Q. Explain any three importance of personal selling to a business organization.
Ans: The importance of personal selling to a business organization may be described as follows:
1. Effective Promotional Tool: Personal selling is very effective promotional tool, which helps in influencing the prospects about the merits of a product and thereby increasing its sale.
2. Flexible Tool: Personal selling is more flexible than other tools of promotion such as advertising and sales promotion. It helps business persons in adopting their offer in varying purchase situations.
3. Minimizes Wastage of Efforts: Compared with other tools of promotion, the possibility of wastage of efforts in personal selling is minimum. This helps the business persons in bringing economy in their efforts.
Q. Explain the importance of advertising.
Ans: 1. Mass Reach: Advertising is a medium through which a large number of people can be reached over a vast geographical area. For example, an advertisement message placed in a national daily reaches lakhs of its subscribers.
2. Enhancing Customer Satisfaction and Confidence: Advertising creates confidence amongst prospective buyers as they feel more comfortable and assured about the product quality and hence feel more satisfied.
3. Expressiveness: With the developments in art, computer designs, and graphics, advertising has developed into one of the most forceful medium of communication. With the special effects that can be created, even simple products and messages can look very attractive.
Q. Ms. Priya is running a small restaurant by the name of Deliciousness. It is earning profits and she wishes to expand her business by opening a bigger outlet. She needs additional funds for the same but she does not wish to rely on borrowed funds to expand her business. Name and briefly explain two sources of finance which she can use. Also state two reasons why she does not want to raise borrowed funds.
Ans: The two sources of finance she can use to expand her business are:
1. Equity Shares: Equity shares is the most important source of raising long term capital by a company.
Equity shares represent the ownership of a company and thus the capital raised by issue of such shares is known as ownership capital or owner’s funds.
2. Preference Shares: The capital raised by issue of preference shares is called preference share capital.
The preference shareholders enjoy a preferential position over equity shareholders in two ways:
(i) receiving a fixed rate of dividend, out of the net profits of the company, before any dividend is declared for equity shareholders; and
(ii) receiving their capital after the claims of the company’s creditors have been settled, at the time of liquidation.
Limitations of raising money through borrowed funds:
1. As fixed charge instruments, borrowed funds put a permanent burden on the earnings of a company. There is a greater risk when earnings of the company fluctuate.
2. Banks make detailed investigation of the company’s affairs, financial structure etc., and may also ask for security of assets and personal sureties. This makes the procedure of obtaining funds slightly difficult.