What are the advantages and disadvantages of Sole Proprietor Form of Business?

CHINMOY KUMAR

If entrepreneur starts sole proprietor form of business, then he has the following advantages.

Advantages of Sole Proprietor Form of Business:

Easy formation: The formation of owner manager business is very easy and simple. No legal formalities are involved for setting up the business excepting a license or permission in certain cases. The entrepreneur with initiative and certain amount of capital can set up such form of business. Direct motivation: The entrepreneur owns all and risks all. The entire profit goes to his pocket. This motivates the proprietor to put his heart and soul in the business to earn more profit. Thus, the direct relationship between effort and reward motivates the entrepreneur to manage the business more efficiently and effectively. Better control: The entrepreneur takes all decisions affecting the business. He chalk out the plan and executes the same. His eyes are on everything and everyone. There is no scope for laxity. This results in better control of the business and ultimately leads to efficiency. Promptness in decision-making: When the decision is to be taken by one person, it is sure to be quick. Thus, the entrepreneur as sole proprietor can arrive at quick decisions concerning the business by which he can take the advantage of any better opportunities. Secrecy: Each and every aspect of the business is looked after by the proprietor and the business secrets are known to him only. He has no legal obligation to publish his accounts. Thus, the maintenance of adequate secrecy leaves no scope to his competitors to be aware of the business secrets. Flexibility in operations: The owner manager business is undertaken on a small scale. If any change is required in business operations, it is easy and quick to bring the changes. Scope for personal touch: There is scope for personal relationship with the entrepreneur and customers in owner manager business. Since the scale of operations is small and the employees work under his direct supervision, the proprietor maintains a harmonious relationship with the employees. Similarly, the proprietor can know the tastes, likes and dislikes of the customers because of his personal rapport with the customers. Inexpensive formation and management:

The cost of formation of a owner manager is the minimum because no cost is involved in its formation excepting the license fee in certain cases. The management of the business is also inexpensive as no specialists are normally appointed in various functional areas of the business which is the added advantages. Free from Government control: Owner manager is the least regulated form of business. Regulated laws are almost negligible in its formation, day-to-day operation and dissolution. Easy dissolution: Like that of formation, the dissolution of the owner manager is also very easy. Since the proprietor is the supreme authority and no regulations are applicable for closure of the business he can dissolve his business any time he likes. Socially desirable: New and small entrepreneurs can take up business on small- scale basis. There will be no scope for concentration of wealth in few hands. Owner manager continues its operation in almost each and every area of business activity and caters to the need of the society. Further, it provides ample opportunities for large-scale self-employment for rural and less skilled personnel. Thus, it is socially desirable.

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In business today, its universally assumed that speed is goodthat the eet thrive while the laggards struggle just to survive. This belief is perhaps most strongly expressed in the concept of first-mover advantage. The company that leads the way into a new market, the thinking goes, locks in a competitive advantage that ensures superior sales and profits over the long term. Its a nice theory, with a long pedigree. Unfortunately, the facts dont support it. We recently completed an extensive study of the results turned in by market pioneers and followers, in both consumer and industrial segments, and we found that over the long haul, early movers are considerably less profitable than later entrants. Although pioneers do enjoy sustained revenue advantages, they also suffer from persistently high costs, which eventually overwhelm the sales gains. No doubt, there are important top-line benefits to being a first mover. Early entrants tend to make a large and lasting impression on customers, earning strong brand recognition, and buyers often face high switching costs in moving their business to a later entrant. A great deal of academic research conducted over the past 20 years indicates that a true demand premium accrues to pioneers, which is directly attributable to the timing of entry.

The impact of early entry on costs is less well understood, however. On one hand, its been argued, pioneers should gain cost advantages by moving through the experience curve ahead of competitors, by gaining control over scarce inputs, and by establishing patents or other forms of technology leadership. Also, because of the relatively high switching costs, pioneers should have to spend less on advertising and other marketing efforts. On the other hand, followers clearly have some cost advantages of their own. They can, for example, learn from the mistakes and successes of their predecessors, reducing their own investment requirements as well as their risks. In addition, followers can frequently adopt new and more efficient processes and technologies, whereas pioneers often remain entrenched in their original ways of doing things. Until now, its been difficult to determine with precision the net effect of early entry on costs, making it problematic to get an accurate read of the relative profitability of pioneers and followers. To fill this knowledge gap, we studied the actual revenue and cost performance over time of both pioneers and followers. We examined 365 business units competing in consumer goods markets and 861 units competing in industrial markets, spanning the years 1930 to 1985. Drawing on the extensive PIMS database of corporate performance, we modeled these companies relative revenues and costs as well as their profits as measured by net income, return on investment, and EVA. We used various methodological controls to isolate the impact of order of market entry, filtering out other variables such as level of resources. Our findings were dramatic. Pioneers in both consumer goods and industrial markets gained significant sales advantages, but they incurred even larger cost disadvantages. We found that pioneers in consumer goods had an ROI of 3.78 percentage points lower than later entrants. And the ROI of first movers was 4.24 percentage points lower than followers in the industrial goods sector. The bottom-line result: Pioneers were substantially less profitable than followers over the long run, controlling for all other factors that could account for performance differences. Its important to note that the profit disadvantage kicked in only over the long run. In the initial years of a new market, the first mover tended to maintain a profit advantage, as the revenue benefit outweighed the cost penalty. But as years passed, the brand and marketing advantages faded while the cost penalty persisted, which steadily eroded the profit edge. On average, the profit advantage turned to a disadvantage after approximately ten years for consumer businesses and 12 years for industrial businesses.

Our research should not be interpreted to mean that companies ought to dismiss the importance of a speedy market entry. Rather, it suggests that executives need to cast a cold eye on market entry plans that assume that being first will inevitably create longrun profit advantages. The question that needs to be asked is not Can we be first? but How exactly will being first affect our costs and revenues over the long run? In other words, are there additional factors that will either create an especially large revenue advantage or prevent the company from falling victim to a cost disadvantage? If its not backed up with clear and well-reasoned economic logic, a first-mover strategy should be approached with skepticism.
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The Product Life Cycle (PLC) and Strategies at different stages

Posted by Drypenon September 20, 2008

Advertising strategies change with the change in stages of a product life. i.e. PLC This article focuses on changes in way of advertising when PLC stages changes. Every product goes through a series of stages, namely the introduction, growth, maturity, decline. After a period of development it is introduced or launched into the market; it gains more and more customers as it grows; eventually the market stabilises and the product becomes mature; then after a period of time the product is overtaken by development and the introduction of superior competitors, it goes into decline and is eventually withdrawn. However, most products fail in the introduction phase. Others have very cyclical maturity phases where declines see the product promoted to regain customers. Thus in this case, a suitable advertising and promotion campaign is required to be identified and followed.

Strategies for the differing stages of the PLC Introduction stage of PLC
The need for immediate profit is not a pressure. The product is promoted to create awareness. If the product has no or few competitors, a skimming price strategy is employed. Limited numbers of product are available in few channels of distribution. Advertising differentiates the product. Print ad of a Printer giving details about its specifications

Growth stage of PLC

Competitors are attracted into the market with very similar offerings. Products become more profitable and companies form alliances, joint ventures and take each other over. Advertising spend is high and focuses upon building brand. Market share tends to stabilise. Advertising establishes participation with the marketplace.

Maturity stage of PLC

Those products that survive the earlier stages tend to spend longest in this phase. Sales grow at a decreasing rate and then stabilise. Producers attempt to differentiate products and brands are key to this. Price wars and intense competition occur. At this point the market reaches saturation. Producers begin to leave the market due to poor margins. Promotion becomes more widespread and use a greater variety of media. Advertising puts price ahead of the competition.

Decline stage of PLC

At this point there is a downturn in the market. For example more innovative products are introduced or consumer tastes have changed. There is intense price-cutting and many more products are withdrawn from the market. Profits can be improved by reducing marketing spend and cost cutting. Defensive advertising or for revitalization.
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Product life cycle & Marketing Strategies By- Amar M. ingale t.y.m.e. (a) roll. No. 1930 3. Why a product life cycle?A companys positioning and differentiation strategy must change as the product, market, and competitors change over the product life cycle(PLC)When we say that a product has a life cycle we assert four things:i. Products have a limited life.ii. Products sales pass through distinct stages, each posing different challenges, opportunities and problems to the seller.iii. Profits rise and fall at different stages of the product life cycle.iv. Products require different marketing, financial, manufacturing, purchasing, and human resource strategies in each life cycle stages. 4. Product Life Cycleproduct life cycle is the course of a products sales and profits over time.product life cycle(PLC) deals with the life of a product in the market with respect to business or commercial costs and sales measures.The five stages of each product lifecycle are product development, introduction, growth, maturity and decline. 5. WHAT IS PLC? 6. Product Life Cycle Sales and Profits Sales Profits Time Product Introduction Growth Maturity Decline Develop- mentSales and Profits Over the Products Lifetime 7. Introduction Stage of the PLCSummary of Characteristics, Objectives, & Strategies Sales Low Costs High cost per customer Profits NegativeMarketing Objectives Create product awareness and trial Product Offer a basic product Price Use cost-plus formula Distribution Build selective distribution Promotion Heavy to entice product trial 8. Growth Stage of the PLCSummary of Characteristics, Objectives, & Strategies Sales Rapidly rising Costs Average cost per customer Profits RisingMarketing Objectives Maximize market

share Product Offer extension, service, warranty Price Penetration strategy Distribution Build intensive distribution Promotion Reduce to take advantage of demand 9. Maturity Stage of the PLCSummary of Characteristics, Objectives, & Strategies Sales Peak Costs Low cost per customer Profits HighMarketing Objectives Maximize profits while defending market share Product Diversify brand and models Price Match or best competitors Distribution Build more intensive distribution Promotion Increase to encourage brand switching 10. Decline Stage of the PLCSummary of Characteristics, Objectives, & Strategies Sales Declining Costs Low cost per customer Profits Declining Marketing Objectives Reduce expenditures and milk the brand Product Phase out weak items Price Cut price Distribution Selective: phase out unprofitable outlets Promotion Reduce to minimum level 11. Three special categories of PLC 12. ContinuedA Style is a basic and distinctive mode of expression appearing in a field of human endeavor. Styles appear in homes, clothing, art etc.A Fashion is a currently accepted or popular style in a given field. Fashion pass through four stages: Distinctiveness, emulation, mass fashion, decline.Fads are fashions that comes quickly into public view , are adopted with great zeal, peak early, and decline very fast. 13. Four Introductory Marketing Strategies Promotion High Low Rapid- Slow- High skimming skimming strategy strategyPrice Rapid- Slow- Low penetration penetration strategy strategy 14. Marketing strategies for Growth stageDuring the growth stage, the firm uses several strategies to Improves product quality and adds new features andsustain rapid market growth. Adds new models and flanker products(i.e., products ofimproved styling. different sizes, flavors, and so forth that protect the main It increases its distribution coverage and enters new It enters new market segmentsproduct). It shifts from product- awareness advertising to product-distribution channels. It lowers price to attract the next layer of price sensitivepreference advertising. buyers. 15. Marketing strategies for Maturity stageThree potentially useful ways to change the course for a brand are market, product, and marketing program modification.Market Modification Sales volume = no. of brand users * usage rate per user. Expand the no. of brand users Convert nonusers Enter new market segments Attract competitors customers 16. Continued..Increase the usage rate among users Have consumers use the product on more occasions. Have consumers use more of the product on each occasion Have consumers use the product in new ways.Product modification Trying to stimulate sales by modifying the products characteristics through 17. Continued..Quality improvement: Aims at increasing the products functional performance. Eg: Aashirvaad, Annapoorna, Pillsbury, NaturefreshFeature improvement Aims at adding new features, such as size, weight, materials, additives, and accessories, that expand the products performance, versatility, safety, or convenience.Style improvement Aims at increasing the products esthetics appeal. Eg; New car models, New Coke 18. Decline Stage Increase investment Resolve uncertainties - stable investment Selective niches Harvesting Divesting To establish a system for identifying weak products. Some firms abandon declining markets earlier than others.