Entrepreneurship 1​st​ Grading Reviewer

by Yul Gino Miguel J. Castillo 

1 – Introduction to Entrepreneurship

What is Entrepreneurship? 
- the act of creating a business/businesses while building and scaling it to generate
profit
- the more modern definition is also about transforming the world by solving big
problems through initiating social change, creating an innovative product, or
presenting a new life-changing solution (Oberio, 2018)
- what people do to take their career and dreams into their hands and lead it into
the direction of their own choice
- comes from the root word “enterprise”​ ​which means:
o a project or undertaking that is especially difficult, risky, or complicated
o readiness to engage in daring or difficult action
o a unit of economic organization or activity
o a business organization
o a systematic, purposeful activity
o the ability to do dangerous or difficult things or to solve problems in new
ways

Types of Entrepreneurial Motivations 

1. Personal Fulfillment
- long term
- creating something meaningful that is outlasting and fulfilling; the feeling
of leaving a legacy behind
- entrepreneurs might want to taste fame, leave behind something that
appreciates them, or pass the business to a future generation
- one of the strongest motivators because it can’t be achieved in any other
application and it lasts longer than money or experience

2. Personal Satisfaction
- short term

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 - the desire to control the setting for your business; aspiring for a leadership
position
- when you’re the boss, you’ll get to call all the shots; entrepreneurs have
full control over every decision made under them
- workers tired of their previous companies poor performances or bosses
might be motivated by this factor
3. Independence
- being your own boss in the world of entrepreneurship that frees you from
restraints
- some entrepreneurs venture out on their own because they’re tired of the
demands of traditional work
- you can work your own hours, wherever you feel like working, and set
your own goals and responsibilities
4. Financial Rewards
- potential to make lots of money
- most entrepreneurs get into the game for this potential
- any dedicated entrepreneur with a good idea and great timing can make a
lot more money than they ever could in a traditional position

What is Social Entrepreneurship? 

Applying practical, innovative and sustainable approaches to benefit society in
general, with an emphasis on those who are marginalized and poor.

Types of Startup/Business Ideas 

1. New Market Ideas
- ideas centered on providing customers with an existing product or service
not available in the market
- there is an existing product already, but you improve or innovate thus
creating a new market
- e.g.:
i. targeting the modern beverage market by selling soft drinks with
nutritional value
ii. moving from the trend of selling coffee or tea to flavored milk with
better nutritional value
2. New Technology Ideas
- ideas involving new technology to provide a new product to new
customers

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 -e.g.:
i. using high-tech computers to develop simulated helicopter ride
ii. using virtual reality (VR) to give customers a better sense of the
product
3. New Benefit Ideas
- ideas centered on providing customers with new or improved product or
services
- e.g.:
i. developing a personal fanning device to keep workers cool
ii. developing an app that can improve the life of an individual
iii. create a medicine that can cure multiple diseases

What is Competitive Advantage? 

Competitive advantage​ ​is a benefit that exists when a firm has a product or
service that is seen by its target market as better than those of competitors’.

Why Use SWOT Analysis? 

- in a business context, it helps carve a sustainable niche in the market
- in a personal context, it helps develop your career that takes advantage of your
abilities
- it helps uncover opportunities you’re well-placed to exploit
- it helps understand the weaknesses of your business so you can manage and
eliminate threats before they arrive

When to Use SWOT Analysis? 

- when exploring possibilities for new efforts or solutions
- when making decisions about the best path for your initiative
- when identifying your opportunities for success in context of threats to success
that can clarify directions and choices
- when determining where change is possible

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Components of SWOT Analysis 
Internal attributes​ – within the firm; controllable by the entrepreneur
● Strengths
o strong attributes or capabilities of business that provide great advantage
in exploiting the business opportunity
o e.g.: qualified working force, complete and new physical facilities,
democratic leadership style, motivated workers, valuable intangible assets
● Weaknesses
o poor attributes or deficiencies that give disadvantages to the business
o e.g.: autocratic form of leadership, demoralized employees, dilapidated
equipment and machineries, unskilled workers, poor technological
structures
External attributes​ – outside of the firm; out of the firm’s control
● Opportunities
o business situations in the form of products or services that must be
exploited because of their potential in terms of profit and growth
o e.g.: innovative products introduced to the market, increasing the market
share because of market advantage, providing services to new customers,
new programs of the gov’t
● Threats
o possible external events in the environment that may provide harm to the
business
o e.g.: possible entry of competitors, stiff gov’t regulations, higher interest
rates, entry of cheaper products, unstable peace and order situation, shift
of customers’ tastes and preferences

2 – Market

What is the Market? 

- the place where…
o buyers/customers and sellers gather in one place and interact with one
another
o forces of supply and demand operate
- can be physical or virtual
- its failure to be defined by the entrepreneur will lead to losses

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 - comprised of:
o customers​ – can be an individual or a whole business; they have money to
have purchasing power and have unsatisfied needs
o purchasing power​ – the ability of a customer to pay for a certain product
o unsatisfied needs​ – customers will not buy unless they are motivated to
do so; do they need/want the product?

Stages of Market Identification 

Market identification​ ​is a strategic approach or process to define specific customers
of the product.
1. Market segmentation
- strategy designed to divide the market into small segments with distinct
needs, characteristics or behaviors
- types:
i. geographic​ – involving where (e.g.: location, urbanization, region,
residence; “customers within 10 miles of Davao City”)
ii. demographic ​– involving what (e.g.: age, gender, occupation,
socio-economic group; “university students”)
iii. behavioral ​– involving how (e.g.: loyalty, rate of usage, benefits
sought, readiness to purchase; “customers wanting value for their
money” or “impulse buyers”)
iv. psychographic ​– involving who (e.g.: class, lifestyle, personality;
“customers who prefer natural/organic food”)
2. Market targeting
- stage that aims to determine the set of buyers with common needs and
characteristics
- where the business evaluates the market then selects desired segments
and strategies
- affected by
i. own and rival companies’ size and growth
ii. structural attractiveness
iii. firm’s objectives and resources
- strategies:
i. individual/one-on-one marketing​ – business provides a particular
need of a consumer; based on the concept that consumers have
different needs and wants
ii. segmentation marketing –​ business targets several segments of the
market; products have distinct designs for each distinct segment

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 iii. mass/undifferentiated marketing –​ when the product is a
commodity that can be used by all types of consumers; based on
common needs and wants
3. Market positioning
- the kind of mindset you want to create for your customers
- arranging a product to occupy a clear, desirable place (in relation to rival
products) in the minds of customers
- steps:
i. Determine company uniqueness
ii. Identify market position and status
iii. Analyze positioning of competitors
iv. Develop your strategy
- businesses can do m ​ arket repositioning​ ​where they change the status of
their brand or product due to declining sales or changing environments

3 – Developing a Brand

What is a Brand? 
- a name, design, color, symbol, quality, features, or a mix of such elements that
make a product separate and distinct from similar products of competitors
- gives a product its distinct identity and image
- created using names, logos, and slogans to convey the product’s personality or
position
- perceived image and subsequent emotional response to a company and its
products
- often associated by consumers with features, attributes, benefits, or value of the
product that the brand name becomes more familiar than the product itself

How to Create a Brand Name 

1. Review​ the attributes, benefits, and values of the product carefully.
2. Evaluate​ the consumers in the target market.
3. Analyze​ the proposed marketing strategies.
4. List​ the possible brand names by considering the first three steps.
5. Limit​ ​the brand name to one or two words.
6. Check​ the Internet if the chosen brand name already exists.

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Branding Strategies 
● Branded House Approach
o also known as “Umbrella Brand Approach”
o all products of the business carry the same brand name
o most common form of brand architecture
o advantages:
▪ high efficiency and ease of manipulating products and company
▪ holistic evolution of company
o disadvantages:
▪ delicate reputation
▪ limited market range
▪ lack of ambiguity
o e.g.: Honda Motors produces motorcycles, cars, agricultural machines, etc.
● House of Brands Approach
o every product of the same business has a separate brand name that
distinguishes it from the rest of the company’s products
o advantages:
▪ wide reach
▪ presence of safety net and shield
o disadvantages:
▪ overwhelming company and brands
▪ isolation of newer brands
o e.g.: Procter & Gamble owns Joy, Tide, Ariel, Downy, Pampers, Pantene,
Head and Shoulders, Rejoice, Vicks, Safeguard, Whisper, etc.

What is Brand Equity? 

- the degree of consumers’ perceptions or reactions to a brand
- when the degree is high or brand perception is favorable, the brand equity is
positive; the product has a strong brand name in the market

Branding Extension Strategies 

● Line Extension Approach
o the existing product has been modified or altered resulting in a new
product or more products without eliminating the original product
o the new product must be in the same category as the original
o adds variety to existing products for the sake of reaching a more diverse
customer base and enticing existing customers with new options

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 o e.g.: KitKat produces a wide array of flavors along with the original
flavor.
● Product Extension Approach
o a new product carries the brand name in a new category
o the new or added to be totally different from the old or existing product
line
o e.g.: Dove produces soaps, shampoos, conditioners, and deodorants.

Intellectual Properties 
- any creations of the mind which allows people to earn recognition or financial
benefit from what they invent or create (RA 8293)
- safeguarded by RA 8293 or the Intellectual Property Code of the Philippines
which was ratified on January 1, 1998
- processed, registered, and archived by the Intellectual Property Office of the
Philippines (IPOPHIL)
- types:
i. Patent​ – exclusive right granted for an invention; lasts for 20 years
▪ Invention​ – a product or process that provides new ways of doing
something or offers a new technical solution to a problem
ii. Trademark​ – refers to both trademark and service mark; exclusive use of a
mark, sign, symbol, or logo; lasts for 10 years
▪ Service​ – used to identify those marks used for services only
iii. Copyright​ – legal protection for exclusive use of the owner for its original
work; lasts for a lifetime with an additional time period after death
▪ Original work ​– every production in the literary, scientific, and
artistic domain

4 – Marketing Mix: Product, Place, and People

Marketing Mix 
It refers to a tool used by the entrepreneur to position the product in the target
market segment to efficiently and effectively deliver it to the consumers and to convince
them about the benefits that they will derive from buying the product.
It contains seven elements: four original elements and three additional elements.
The original four are summarized with, “the right product at the price and at the place

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with the right promotion”. The three additional elements are people, packaging, and
positioning.

Product 
- refers to the tangible good or intangible service offered by the business to the
target consumers
- the nucleus of the marketing mix; if the product fails to satisfy consumers’ needs
and wants, the other Ps will no longer appeal to them
- must have existing consumers who want or need such product; a product that
cannot meet the needs of consumers will not stay long in the market
- consumers are buying the product itself; additional features are attributes the
consumer must be willing to pay for (e.g.: durability, brand name)
- entrepreneurs must employ the ​product mix
o different products are made available to consumers on top of the primary
product to improve the performance of the primary product
o makes businesses appear to have everything the consumers need or want
- types:
i. convenience products​ – bought frequently, immediately, and without
great comparison and buying effort; must be cheap, mass-produced, and
present anytime, anywhere
ii. shopping products​ – compared by attributes like quality, price, and style
in the process of selecting and purchasing
▪ homogeneous ​– the product has same traits as those of the rival’s;
can be replaced for an alternative
▪ heterogeneous​ – the product is unique from its rivals; can’t be
replaced by an alternative
iii. specialty products​ – with unique traits or brand identification for which a
significant group of consumers is willing to make a special purchase effort
iv. unsought products​ – either unknown or known to a consumer but doesn’t
buy under normal conditions; must be promoted more and better to be
sold
- how to launch a product:
1. Create ideas through sales analysis and R&D
2. Select feasible ideas
3. Decide if such ideas will sell in the market
4. Develop a sample of the product
5. Test the sample in the market
6. Fully launch the final product in the market

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 - undergoes a life cycle
1. R&D ​– new designs and improvements are made to an old product or a
new prototype; the product is still weak in the market
2. Launch ​– the new or redesigned product enters the market; the product
gains traction
3. Growth​ – the product gains more and more consumers; the product
grows stronger in the market
4. Maturity​ – the product reaches its maximum potential; the product is at
the peak of its life
5. Decline​ – the product weakens due to various factors and goes back to
R&D; the product steadily weakens

Place 
- where the target customers are
- the distribution channel for the product
- the entrepreneur must pick the most strategic place or location; strategy is
relative for each business
- set the business where/when your consumers are willing to buy your product
- the nature of the business and type of product significantly determine the most
appropriate place for the business
- types of distribution:
o direct distribution​ – the product goes from the producer directly to the
consumer
o indirect distribution​ – the product goes from the producer to wholesalers
and retailers before it reaches the consumer; price of the product increases

People 
- refers to those employed in the company and workers directly involved in the
production, research, marketing, and sale of the product
- must be fit for the job
- entails cost for the business
- big businesses have edge over smaller ones

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 5 – Marketing Mix: Promotion, Packaging, and Positioning

Packaging 
- refers to the process of putting the product in a package or container
- includes the kind of material used for the container and the label and info
printed on the package
- essential for:
o consolidation
o protection
o information
o convenience
o identification
- layers of packaging:
1. primary​ ​– first layer of packaging which directly holds the product (e.g.:
cellophane for cereal or tube for toothpaste)
2. secondary​ – second layer of packaging that protects the primary layer
(e.g.: box for the cereal and toothpaste)
3. transportation or tertiary​ – final layer used for easier transportation of
bulk products (e.g.: big boxes to contain mass amounts of toothpaste)

Promotion 
- the mode of conveying the presence and attributes of the product to the target
consumers
- communicates the product’s benefits, price, and market position to its consumers
- elicits the desire to buy the promoted product
- types:
o advertising​ – most common type of promotion where people are paid to
endorse the product
▪ informative​ – uses reliable info to assert its feasibility to consumers
▪ persuasive​ – uses emotion to catch consumers’ attention
o personal selling​ – involves a knowledgeable salesperson with personal
and direct contact with the consumer
o sales promotion​ – influences consumers to buy the product immediately
with lower prices or limited market presence
o direct marketing​ – communicating directly to consumers to endorse a
product

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 o publicity​ – unpaid advertising to gain a wider audience and gather new
consumers

Positioning 
- the kind of mindset you want to create for your customers
- arranging a product to occupy a clear, desirable place (in relation to rival
products) in the minds of customers
- see p. 6 for more information

6 – Marketing Mix: Price

Price 
- refers to the costing and marking up of the product
- the amount customer is willing to pay

Types of Competition 
Price competition
- emphasizes prices
- matches or beats competitors’ prices
Non-price competition
- does not emphasize prices
- emphasizes product features, promotion, packaging, and other factors

Price Elasticity of Demand 

- the degree to which a change in price affects the quantity demanded
- sets limits on raising prices
- helps entrepreneurs know how to set a reasonable price and how sensitive
customers are to changes in price
- affected by
o number of substitutes in the market
o price of product in relation to total income

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 o cost of substituting between different products
o brand loyalty and habitual consumption
o necessity vs. luxury
- formula:
| QdQd
2 −Qd1 |

= || P 2−P1 1 ||
% change in quantity demanded
P ED = % change in price
| P1 |
- if PED is…
o more than 1​ – elastic; change in demand is greater than change in price
and consumers are sensitive to changes in price (e.g.: shopping products)
o less than 1​ – inelastic; change in demand is less than change in price and
consumers are unaffected by changes in price (e.g.: basic commodities)
o equal to 1​ – unitary elastic; change in demand is equal to change in price
and consumers react in accordance to the change in price
o equal to 0​ – unitary inelastic; there is no change in demand in relation to
change in price and consumers are completely unaffected by changes in
price

Cost 
- monetary measure of the amount of resources given up or used for some other
purpose
- classifications:
o as to type:
▪ product cost​ – cost incurred to manufacture the product
● direct materials
● direct labor
● overhead costs
o variable overhead costs
o fixed overhead costs
▪ period cost​ – non-manufacturing costs
o as to function:
▪ manufacturing cost​ – all costs incurred in the factory to convert
raw materials into finished goods
● direct materials
● direct labor
● overhead costs
o variable overhead costs
o fixed overhead costs

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 ▪ non-manufacturing costs​ – all costs not incurred in transforming
materials to finished goods
● R&D costs – incurred in designing and bringing new
products to the market
● marketing costs – advertising and promotion expenses
● distribution costs – incurred in delivering the product to
customers
● selling costs – salaries and commission of sales staff
● aftersales costs – incurred in dealing with customers after
sales (e.g.: warranties, repairs)
● general and admin costs – everything else
o as to behavior (reaction to c​ ost driver​ – variable, like level of activity or
volume, that affects cost over a period of time; e.g.: hours of operation,
production, sales)
▪ variable cost​ – within the relevant time period in consideration, the
total amount varies directly to the change in activity; the per unit
amount is constant
▪ fixed cost​ - within the relevant time period in consideration, the
total amount is constant; the per unit amount varies inversely with
the change in the cost driver
▪ mixed or semi-variable cost​ – has both a variable and a fixed
component

Pricing 
- producers apply higher prices for higher profit while consumers want lower
prices for lower expenses
- there are no rigid rules in setting prices but there are variables that affect pricing:
1. availability and presence of competing products
2. cost of making the product
3. type of product
4. stages of the product in the market
5. demographic profile of the target consumers
- objectives in pricing:
1. survival
▪ strategy for startups
▪ to cover variable and fixed costs
▪ to keep prices low to stay in business
2. profit objective
▪ choose the price that creates maximum profit

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 ▪ set a target return or markup
3. volume objective
▪ use pricing to increase sales volume
▪ maintain or increase market share
▪ high obstacle for competitors
4. product quality objective
▪ high prices to cover performance quality, R&D, branding
▪ to develop and maintain an image of quality and exclusivity
- pricing strategies:
1. penetration pricing
▪ prices a product at less than its normal long-range price to gain
market acceptance
▪ discourages new competitors if the penetration price is mistaken as
the long-range price
▪ sacrifices some profit margin to achieve market penetration
2. skimming pricing
▪ prices products at high levels for a limited time before reducing to
competitive levels
▪ based on the assumption that consumers will buy it because the
product is viewed as a prestige item
▪ practical if there is little threat of competition or startup costs must
be recovered rapidly
3. follow-the-leader pricing
▪ uses a particular competitor as a model in setting a price
4. psychological pricing
▪ promotional pricing​ – products are sold at a lower price in a
limited temporary period
▪ odd or even pricing​ – products are sold in prices that end in
number 5 like ​₱​99.95
▪ prestige pricing​ – products are purposely sold at a higher price to
create a superior image
5. markup pricing
▪ also known as “contribution margin”
▪ applying a percentage of a product’s cost to obtain its selling price
▪ C M or M U = selling price (SP ) − v ariable cost (V C)
▪ types:
markup
● % markup based on selling price​ - selling price
×100
markup
● % markup based on (variable) cost​ - cost
×100

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Break-even 
- the point where the sales volume level (pesos or units) is enough to recoup the
total fixed and variable costs
- to determine the sales volume level at which the product will generate profit
- profit at break-even is zero
- how to compute:
1. Know what costs are either fixed or variable
2. Know how many products you have
3. Compute the markup of each product
4. Compute the break-even point

- formulas:
f ixed cost (F C) + desired prof it
B EP (in pesos) = markup (M U )
selling price (SP )

f ixed cost (F C) + desired prof it

B EP (in units) = markup (M U )

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