Category: Bangalore University B.com Notes

Service blueprints are diagrams that visualize organizational processes in order to optimize how a business delivers a user experience. They are the primary tool used in service design.

A service blueprint is an operational planning tool that provides guidance on how a service will be provided, specifying the physical evidence, staff actions, and support systems / infrastructure needed to deliver the service across its different channels. For example, to plan how you will loan devices to users, a service blueprint would help determine how this would happen at a service desk, what kinds of maintenance and support activities were needed behind the scenes, how users would learn about what’s available, how it would be checked in and out, and by what means users would be trained on how to use the device.

Service Blueprints may take different forms some more graphic than others but should show the different means/channels through with services are delivered and show the physical evidence of the service, front line staff actions, behind the scene staff actions, and support systems. They are completed using an iterative process taking a first pass that considers findings from personas, journey maps, and location planning and then coming back to the blueprint to refine it over time. Often blueprints raise questions that cannot be readily answered and so need to be prototyped; for instance by acting out an interaction or mocking up a product. Generally, one blueprint should be created for each core service, according to the right level of detail for each.

Effective service blueprinting follows five key high-level steps:

(i) Find support: Build a core cross disciplinary team and establish stakeholder support.

(ii) Define the goal: Define the scope and align on the goal of the blueprinting initiative.

(iii) Gather research: Gather research from customers, employees, and stakeholders using a variety of methods.

(iv) Map the blueprint: Use this research to fill in a low-fidelity blueprint.

(v) Refine and distribute: Add additional content and refine towards a high-fidelity blueprint that can be distributed amongst clients and stakeholders.

Step Framework for Service Blueprinting

1. Find Support

Level-set and educate on service blueprinting. First, pull together a cross disciplinary team that has responsibility for a portion of the service and establish stakeholder support for the blueprinting initiative. Support can come from a manager, executives, or clients.

2. Define the goal

Choose a scope and focus. Identify one scenario (your scope) and its corresponding customer. Decide how granular the blueprint will be, as well as which direct business goal it will address. While an as-is blueprint gives insight into an existing service, a to-be blueprint gives you the opportunity to explore future services that do not currently exist.

3. Gather Research

Unlike customer-journey mapping where a lot of external research is required, service blueprinting is comprised of primarily internal research.

(a) Gather customer research: Begin by gathering research that informs a baseline of customer actions (or, in other words, the steps and interactions that customers perform while interacting with a service to reach a particular goal). Customer actions can be derived from an existing customer-journey map.

(b) Gather internal research: Choose a minimum of two research methods that put you in direct line of observation with employees. Use a multipronged approach — select and combine multiple methods in order to reveal insights from different angles and job roles:

• Employee interviews
• Direct observation
• Contextual inquiry
• Diary studies

4. Map the blueprint

(a) Set up: It’s useful to organize a short workshop session (2–4 hours) to do steps 4 and 5. This helps create a shared understanding amongst your team of allies and ensures that the blueprint remains collaborative and unbiased. If all workshop participants are in the same physical location, set up by hanging three oversized sticky notes on the wall side by side. Each member should have a pad of post-its. The result of the workshop will be a low-fidelity version of an initial blueprint.

While any mapping method is collaborative at its core, blueprinting can still be done individually. If this is the case, be sure to share your blueprint with stakeholders and peers early and often.

(b) Map customer actions: In a service blueprint, customer actions are depicted in sequence, from start to finish. A customer-journey map is an ideal starting point for this step. Do note that a blueprint’s focus is the employee experience, not the customer’s experience, thus this portion does not need to be a fully baked customer-journey map — rather, you can include only the user touchpoints and parallel actions.

(c) Map employees’ frontstage and backstage actions: This step is the core of a service-blueprint mapping. It is easiest to start with frontstage actions and move downward in columns, following them with backstage actions. Inputs should be pulled from real employee accounts, and validated through internal research.

(d) Map support processes and evidence: Add the process that employees rely on to effectively interact with the customer. These processes are the activities involving all employees within the company, including those who don’t typically interact directly with customers. These support processes need to happen in order to deliver the service. Clearly, service quality is often impacted by these below-the-line interaction activities.

Layer in the evidence at each customer’s action step. Work your way through the first 5 steps and ask “what props and places are encountered along the way?” Remember to include evidence that occurs frontstage and backstage.

5. Refine and Distribute

Refine by adding any other contextual details as needed. These details include time, arrows, metrics, and regulations.

The blueprint itself is simply a tool that will help you communicate your understanding of the internal organization processes in an engaging way. At this point, you need to create a visual narrative that will convey the journey and its critical moments, pain points, and redundancies.

A good way to implement this step is to have another workshop with your core team. Having built context and common ground throughout your mapping process, bring them back together and evolve the blueprint into a high-fidelity format.

Price goes by various names-freight, fare, license fee, tuition fee, professional charge, rent, interest, etc. But price in an enterprise/business system is seldom so simple. By definition, price is the money that customers must pay for a product or service. In other words, price is an offer to sell for a certain amount of currency.

Here, the word, offer indicates that price is subject to change if there are found insufficient number of customers at the original price of the product. That is why prices are always on trial. If they are found to be wrong, either they must be immediately changed or the product itself must be withdrawn from the market.

Pricing of the product is something different from its price. In simple words, pricing is the art of translating into quantitative terms the value of a product to customers at a point of time. Someone has opined that, “The key to pricing is to build value into the product and price it accordingly.”

Pricing is one of the key elements of marketing mix.

The salient ingredients of pricing are:

(i) Pricing covers all marketing aspects like the item-goods or services-mode of payment, methods of distribution, currency used, etc.

(ii) Pricing may carry with it certain benefits to the customers like guarantee, free delivery, installation, free after-sale servicing and so on.

(iii) Pricing refers to different prices of a product for different customers and different prices for the same customer at different times.

Pricing – Buyers’ and Sellers’ View

In general terms price is a component of an exchange or transaction that takes place between two parties and refers to what must be given up by one party (i.e., buyer) in order to obtain something offered by another party (i.e., seller).

Yet this view of price provides a somewhat limited explanation of what price means to participants in the transaction.

In fact, price means different things to different participants in an exchange:

1. Buyers’ View

For those making a purchase, such as final customers, price refers to what must be given up to obtain benefits. In most cases what is given up is financial consideration (e.g., money) in exchange for acquiring access to a good or service. But financial consideration is not always what the buyer gives up.

Sometimes in a barter situation a buyer may acquire a product by giving up their own product. For instance – two farmers may exchange cattle for crops. Also, as we will discuss below, buyers may also give up other things to acquire the benefits of a product that are not direct financial payments (e.g., time to learn to use the product).

2. Sellers’ View

To sellers in a transaction, price reflects the revenue generated for each product sold and, thus, is an important factor in determining profit. For marketing organizations price also serves as a marketing tool and is a key element in marketing promotions. For example – most retailers highlight product pricing in their advertising campaigns.

Objectives of Pricing

1. Target Rate of Return

Firms following this objective design their pricing strategy in such a way that will yield desired return on total investment (ROI). Rate of return refers to the amount of net profits divided by investment or capital employed. This goal often leads to cost plus pricing. The price of a product or service is determined by adding the expected margin of profit to the cost of production and distribution.

2. Price Stabilization

This goal is adopted in industries having a few firms. In an oligopolistic situation where one firm is very big and all others are small, the big firm acts as the price leader and other firms follow it. All the firms try to avoid price wars. No firm is willing to cut its prices for fear of retaliation by other firms.

In order to avoid fluctuations in prices, they may even forgo maximizing profits during the period of scarce supply or prosperity. This objective is followed in case of products which are vulnerable to price wars or which are advertised at the national level. Price stability helps in planned and regular production in the long run. However, it may create rigidity in pricing.

3. Target Share of the Market

In an expanding market, market share is a better indicator of a firm’s success than the target rate of return. When the market has a potential for growth, a firm earning the target rate of return may, in fact, be decaying if its share of the market is decreasing. Therefore, maintenance or improvement in the market share is a more worthwhile objective in growing markets. Market share measures a firm’s sales vis-a-vis the sales of its competitors.

4. Facing Competition

Under conditions of intense competition, a firm may seek to meet or prevent competition. It may fix prices at a very low level (even below cost) to eliminate its competitors or to prevent the entry of new firms in the market. Some firms follow this practice while introducing a new product. This goal is not very popular and cannot be adopted on a regular basis. In the long run, a firm cannot survive if it continues to charge less than the cost of the product or service.

5. Profit Maximization

Traditionally, profit maximization is considered to be the objective of pricing. The classical economic theory suggests the fixation of prices in such a way that the marginal cost is equal to marginal revenue where profits are maximized. Even today some firms are not very conscious of social responsibilities and try to maximize profits. But in recent years there has been a change in the philosophy of business and profit maximization is not considered rational business behaviour. In practice, no firm states explicitly that profit maximization is its pricing objective due to the fear of public criticism and government regulation.

6. Improving Public Image

Another objective of pricing may be to enhance the firm’s public image. The firm may launch a premium product at a high price for this purpose. Alternatively, it may offer the new product at a low price to appeal to the common buyer. The pricing policy should be consistent with the established reputation of the firm.

In addition to the foregoing, business firms may design their pricing policy to achieve the goals of full capacity utilization, market exploration, diversification, etc.

Marketing Environment is a wide scope which covers all the outside factors, forces which affects marketing management’s decisions and their relationship with target customers. Companies must constantly adopt and change to the changing environment.

Marketing Environment is a study of all the external atmosphere of the organization affecting all the internal factors within the organization which ultimately requires attention of the Marketing management for sound decision making in the long run as well as short period.

Marketing environment encompasses the marketing team within an organization and includes all of the outside factors of marketing that affect the team’s ability to develop and maintain successful customer relationships with their targeted customer group.

Micro Environment

Philip Kotler explains this environment in his definition as, “The micro environment includes all the actors close to the company that affect, positively or negatively, its ability to create value for and relationship with its customers”

Thus, Customer satisfaction and communication should be developed for healthy relationship.

Marketing managers cannot make this relationship working because of several factors affecting at the same time.

The factors are as follows:

(i) The Company

The company is a hierarchical entity consists of different departments like purchasing, production, top management, research and development, finance etc. All these interrelated groups forms the internal environment of organization.

Top management is responsible for companies’ mission, objectives, and broad strategies, policies. Marketing management make decisions within the actions and decisions of top management. Other departments also have impact on marketing department. Harmony must be established with all the departments.

(ii) Suppliers

Suppliers are important part of the overall link of customer to company. Suppliers supplies goods and resources needed to produce goods and services to the company.

Their problems must be studied because they can seriously affect marketing. Cost and supply availability must be checked by marketing department.

In current scenario marketers treat suppliers as their partners in creating and delivering customer value.

Many suppliers provides valuable information on their web portals about their marketers and give important feed back to them about customer responses.

Supply shortages, delays, labor strikes and other events can cost sales in the short run and affect customer satisfaction in the long run.

(iii) Marketing Intermediaries

Intermediaries helps the company to promote, sell and distribute its products to final buyers. Marketing intermediaries includes resellers, physical distribution firms, marketing services agencies and other intermediaries including financial intermediaries.

Reseller includes distribution channel firms that help the company to find customers or make sales to them.

In India it is a growing trend that in near future manufacturers will now be facing competition of large and powerful intermediaries. Some resale organizations in India have emerged and troubled the manufacturers. For example Big Bazaar, Shoppers Stop. Pantaloons retail. Like suppliers, intermediaries form an important component of the company’s overall marketing strategic management.

For optimizing customer satisfaction company must become partner with these intermediaries to balance the performance of whole system.

(iv) Competitors

Marketing Management must takes into account the activities of its competitors because of their similar aim of satisfying customer. Marketers must take strategic advantage by performing more efficiency in this modern age of cut throat competition.

Every organization must study its own nature and structure and implement marketing strategy accordingly. All policies are not suitable for every organization so choice must be made and policies must be planned accordingly.

(v) Public

Public is any group that has an actual or potential interest in or impact on organization’s ability to achieve its objectives.

Noted marketing author and thinker Philip Kotler identifies seven types of public which attracted and which affects organization’s decisions which are:

• Financial Public: Banks, Investment Agencies, Stockholders, Debenture holders etc. are included in this type.
• Media public: Newspaper, Magazine, reporters, editors etc.
• Government Public: Lawyers, Tax consultant, Government Personnel etc.
• Citizen- Action public: minority groups, social groups, RTI activists, other social activists etc.
• Local public: Neighborhood residents, community organization etc.
• General Public: General public in the country
• Internal Public: Leaders, Board of Directors, Volunteers, Managers etc.

Each class of public have different agenda and needs to be treated differently.

There are number of factors which influences the marketing decisions.

Hence it is very important to understand each parameter. Macro environment generic in nature, impacts the whole business environment, while micro environment specific to the industry affects industrial decisions on personal level.

The macro environment includes all the factors which are external to the firm and which cannot be controlled by the organization. Macro environment influence is not specific to any particular industry but influence all the firms on a different level. Marketing management must have knowledge of different factors which influences the marketing decision of a firm. Since they are not controllable, one must adjust the decisions as per the changes in the environment.

“The macro environment consists broader forces that affects the actors in the micro environment.”

The conditions that exist in the economy as a whole, rather than in a particular part of a region affects organization very much rather than micro economic forces. Macro Environment generally includes trends in gross domestic product (GDP), inflation, employment, spending, and monetary and fiscal policy. The macro environment is closely linked to the normal business cycle, as opposed to the performance of an individual business sector.

The macro environment affects micro environment and therefore business.

The macro environment in which an organization is operating will be influenced by its forces and in return is affected by organization’s performance as well.

This macro environment forces are so influential that can result in a major changes in organization’s outlook to a large extent. Service sector have contributed largely towards economic growth of a country, this macro environment change affects every organization in respect of providing services and fulfillment of consumer needs.

All the departments and people in the organization work under the bigger impactful macro environment.

Following are the elements of macro environment:

• Demographic Environment
• Economic Environment
• Natural Environment
• Technological Environment
• Political and Social Environment
• Cultural Environment

1. Demographic Environment

Changes in demography’s in the nature of human population means ultimate changes in markets. Demographic environment is study of human population in terms of size, density, location, age, gender, race, occupation and other statistics. It is the study of people who are nothing but market. People are responsible for demand for a product and some other people contribute towards the supply of the product. So people and people mix are the most important factor of macro environment.

Thus as a marketer, one must understand the demographics of the nation and the also due to globalization, global population also influences the marketing decisions.

(i) Population Mix

Population study is very important because it is very dynamic and rapidly changing. Not only growth of population should be considered but also composition of population is equally important. In India where youth is the largest denominator, promotion must be made accordingly.

(ii) Population Growth

India is the second largest populated country after china. According to 2011 census report Indian population reached 1.21 billion constituting 17.5 % of the world population. India is projected to be the World’s most populous country by 2025, surpassing china. This provides an exceptional opportunity for business. Many foreign companies got attracted with this market because of its dynamism and power to increase sale with very high percentage.

(iii) Geographical Shift

Very diversified culture is present on Indian soil with changes spotted every 100 kilometers including change languages and traditions. Marketer must have this knowledge of different culture where he wants to sale his product.

(iv) Changing Family System

India had a tradition of joint family system in which all the parents, grandparents and sometimes great grandparents would live together under one shelter. The eldest man being the Head or Chief of the family and the able bodied men would work for daily bread and butter and women were responsible for kitchen and other household responsibilities.

(v) Changing Role of Women in India

Women in India were basically engaged in household activities and took responsibility of kitchen and other work including maintenance, cleaning of house, raising kids etc. Today more and more women, even from rural area, are completing graduation and even post-graduation. Women are working shoulder to shoulder with men in every sphere of activity, be it in education, organization, hospital, or a science research Institute.

(vi) Rural Population

The MGI India consumer Demand Model forecasted that the population in rural India will be 900 million by 2015. Which will result in rising demand at a compounding rate. Such demographic factors affects marketing decisions.

(vii) Middle Class Factor

India is showing tremendous growth in middle class with their own set of nature, features, likes, dislikes and demands. It is a study subject for marketing managers because it changes product requirements, demands for services etc. It is predicted that middle class will dominate the urban consumption in near future.

2. Economic Environment

The economic environment can offer both opportunities and threats. It refers to the factors that affects consumer buying power and spending patterns.

To attract the India’s growing middle class, Tata motors introduced the small, affordable Tata Nano car designed to be the Indian model T- the car that puts the developing nation on wheel.

Economic considerations includes, inflation, GDP, bank policies, market trends, union budget. Fiscal policies, credit issues, financial crisis or progress, and global economic situation.

All these environmental factors must be studied in depth because they affect buyer’s demands and hence product’s demand. Consumer spending pattern and income distribution must also be looked for so as to have a bulls eye view about economic environment.

Credit availability and saving trends in economy has an influence on the purchasing ability of the consumer. The availability of installment schemes and EMI options has boosted service sector, reality sector and consumer durable products.

Following are some of the factors of economic environment:

(i) Recession or Boom

If the economy is going through a recession it is obvious that businesses generally will not be doing well due to low aggregate demand in the economy. On the other hand, a boom period will lead to higher business profits and revenue for most of the businesses in the economy. Recent global recession brought software industry in country to perform at very lower profit levels.

(ii) Inflation

High rate of inflation leads to lower purchasing power for consumers resulting in lower demand for goods and services. Moreover, a higher inflation rate will make business uncompetitive in the international market leading to lower sales for the business.

(iii) Tax Structure in Country

High level of taxes will lead to low disposable income and contraction of demand in the economy. Business will find it difficult to attract consumers. Moreover, taxes affects overall spending pattern. Debit card swapping sometimes attracts 2 percent tax hence many consumer purchase products with cash only.

(iv) Unemployment

High level of unemployment in the country can also adversely affect a business. People will not have enough money to purchase a firm’s product. With the rising per capita income in India as a result of increase in job opportunities, spending increased rapidly in a last decade

(v) Labor Costs

High labor cost will result higher production costs. This will make a firm’s product more expensive as compared to other firms affecting its sales and profit margin.

(vi) Prevailing Rates of Interest

Higher Interest rates will lead to a fall in the aggregate demand in the economy thus leading to difficulty for business to find customers willing to buy its product. Lower interest rates will lead to an increase in demand in the economy.

(vii) Income Distribution

High level of disposable income is good for business producing luxury goods. A large disparity in income distribution will promote businesses dealing in luxury goods as well as inferior goods.

With duel income sources per home, spending and distribution pattern have changed significantly.

3. Natural Environment

Marketers need to be aware of the threats and opportunities associated with the four trends associated in the natural environment which are stated below:

• Shortage of raw material
• Increased cost of energy
• Increase in pollution
• Government policies

Natural environment consists of natural resources that are required as inputs by marketers or that are affected by marketing activities.

All corporates are now looking for eco-friendly approach because of showing respect towards Mother Nature and trying to act more pollution free in an effort to save environment.

First cause of concern for marketer is the shortage of raw material is growing because of increase in consumption. Second is government intervention in natural resource management. So companies should accept social responsibility and less expensive devices can be found to control and reduce pollution.

It is a common practice in the scenario of pollution and social natural awareness. Companies are making Eco- friendly strategies to deal with problems of pollution and short resources.

Many companies are using handmade papers for internal use and promoting save paper campaign.

Idea launched this concept of paper saving on a broad scale. Aircel introduced save tiger campaign for saving tigers all over the country.

4. Technological Environment

Technology is the most influential force that is shaping marketing environment which includes forces that are the new technologies affecting new product and market opportunities. Technology has created miracles in the area of robotic surgery, antibiotics, laptop computers, which affect every organization’s marketing environment.

The technology is a synonym for change. It changes rapidly with destroying all the previous researches, like invention of handy sub devices demolished floppy from the market. Android based smart phones have destroyed all the other previous platforms like java based and Symbian based operating system compelling mobile manufacturers to use new android based operating system. Even school going kids are well aware of the latest smart phone product and features of that.

Internet usage have increased very drastically, so because of increase in the usage of smart phones with the availability of internet in a fingertip, number of internet cafes have reduced. Such is a power of technology.

There are approximately 700 million mobile users in India in 2012 rising up to 900 million in 2016 shows the technological advancement and factor needs attention of marketers.

New technologies create new markets and opportunities. However every new technology replaces an older technology. Thus marketers should watch the technological environment closely. Companies that do not keep up will soon find their products outdated.

5. Political and Social Environment

Markets works best under some regulative forces. Well-conceived regulation can encourage competition and ensue fair markets for goods and services.

Thus, governments sets up public policies to guide businesses that also limit business for the good of society as a whole. Almost every business activity including marketing activities are subject to laws and regulations.

Every company operates under some obligation and without that chaos will rule the corporate sector with competition running the top management. Social sector is keeping corporate sector to work under some obligatory forces which show some responsibility towards society and country.

Many organizations are now engaged in social work for showing their concern for problems of economy and providing some assistance to the government and other social agencies for overcoming them.

Many corporate sector companies are initiating Fund raising campaigns, portals for child education, drought management, water purity education, save girl child campaign etc. showing social responsibilities.

India’s top most software company’s CEO took project named ‘AADHAR’ to give unique identification number to every citizen of the country. This project got praised by government and corporate sector.

This cause related marketing have been criticized because of intention of increase in sale rather than tendency of giving.

6. Cultural Environment

Cultural factors affects how people think and how they consume. So marketers are keenly interested in the cultural environment.

The cultural environment generally includes people’s thinking about following:

• People’s view of themselves: It includes people view about themselves which vary in their emphasis than their view of outer world
• People’s view of others: People are becoming more and more introvert and so their views of others are changing
• People’s view of organization: People vary in their attitudes toward corporations, government agencies, trade unions, universities and other organization.
• People’s view of society: People vary in their attitudes toward their society based on their culture, opinions, character etc.
• People’s view of nature: Recently people in general have recognized that nature is fragile and can be destroyed by human activities.
• People’s view of universe: Finally, people differ in their beliefs about the origin of the universe and their place in it.

Religion plays an important role in every human being even if in life of a staunch atheist.

The cultural environment includes institutions and other forces that affects society’s basic values, perceptions, preferences and behaviors etc.

Cultural core beliefs are so strong that it affects buyers’ demands to that respect greatly. So company must take that environment into consideration before making marketing strategies. Because of software sector development in India, sale of consumer durable goods increased widely. So marketing department must have studied nature and culture of this software sector employees before even their introduction in India.

The marketing environment refers to all internal and external factors, which directly or indirectly influence the organization’s decisions related to marketing activities. Internal factors are within the control of an organization; whereas, external factors do not fall within its control. The external factors include government, technological, economic, social, and competitive forces; whereas, organization’s strengths, weaknesses, and competencies form the part of internal factors.

Marketers try to predict the changes, which might take place in future, by monitoring the marketing environment. These changes may create threats and opportunities for the business. With these changes, marketers continue to modify their strategies and plans.

Features of Marketing Environment

Today’s marketing environment is characterized by numerous features, which are mentioned as follows:

1. Specific and General Forces

It refers to different forces that affect the marketing environment. Specific forces include those forces, which directly affect the activities of the organization. Examples of specific forces are customers and investors. General forces are those forces, which indirectly affect the organization. Examples of general forces are social, political, legal, and technological factors.

2. Complexity

It implies that a marketing environment include number of factors, conditions, and influences. The interaction among all these elements makes the marketing environment complex in nature.

3. Vibrancy

Vibrancy implies the dynamic nature of the marketing environment. A large number of forces outline the marketing environment, which does not remain stable and changes over time. Marketers may have the ability to control some of the forces; however, they fail to control all the forces. However, understanding the vibrant nature of marketing environment may give an opportunity to marketers to gain edge over competitors.

4. Uncertainty

It implies that market forces are unpredictable in nature. Every marketer tries to predict market forces to make strategies and update their plans. It may be difficult to predict some of the changes, which occurs frequently. For example, customer tastes for clothes change frequently. Thus, fashion industry suffers a great uncertainty. The fashion may live for few days or may be years.

5. Relativity

It explains the reasons for differences in demand in different countries. The product demand of any particular industry, organization, or product may vary depending upon the country, region, or culture. For example, sarees are the traditional dress of women in India, thus, it is always in demand. However, in any other western country the demand of saree may be zero.

Types of Marketing Environment

The sale of an organization depends on its marketing activities, which in turn depends on the marketing environment. The marketing environment consists of forces that are beyond the control of an organization but influences its marketing activities. The marketing environment is dynamic in nature.

Therefore, an organization needs to keep itself updated to modify its marketing activities as per the requirement of the marketing environment. Any change in marketing environment brings threats and opportunities for the organization. An analysis of these changes is essential for the survival of the organization in the long run.

A marketing environment mostly comprises of the following types of environment:

• Micro Environment
• Macro Environment

The discussion of these environments are given below:

1. Micro Environment

Micro environment refers to the environment, which is closely linked to the organization, and directly affects organizational activities. It can be divided into supply side and demand side environment. Supply side environment includes the suppliers, marketing intermediaries, and competitors who offer raw materials or supply products. On the other hand, demand side environment includes customers who consume products.

(i) Suppliers

It provides raw material to produce goods and services. Suppliers can influence the profit of an organization because the price of raw material determines the final price of the product. Organizations need to monitor suppliers on a regular basis to know the supply shortages and change in the price of inputs.

(ii) Marketing Intermediaries

It helps organizations in establishing a link with customers. They help in promoting, selling, and distributing products.

Marketing intermediaries include the following:

• Resellers: It purchases the products from the organizations and sell to the customers. Examples of resellers are wholesalers and retailers.
• Distribution Centers: It helps organizations to store the goods. A warehouse is an example of distribution center.
• Marketing Agencies: It promotes the organization’s products by making the customers aware about benefits of products. An advertising agency is an example of marketing agency.
• Financial Intermediaries: It provides finance for the business transactions. Examples of financial intermediaries are banks, credit organizations, and insurance organizations.

(iii) Customers

Customers buy the product of the organization for final consumption. The main goal of an organization is customer satisfaction. The organization undertakes the research and development activities to analyze the needs of customers and manufacture products according to those needs.

(iv) Competitors

It helps an organization to differentiate its product to maintain position in the market. Competition refers to a situation where various organizations offer similar products and try to gain market share by adopting different marketing strategies.

2. Macro Environment

Macro environment involves a set of environmental factors that is beyond the control of an organization. These factors influence the organizational activities to a significant extent. Macro environment is subject to constant change. The changes in macro environment bring opportunities and threats in an organization.

(i) Demographic Environment

Demographic environment is the scientific study of human population in terms of elements, such as age, gender, education, occupation, income, and location. It also includes the increasing role of women and technology. These elements are also called as demographic variables. Before marketing a product, a marketer collects the information to find the suitable market for the product.

Demographic environment is responsible for the variation in the tastes and preferences and buying patterns of individuals. The changes in demographic environment persuade an organization to modify marketing strategies to address the altering needs of customers.

(ii) Economic Environment

Economic environment affects the organization’s costs structure and customers’ purchasing power. The purchasing power of a customer depends on the current income, prices of the product, savings, and credit availability.

The factors economic environment is as follows:

• Inflation: It influences the customers’ demand for different products. For example, higher petrol prices lead to a fall in demand for cars.
• Interest Rates: It determines the borrowing activities of the organization. For example, increase in interest rates for loan may lead organizations to cut their important activities.
• Unemployment: It leads to a no income state, which affects the purchasing power of an individual.
• Customer Income: It regulates the buying behavior of a customer. The change in the customer’s income leads to changed spending patterns for the products, such as food and clothing.
• Monetary and Fiscal Policy: It affects all the organizations. The monetary policy stabilizes the economy by controlling the interest rates and money supply in an economy; whereas, fiscal policy regulates the government spending in various areas by collecting the revenue from the citizens by taxing their income.

(iii) Natural Environment

Natural environment consists of natural resources, which are needed as raw materials to manufacture products by the organization. The marketing activities affect these natural resources, such as depletion of ozone layer due to the use of chemicals. The corrosion of the natural environment is increasing day-by-day and is becoming a global problem.

Recent trends in marketing reflect the growing influence of digital technologies, consumer empowerment, and data-driven strategies. Digital marketing dominates with the use of SEO, social media, and content marketing to engage audiences online. Personalization has become vital, as businesses use data analytics to deliver tailored experiences. Influencer marketing leverages social media personalities to build trust and reach niche markets. Sustainability marketing is gaining traction, with brands promoting eco-friendly practices to align with consumer values. Omnichannel marketing ensures a seamless customer experience across digital and physical platforms. AI and automation are enhancing customer service through chatbots and predictive analytics. Lastly, user-generated content and interactive marketing are fostering community engagement and brand loyalty. These trends highlight the shift from product-focused to customer-centric strategies, reshaping how companies communicate and build relationships with their audiences.

Recent Trends in Marketing

1. More Emphasis on Quality, Value, and Customer Satisfaction

Today’s customers place a greater weight to direct motivations (convenience, status, style, features, services and qualities) to buy product. Today’s marketers give more emphasis on the notion, “offer more for less.”

2. More Emphasis on Relationship Building and Customer Retention

Today’s marketers are focusing on lifelong customers. They are shifting from transaction thinking to relationship building. Large companies create, maintain and update large customer database containing demographic, life-style, past experience, buying habits, degree of responsiveness to different stimuli, etc., and design their offerings to create, please, or delight customers who remain loyal to them. Similarly more emphasis is given to retain them throughout life. Marketers strongly believe: “Customer retention is easier than customer creation.”

3. More Emphasis on Managing Business Processes and Integrated Business Functions

Today’s companies are shifting their thinking from managing a set of semi independent departments, each with its own logic, to managing a set of fundamental business processes, each of which impact customer service and satisfaction. Companies are assigning cross-disciplinary personnel to manage each process.

Marketing personnel are increasingly working on cross- disciplinary terms rather than only in the marketing department. This is the positive development, which broadens marketers’ perspectives on business and also leads to broaden perspective of employees from other department.

4. More Emphasis on Global Thinking and Local Market Planning

As stated earlier, today’s customers are global, or cosmopolitan. They exhibit international characteristics. This is due to information technology, rapid means of transportation, liberalization, and mobility of people across the world. Companies are pursuing markets beyond their borders. They have to drop their traditions, customs, and assumptions regarding customers.

They have to adapt to their offering as per the cultural prerequisites. Decisions are taken by local representatives, who are much aware of the global economic, political, legal, and social realities. Companies must think globally, but act locally. Today’s marketers believe: “Act locally, but think globally.”

5. More Emphasis on Strategic Alliances and Networks

A company cannot satisfy customers without help of others. It lacks adequate resources and requirements to succeed. Company needs to involve in partnering with other organizations, local as well as global partners who supply different requirements for success.

Senior manager at top-level management spends an increasing amount of time for designing strategic alliance and network that create competitive advantages for the partnering firms. Merger, acquisition, and partnering are result of a strong thirst for strategic alliance and networks.

6. More Emphasis on Direct and Online Marketing

Information technology and communication revolution promise to change the nature of buying and selling. Companies follow direct channel in term hiring salesmen, setting own distribution network, designing network marketing, applying online marketing, and contracting with giant shopping/retailing malls.

People anywhere in the world can access the Internet and companies’ home pages to scan offers and order goods. Via online service, they can give and get advice on products and services by chatting with other users, determine the best values, place orders, and get next-day delivery.

As a result of advances in database technology, companies can do more direct marketing and rely less on wholesale and retail intermediaries. Beyond this, much company buying is now done automatically through electronic data interchange link among companies. All these trends portend a greater buying and selling efficiency.

7. More Emphasis on Services Marketing

As per general survey, about 70% people are, either directly or indirectly, involved in service marketing. Because services are intangible and perishable, variable and inseparable, they pose additional challenges compared to tangible good marketing. Marketers are increasingly developing strategies for service firms that sell insurance, software, consulting services, banking, insurance, and other services.

8. More Emphasis on High-tech Industries

Due to rapid economic growth, high-tech firms emerged, which differ from traditional firms. High-tech firms face higher risk, slower product acceptance, shorter product life cycles, and faster technological obsolescence. High-tech firms must master the art of marketing their venture to the financial community and convincing enough customers to adopt their new products.

9. More Emphasis on Ethical Marketing Behaviour

The market place is highly susceptible to abuse by those who lack scruples and are willing to prosper at the expense of others. Marketers must practice their craft with high standards. Even, governments have imposed a number of restrictions to refrain them from malpractices. Marketers are trying to sell their products by obeying and observing moral standards or business ethics.

10. Other issues

• Craze for international standards and emphasis on quality, value and customer satisfaction. Application of TQM (even, Six Sigma) in every aspect of marketing management.
• Changed attitude toward competition. They compete not for maximum gains but for maximum offers to customers.
• Relationship marketing at both levels at internal functions of organization and at outside with service providers, to satisfy customers.
• Concept of global and complex customers.
• Marketing department is placed in the center of management. It enjoys unique and dominant status in organization.
• Use of latest technology for survey and research.
• More emphasis on after-sales services.
• Entertaining value in advertising, etc.

Marketing is related to the exchange of goods and services. Through its medium the goods and services are brought to the place of consumption. This satisfies the needs of the customers. The following activities are undertaken in respect of the exchange of goods and services:

1. Gathering and Analysing Market Information

Gathering and analyzing market information is an important function of marketing. Under it, an effort is made to understand the consumer thoroughly in the following ways:

• What do the consumers want?
• In what quantity?
• At what price?
• When do they want (it)?
• What kind of advertisement do they like?
• Where do they want (it)?

What kind of distribution system do they like? All the relevant information about the consumer is collected and analyzed. On the basis of this analysis an effort is made to find out as to which product has the best opportunities in the market.

2. Marketing Planning

In order to achieve the objectives of an organization with regard to its marketing, the marketeer chalks out his marketing plan. For example, a company has a 25% market share of a particular product.

The company wants to raise it to 40%. In order to achieve this objective the marketer has to prepare a plan in respect of the level of production and promotion efforts. It will also be decided as to who will do what, when and how. To do this is known as marketing planning.

3. Product Designing and Development

Product designing plays an important role in product selling. The company whose product is better and attractively designed sells more than the product of a company whose design happens to be weak and unattractive.

In this way, it can be said that the possession of a special design affords a company to a competitive advantage. It is important to remember that it is not sufficient to prepare a design in respect of a product, but it is more important to develop it continuously.

4. Standardization and Grading

Standardization refers to determining of standard regarding size, quality, design, weight, colour, raw material to be used, etc., in respect of a particular product. By doing so, it is ascertained that the given product will have some peculiarities.

This way, sale is made possible on the basis of samples. Mostly, it is the practice that the traders look at the samples and place purchase order for a large quantity of the product concerned. The basis of it is that goods supplied conform to the same standard as shown in the sample.

Products having the same characteristics (or standard) are placed in a given category or grade. This placing is called grading. For example, a company produces commodity – X, having three grades, namely A’. ‘B’ and ‘C’, representing three levels of quality; best, medium and ordinary respectively.

Customers who want best quality will be shown ‘A’ grade product. This way, the customer will have no doubt in his mind that a low grade product has been palmed off to him. Grading, therefore, makes sale-purchase easy. Grading process is mostly used in case of agricultural products like food grains, cotton, tobacco, apples, mangoes, etc.

5. Packaging and Labelling

Packaging aims at avoiding breakage, damage, destruction, etc., of the goods during transit and storage. Packaging facilitates handling, lifting, conveying of the goods. Many a time, customers demand goods in different quantities. It necessitates special packaging. Packing material includes bottles, canister, plastic bags, tin or wooden boxes, jute bags etc.

Label is a slip which is found on the product itself or on the package providing all the information regarding the product and its producer. This can either be in the form of a cover or a seal.

For example, the name of the medicine on its bottle along with the manufacturer’s name, the formula used for making the medicine, date of manufacturing, expiry date, batch no., price etc., are printed on the slip thereby giving all the information regarding the medicine to the consumer. The slip carrying all these is details called Label and the process of preparing it as Labelling.

6. Branding

Every producer/seller wants that his product should have special identity in the market. In order to realise his wish he has to give a name to his product which has to be distinct from other competitors.

Giving of distinct name to one’s product is called branding. Thus, the objective of branding is to show that the products of a given company are different from that of the competitors, so that it has its own identity.

For instance, if a company wants to popularise its commodity – X under the name of “777” (triple seven) then its brand will be called “777”. It is possible that another company is selling a similar commodity under AAA (Triple ‘A’) brand name.

Under these circumstances, both the companies will succeed in establishing a distinct identity of their products in the market. When a brand is not registered under the trade Mark Act, 1999, it becomes a Trade Mark.

7. Customer Support Service

Customer is the king of market. Therefore, it is one of the chief functions of marketer to offer every possible help to the customers. A marketer offers primarily the following services to the customers:

• After-sales-services
• Handling customers’ complaints
• Technical services
• Credit facilities
• Maintenance services

Helping the customer in this way offers him satisfaction and in today’s competitive age customer’s satisfaction happens to be the top-most priority. This encourages a customer’s attachment to a particular product and he starts buying that product time and again.

8. Pricing of Products

It is the most important function of a marketing manager to fix price of a product. The price of a product is affected by its cost, rate of profit, price of competing product, policy of the government, etc. The price of a product should be fixed in a manner that it should not appear to be too high and at the same time it should earn enough profit for the organization.

9. Promotion

Promotion means informing the consumers about the products of the company and encouraging them to buy these products. There are four methods of promotion:-

• Advertising
• Personal selling
• Sales promotion
• Publicity

Every decision taken by the marketer in this respect affects the sales. These decisions are taken keeping in view the budget of the company.

10. Physical Distribution

Under this function of marketing the decision about carrying things from the place of production to the place of consumption is taken into account. To accomplish this task, decision about four factors are taken.

They are:

(i) Transportation

(ii) Inventory

(iii) Warehousing

(iv) Order Processing.

Physical distribution, by taking things, at the right place and at the right time creates time and place utility.

11. Transportation

Production, sale and consumption-all the three activities need not be at one place. Had it been so, transportation of goods for physical distribution would have become irrelevant. But generally it is not possible. Production is carried out at one place, sale at another place and consumption at yet another place.

Transport facility is needed for the produced goods to reach the hands of consumers. So the enterprise must have an easy access to means of transportation.

Mostly we see on the road side’s private vehicles belonging to Pepsi, Coca Cola, LML, Britannia, etc. These private carriers are the living examples of transportation function of marketing. Place utility is thus created by transportation activity.

12. Storage or Warehousing

There is a time-lag between the purchase or production of goods and their sale. It is very essential to store the goods at a safe place during this time-interval. Godowns are used for this purpose. Keeping of goods in godowns till the same are sold is called storage.

For the marketing manager storage is an important function. Any negligence on his part may damage the entire stock. Time utility is thus created by storage activity.

The word global literally means worldwide, or all over the world. So, you’d think a global company must do business all over the world. But realistically, few, if any, companies could be said to do business with every single country in the world. A global company is one that does business in at least one country outside of its country of origin. Even expanding to one other country is a huge undertaking. It’s not as if someone wants to order some of your products and you ship them out to France or Bolivia or wherever and BOOM! you’re instantly a global company.

Becoming a global company means introducing your products and your company to the people of that country. It takes a great deal of research to determine which country to begin with and how to do the introductions. It means sending employees to the country to see it firsthand, talk with some of the people there and then decide if there’s a good fit. Of course, once a company decides to go global and has success in one country, it naturally tries expanding to another country, so global companies often have a presence in several countries.

Global Company Examples

Although using the term global in reference to business began in recent years, doing business globally isn’t new. One example is that of Coca-Cola, which was a fledgling startup in 1886. By the time of World War II, the 50-year-old company had managed to keep its item price to 5 cents, believing that everyone should be able to enjoy the treat. The company decided to provide its popular drink to U.S. soldiers wherever they were stationed, still at just 5 cents.

Today, people in over 200 countries enjoy not only Coke and its other regular and diet soft drinks, like Sprite and Fanta, but over 3,800 products ranging from bottled water and iced teas to juices, vitamin-enriched and soy-based beverages. A major reason for Coca-Cola’s success has been its strategy of looking at each market individually and providing beverages that fit with the local culture and tastes. Sometimes that means creating new products for a market or tweaking a beverage to be more in line with what people in that country are known to enjoy.

Some other companies that are now global include hospitality corporations Hyatt and Hilton Hotels, information technology leaders Cisco and Adobe, manufacturers Monsanto and 3M and financial services company American Express. Oh, and an internet search company you may have heard of called Google. What unites these very different institutions is that all have made Fortune’s October 2016 list of the 25 Best Global Companies to Work For. Employees cited how their company makes them feel valued, cares about their personal and professional development, keeps open lines of communication all the way to the CEO and encourages them to keep a good balance of work and family time.

Clearly, not only is it possible to expand globally with a great deal of success, but it’s also possible to do so without sacrificing the well-being of the employees that help you get there in the first place. In the long run, making your company a great place to work – the word fun was even mentioned many times – is a way to keep good employees that help you expand and grow globally without the pain of internal friction and high staff turnover.

It’s important to remember that these companies, though huge today with a presence in numerous countries, all began as small startups. Coca-Cola had its humble beginning at one drugstore in downtown Atlanta, Georgia. Google started out as the research project of two Stanford grad students, Sergey Brin and Larry Page. The key to successfully becoming a global company is to take it slow, one country at a time.

Global Company Benefits

The U.S. Small Business Administration reports that 96 percent of the world’s consumers live outside of the U.S. The obvious benefit to expanding globally is to increase sales and profits by reaching out. There are a number of other benefits, however, to having a presence in countries outside of the U.S.:

1. Increase customer base

Selling in another country vastly increases your customer base. If the U.S. market is saturated with products like yours, and research shows that’s not the case in the country you’ve chosen to expand into, you have an untapped potential customer base available to you. While your product may have become familiar to U.S. customers, it’s brand new to those in a foreign country.

2. Lower operating costs

If labor and/or manufacturing costs are cheaper in the new country, you stand to save on operating costs. That can make a huge difference to your bottom line.

3. Take advantage of the difference in seasons

In situations where your product is seasonal or even somewhat seasonal, meaning sales are steady year-round and then surge during one season, expanding in countries where the seasons are opposite to the U.S. allows you to experience high sales levels throughout the year.

4. Control product introductions

Remember, too, that you don’t have to provide your entire product line in the new country. You can begin with just seasonal products, announcing your presence with a big advertising splash. After the season ends, introduce other products one by one, creating media buzz each time you bring another product to the market. Since this market doesn’t know the extent of your product line, you can sell only the products that make the most sense in that market.

5. Continue your company’s high growth rate

If your company had been growing rapidly, but growth has stalled in the U.S., you can get back on track by expanding to another country.

6. Create new jobs

When you enter the market in a foreign country, you need employees or agents who can represent your company. Whether you have offices or manufacturing facilities there or just representatives, you’re creating work opportunities in that country. This helps that country’s economy and makes your company attractive.

Global Company Downfalls

Expanding to another country won’t be all sunshine and roses. That’s why it’s vital to fully research any country you’re considering in order to minimize unwelcome surprises:

1. Different regulations and technologies

Just as states in the U.S. have different regulations for doing business, other countries have different employment and tax laws that you’ll need to understand in advance. Don’t risk being surprised by these after you’ve committed to the expansion.

2. Infrastructure issues

Many countries do not have the reliable internet and cellphone services that the U.S. has. Particularly in developing countries, such as some in Africa, communication services are spotty or nonexistent. Whether you’re planning to open offices or a manufacturing facility in a country, or have agents there who represent you, be sure to verify that anywhere you’re considering expanding into has internet and cellphone communication. You’ll need them to put up a website, post on social media and communicate with your representatives in that country. Even travel in other countries can be problematic due to poor roads, traffic or other factors. Think of some of the older areas in European countries that have only narrow, winding streets and few places to park. They look charming, but could be a nightmare for your employees or distributors to do business.

3. Parlez-vous Francais Don’t assume you’ll be doing business in English. Although you’ll find some English speakers, many people did not learn English in school and they conduct business fully in their native languages. Make sure the software you use to run your business, from sending emails to promoting on social media, support the country’s language. The moment you decide on the country, begin a rapid language learning program for you and others who will be working with you on the expansion.
4. You’re not in Kansas anymore

Like Dorothy in “The Wizard of Oz,” you can feel as if you’ve landed in a bizarre place indeed because you don’t understand the culture. For example, something as simple as leaving the chopsticks upright in your rice bowl can be seen as rude in China. Using humor in a business discussion in Germany could nix the whole deal. And never say “no” during discussions in India. Opt for “we’ll see” or “I will try” instead. Ask the SBA or people you know who have a presence in the country what the differences are between how U.S. companies do business compared with the country you’re considering.

How to Become a Global Company?

When Coca-Cola began its expansion into foreign markets, it undertook extensive research about the country and its people, including their likes and dislikes as a group. As a result, the company came away with a good understanding of which products would be likely to sell well in that country, and which would not, as well as how to interact with the locals according to their customs.

1. Research, research, research

You cannot do too much research before going global. Which country should you start with? What have others experienced when they started their global expansion? Contact the SBA and devour all information they have for you. The SBA has arrangements with many schools to provide help to businesses in their area. Contact area universities for help. Many times, interns will help with the research so you don’t have to do it all.

2. Establish a local team in the country

Once you’ve chosen the country you want to expand into, find locals to help you do this. They know their country and often make a business of helping foreigners get established. Then, be sure to listen to the information and feedback the local team gives you. This may seem obvious, but it’s one of the biggest mistakes companies make when going global – they hire the local team, but discount the suggestions the team gives.

“One of the most disappointing mistakes that I’ve seen companies make is that they hire highly competent, intelligent local people to serve their overseas markets, but then fail to consider their input when making strategic decisions,” wrote business consultant Nataly Kelly in the Harvard Business Review. Company executives would ask her opinion, she said, instead of listening to the local team.

Maybe the advice seems contrary to what you’ve learned about business. That’s why other countries are called foreign. Their practices can seem strange to someone who has only done business in the U.S. You hired the local team for a good reason, so take their ideas seriously.

3. Take it slow

It’s human nature to want to act on an idea once you have it in mind. Think about how long it took you to get your business to where it is today. Now you’re considering going into a foreign environment and putting your hard-earned profits on the line. Give it the time it takes to thoroughly research, seek advice from others who have expanded and from organizations that are designed to help businesses go global, and get the right local team in place.

Follow the 1-2-3 plan. The SBA makes it simple with its three-step plan:

1. Get counseling
2. Find buyers
3. Get funding

A contingent liability is a potential liability that may or may not become an actual liability. Whether the contingent liability becomes an actual liability depends on a future event occurring or not occurring.

In accounting, some contingent liabilities and their related contingent losses are:

• Recorded with a journal entry
• Are limited to a disclosure in the notes to the financial statements
• Not recorded or disclosed

We have another Q&A that discusses the recording of contingent liabilities.

Examples of Contingent Liability

A company’s supplier is unable to obtain a bank loan. The company agrees to guarantee that the supplier’s bank loan will be repaid. As a result of the company’s guarantee, the bank makes the loan to the supplier. The company has a contingent liability. If the supplier makes the loan payments needed to pay off the loan, the company will have no liability. If the supplier fails to repay the bank, the company will have an actual liability.

If a company is sued by a former employee for $500,000 for age discrimination, the company has a contingent liability. If the company is found guilty, it will have an actual liability. However, if the company is not found guilty, the company will not have any liability.

A product warranty is also a contingent liability.

Types of Contingent Liabilities

Contingent liabilities are of two types which are:

1. Explicit Contingent Liabilities
2. Implicit Contingent Liabilities

Let us know more in details about the types

1. Explicit Contingent Liabilities

These liabilities are specific types of obligations that are created by government or obligations which are legal in nature that are established by the law.

Some of the examples are:

• Government insurance schemes on pension funds, bank bonds or bank deposits.
• Student loan, mortgage loan
• Currency exchange rates
• Legal claims in which court orders to pay penalty for pending cases.

2. Implicit Contingent Liabilities

These types of liabilities are legal obligations that are identified after the occurrence of an event. Government sets the amount for the liability in such cases. They are not recorded in the books as these events may occur or may not occur.

Some examples are:

• Disaster relief fund for people affected by natural disaster.
• Failure of central bank on paying its obligations like balance of payment
• Social security

Let us discuss some of the contingent liabilities’ examples

1. Product Warranty

This is one of the most common types of contingent liability examples. It occurs when a company launches a product with a warranty period with the condition that if the product fails to work within the period, it has to be repaired or replaced which becomes a liability for the company.

2. Lawsuits

Lawsuits are legal proceedings by an individual, party or parties against another in civil court of law.

3. Pending Investigations

If an individual or company is found to be defaulting in any form of payment, then they have to pay fine or penalty as ordered by court.

Recording of Contingent Liabilities

Contingent liabilities do not get recorded in financial statements of a company. These are obligations that are yet to occur but there is a probability that it may occur in future. Therefore, no accounting treatment exists for contingent liabilities.

But as accounting follows a conservative approach, there must be disclosure and therefore contingent liability needs to be updated in final statements of the company in the form of footnotes. Such a disclosure is made only when there is an obligation from a past event and the amount of the liability can be measured reasonably.

Difference between Provision and Contingent Liability

Provisions are a sum of money that is set aside in order to cover a probable expense that will happen in future. In this case the obligation is already present but the amount for such an obligation cannot be determined exactly.

Contingent liabilities are liabilities that are uncertain expenses that may or may not happen in future, but companies maintain it in order to encounter future uncertainties.

Provisions are recorded in the accounts. They get debited in Profit and Loss accounts whereas contingent liabilities are recorded as footnotes in financial

At the time of retirement or death of a partner, there may be some assets and liabilities which are not recorded in books at their current values. Also, there may be some unrecorded assets and liabilities which need to be recorded in the books.

A Revaluation Account is prepared in order to ascertain net gain or loss on revaluation of assets and liabilities and bringing unrecorded items into books. The Revaluation profit or loss is transferred to the capital account of all partners including retiring or deceased partners in their old profit sharing ratio.

The following Journal entries are passed:

1. For the increase in the value of Assets

Assets A/c (Individually) Dr.

To Revaluation A/c

(Being increase in the value of assets on revaluation)

2. For a decrease in the value of Assets

Revaluation A/c Dr.

To Assets A/c (Individually)

(Being decrease in the value of assets on revaluation)

3. For an increase in the value of Liabilities

Revaluation A/c Dr.

To Liabilities A/c (Individually)

(Being increase in the value of liabilities on revaluation)

4. For a decrease in the value amount of Liabilities

Liabilities A/c (Individually) Dr.

To Revaluation A/c

(Being decrease in the value of liabilities on revaluation)

5. For an unrecorded Asset

Assets A/c Dr.

To Revaluation A/c

(Being unrecorded asset recorded in books)

6. For an unrecorded Liability

Revaluation A/c Dr.

To Liability A/c

(Being unrecorded liability recorded in books)

7. For transferring Profit on Revaluation

Revaluation A/c Dr.

To All Partners’ Capital A/c (Individually)

(Being Profit on revaluation transferred to all partner’s capital A/c in old ratio)

8. For transferring Loss on Revaluation

All Partners’ Capital A/c (Individually) Dr.

To Revaluation A/c

(Being Loss on revaluation transferred to partner’s capital A/c in old ratio)

The partners may decide that the revalued figures of assets and liabilities will not appear in the books of the firm. In this case, the share of retiring or deceased partner of profit or loss from revaluation of assets and liabilities are adjusted in the remaining partners capital A/cs in their gaining ratio.

The journal entries that will be passed are:

9. In case of Revaluation Profit

Remaining Partners Capital A/c (Individually)                   Dr.

To Retiring Partners Capital A/c

(Being the share of retiring partner in revaluation profit adjusted in remaining partners capital in gaining ratio)

10. In case of Revaluation Loss

Remaining Partners Capital A/c (Individually)                   Dr.

To Retiring Partners Capital A/c

(Being the share of retiring partner in revaluation profit adjusted in remaining partners capital in gaining ratio)