services offered by manufacturers or retailers, or both, include: delivery, storage, credit, market information, personal selling, assembling and dividing, and related matters. Wholesalers may be classified either on the basis of the range of goods offered or according to the services provided by them. Thus there are general-line wholesalers (eg food wholesalers) and specialty wholesalers (e.g frozen food wholesalers), or full service and limited-service wholesalers (e.g cash-and-carry wholesalers) Rack jobbers are full-service wholesalers specialising in a particular line of goods (e.g books) The advent of the Internet has created both opportunities and threats for wholesaling – a development also experienced in many other fields. On the one hand, more and more wholesalers are using various B2B formats to improve efficiency in their operations. On the other, some manufacturers have started bypassing wholesalers altogether, selling their products

on-line to retailers and end-users. S e i t e | 49