BUSINESS STUDIES NOTES FORM 1, 2, 3 AND 4 FREE

Media Team @Educationnewshub.co.ke

TOPIC 1: FORMS OF BUSINESS UNITS

TOPIC OBJECTIVES

BUSINESS UNITS

A business unit is an organization formed by one or more people with a view of engaging in a profitable activity.

Business units are generally classified into private or public sector business units’ i.e

DOWNLOAD ALL FREE BUSINESS STUDIES PDF NOTES HERE; BUSINESS STUDIES NOTES FORM 1-4: UPDATED

Note: Private sector comprises of business organizations owned by private individuals while the public sector comprises business organizations owned by the government.

 

This is a business enterprise owned by one person who is called a sole trader or a sole proprietor. It is the most common form of business unit and usually found in retail trade e.g. in small shops, kiosks, agriculture e.t.c and for direct services e.g. cobblers saloons e.t.c

Characteristics/Features

 

Formation

The formation of a sole proprietorship is very simple. Few legal formalities are required i.e. to start a sole proprietorship, one need only to raise the capital required and then apply for a trading license to operate the business small fee is paid and the trade license issued.

Sources of capital

The amount of capital required to start a sole proprietorship is small compared to other forms of business organizations. The main source of capital is the Owners savings. Additional capital may however be raised from the following;

Management

The management of this kind of a business is under one person. The owner may however employ other people or get assistance from family members to run the business.

Some sole proprietorship may be big business organizations with several departments and quite a number of employees. However, the sole proprietor remains solely responsible for the success of failure of the business

Advantages of sole proprietorship

Disadvantages of sole proprietorship

Dissolution of sole proprietorships

Dissolution refers to the termination of the legal life of a business. The following circumstances may lead to the dissolution of a sole proprietorship:

Download more free Business Studies resources here

Free Business Studies notes, revision questions, KCSE past Papers, Exams, Marking Schemes, Topical revision materials, Syllabus and Many more

Business Studies Topical Questions And Answers (F1-4)

Business studies free secondary school notes and exams (Form one to four)

BUSINESS STUDIES NOTES FORM 1-4: UPDATED

BUSINESS STUDIES FORM ONE NOTES FREE

BUSINESS STUDIES NOTES, FORM 3 ALL TOPICS

Business Studies free lesson plans for all topics (Form one to four)

BUSINESS STUDIES FORM ONE TO FOUR FREE NOTES FOR ALL TOPICS. READ NOW.

PARTNERSHIP:

This is a relationship between persons who engage in a business with an aim of making profits/ an association of two or more persons who run a business as co-owners. The owners are called Partners.

It is owned by a minimum of 2 and a maximum of 20 except for partnership who provide professional services e.g medicine and law which have a maximum of 50 persons.

Characteristics of partnership

Types of partnership

Partnerships can be classified/ categorized in either of the following ways:

According to the type or liability of partners

Under this classification, partnerships can either be;

This means that incase the partnership cannot pay its debts; the partners only lose the amount of capital each has contributed to the business and not their personal property. However, there must be one partner whose liabilities are unlimited.

When partnerships are classified according to duration of operation, they can either be;

This is a partnership whose main activity is processing, manufacturing, construction or purchase and sale of goods.

This is a partnership whose main activity is to offer services such as legal, medical or accounting services to members of the public.

          

  Types of partners

Partners may be classified according to;

Role played by the partners

Liabilities of the partners for the business debts;

Ages of partners

  1. iv) Capital contribution

-He/she can also be a person who was once a partner and has retired in form of a loan. This loan carries interest at an agreed rate.

-The quasi partner shares the profit of the business as a reward for using his/her name.

  1. b) Real partner; He/she is one who contributes capital to the business.

-Other types of partners include secret partners, retiring partners and incoming partners

  1. i) A secret partner; is one who actively participates in the management of the firm but is not disclosed to the public. In most cases secret partners are also limited partners.
  2. ii) A retiring partner; Also known as outgoing partner is one who is leaving a partnership

-He may retire with the consent of all the other partners or according to a previous agreement.

iii) Incoming partner; Is one who is admitted to an existing partnership.

Formation

-People who want to form a partnership must come together and agree on how the proposed business will be run to avoid future misunderstanding.

-The agreement can either be oral (by use of mouth) or within down. A written agreement is called a partnership deed.

-The contents of the partnership deed vary from one partnership to another depending on the nature of the business, but generally it contains;

Once the partnership deed is ready, the business may be registered with the registrar of firms on payment of a registration fee.

In case a partnership deed is not drawn, the provisions of partnership act of 1963 (Kenya) applies. The act contains the following rights and duties of a partner;

Sources of capital

Advantages of partnership

Disadvantages of partnership

Dissolution of partnership

A partnership may be dissolved under any of the following circumstances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCORPORATED FORMS OF BUSINESS UNITS

These are businesses that have separate legal entities from that of their owners. They include:

CO-OPERATIVES

-A co-operative society is a form of business organization that is owned by and run for the economic welfare of its members

-It is a body of persons who have joined together to do collectively what they were previously doing individually for mutual benefit.

Example

In Kenya the co-operative movement was started by white settlers in 1908 to market their agricultural produce. In this case, they knew that they could sell their produce better if they were as a group and not alone

Principles of co-operatives

Membership is open and voluntary to any person who has attained the age of 18 years. No one should be denied membership due to social, political, tribal or religious differences. A member is also free to leave the society at will

The principle is one man one vote. Each member of the co-operative has only one vote irrespective of the number of shares held by him or how much he buys or sells to the society

-Any profit/surplus made at the end of every financial year should be distributed to the members in relations to their contribution.

-Part of the profit may be retained/reserved/put in to strengthen the financial position of the society.

-A little or no interest is paid on share capital contributed (co-operatives do not encourage financial investment habits but to enhance production, to encourage savings and serve the members)

Co-operative societies should endeavor to educate their members and staff on the ideas of the society in order to enhance/improve quality of decisions made by the concerned parties.

Education is conducted through seminars, study tours, open days

C-operatives must learn from each others experience since they have a lot in common.

-Their co-operation should be extended to local national and international.

Features of co-operatives

Formation

-Co-operative societies can be formed by people who are over eighteen years regardless of their economic, political or social background.

-There must be a minimum of 10 persons and no maximum no.

-The members draft rules and regulations to govern the operations of the proposed society i.e. by-laws, which are then submitted to the commissioner of co-operatives for approval

-The registrar then approves the by-laws and issues a certificate of registration

-If the members are unable to draw up their own by-laws, the co-operative societies Act of 1966 can be adopted in part or whole

Management

-A co-perative society is composed/run by a committee usually of nine members elected by the members in a general meeting

-The management committee elects the chairman, secretary and treasurer as the executive committee members, who act on behalf of all the members and can enter into contracts borrow money institute and depend suits and other legal proceedings for the society

-The committee members can be voted out in an A.G.M if they don’t perform as expected.

 

TYPES OF CO-OPERATIVES SOCIETIES IN KENYA

May be grouped according to;

Nature of their activities

Level of operations

Producer co-operatives

This is an association of producers who have come together to improve the production and marketing of their products.

Functions

-In this type of co-operative members are paid according to the quantity of the produce a member has delivered to the society.

Examples,

KCC-Kenya Co-operative Creameries

K.P.C.U-Kenya Planters Co-operatives Union

K.G.G.C.U-Kenya Grain Growers Co-operative Union

-These are formed by a group of consumers to buy goods on wholesome and sell them to the members at existing market prices.

-Their aim is to eliminate the wholesalers and retailers and hence obtain goods more cheaply

-The co-operatives allow their members to buy goods on credit or in cash

-Members of the public are also allowed to buy from the society at normal prices thereby enabling the society to make more profits

-The profits realized is shared among the members in proportion to their purchases i.ethe more a member buys, the buyer his/her share of profit

Examples;-Nairobi consumer co-operative union, Bee-hive consumer co-operative society and City-chicken consumer co-operative society

Advantages

Disadvantages

Consumer co-operatives are not popular in Kenya because of the following

Savings and credit co-operatives societies (SACCO’S)

-They are usually formed by employed persons who save part of their monthly salary with their co-operative society, through check-off system

-Their money earns goods interest and when one has a significant amount saved, he/she become entitled to borrow money from the society for any personal project e.g. improving their farms, constructing houses, paying school fees e.t.c

-The SACCOS charge lower interest on loans given to members than ordinary banks and other financial institutions.

-The societies have few formalities or requirements to be completed before giving a loan. These are:

-Profits earned by the SACCO’S maybe shared among the members inform of dividends.

-Most SACCO’S have insured their members savings and loans with co-operative insurance services (CIS).This means if a member dies his/her beneficiaries are not called upon to repay the loan and the members savings/shares is given to the beneficiaries.

-They are the main institutions that provide loans to most people who do not qualify for loans from commercial banks because they do not ask for securities such as title deeds required by the bank.

  1. d) Primary co-operative societies

-These are co-operative societies composed of individuals who are either actual producers, consumers or people who join up together to save and obtain credit most conveniently

-Consumer co-operative societies and most SACCO’S are primary co-operative societies because they are composed of individuals.

-Most primary co-operative societies operate at the village level, others at district levels and a few at national levels.

  1. e) Secondary co-operative societies

-They are usually referred to as unions

-They are generally composed of primary co-operative societies as their members

-They are either found at district levels or at national levels.

Advantages of co-operative societies;

Disadvantages

Dissolution of co-operative societies

-A co-operative society may be dissolved under any of the following circumstances.

LIMITED LIABILITY COMPANIES (JOINT STOCK COMPANIES)

Defn: A company; Is an association of persons registered under the companies act who contribute capital in order to carry out business with a view of making a profit. The act of registering a company is referred to as incorporation. Incorporation creates an organization that is separate and distinct from the person forming it.

-A company is a legal entity that has the status of an ‘’artificial person”.   It therefore has most of the rights and obligations of a human being. A company can therefore do the following;

 

–The owners (members) of a company are referred to as shareholders

FEATURES OF COMPANIES (LIMITED LIABILITY COMPANIES)

–A company in an artificial person and has the same rights as a natural person. It can therefore sue and be sued in a court of law, own property and enter into contracts in its own name.

–The members have limited liabilities.

–Companies have perpetual life which is independent of the lives of its owners. Death, insanity or bankruptcy of a member does not affect the existence of the company. (this is referred to as  perpetual existence or perpetual succession)

– A company is created for a particular purpose or purposes.

Formation

-People who wish to form company are referred to as promoters

–The promoters submit the following documents to the registrar of companies:

Memorandum of Association

-This is a document that defines the relationship between the company and the outsiders. It contains the following:

  1. a) Name of the company/Name clause; -The name of the company must be started and should end with the word “Limited” (Ltd).This indicates that the liability of the company is limited.

-Some companies end their names with “PLC” which stands for “Public limited company” which makes the public aware that although it is a limited liability company it is a public not private.

  1. b) The objects of the company/objective clause;-This set out the activities that the company should engage in

-The activities listed in this clause serve as a warning to outsiders that the company is authorized in these activities only.

  1. c) Situation clause;-Every company must have a registered office where official notices and other communication can be received and sent
  2. d) Capital clause;-It also states that the amount of capital which the business can raise and the divisions of this capital into units of equal value called shares i.e. authorized share capital also called registered or nominal share capital.

-It also specifies the types of shares and the value of each share

  1. e)   Declaration clause:-This is a declaration signed by the promoters stating that they wish to form the company and undertake to buy shares in the proposed firm

-The declaration is signed by a minimum of seven promoters for public limited company and a minimum of two for private company.

-The memorandum of association also contains the names of the promoters

-The promoters signs against the memorandum showing details of their names, addresses, occupation and shares they intend to buy. Each signatory should agree to take at least one share.

-This is a document that governs the internal operations of the company

-It also contains rules and regulations affecting the shareholders in relation to the company and in relation to the shareholders themselves.

-It contains the following;

 

-Once the above documents are ready, they are submitted by the promoters to the registrar of companies. On approval by the Registrar and on payment of a registration fee, a certificate of incorporation (certificate of registration) is issued

-The certificate of incorporation gives the company a separate legal entity.

Sources of capital

-A share is a unit of capital in a company e.g. if a company states that its capital is ksh.100,000 divided into equal shares of ksh.10 each.

-Each shareholder is entitled to the company’s profit proportionate to the number of shares he/she holds in the company.

Types of shares;

Ordinary shares;-Ordinary shares have the following rights:

Preference shares;-They have the following characteristics;

-Non- cumulative shares are the ones whose dividends are not carried forward to the following year(s)

This refers to loans from the public to a company or an acknowledgement of a debt by a company

They carry fixed rate of interest which is payable whether profit are made or not.

They are issued to the public in the same way as shares.

They can be redeemable or irredeemable.

Redeemable debentures are usually secured against the company’s assets in which case they termed as secured debentures or mortgaged debentures.

NB: Where no security is given, the debentures are called unsecured /naked debentures.

These loans are repayable with interest of the agreed rates.

 

TYPES OF COMPANIES

Private limited company has the following characteristics;

 

Formation

-It must have a memorandum of association, article of association list of directors, declaration signed by a director or lawyer and certificate of incorporation

Advantages of private limited company

Disadvantages of a private company

  1. II) PUBLIC LIMITED COMPANY;- Public limited companies have the following characteristics:

Advantages of public limited company

-They can also borrow money from financial institutions in large sums and have good security to offer to the lenders.

Disadvantages of public limited companies

DISSOLUTION OF A COMPANY

The following are the circumstances that may lead to the dissolution of a company:

 

 

 

THE ROLE OF STOCK EXCHANGE AS A MARKET FOR SECURITIES

DEFINATIONS

There is only one stock exchange market in Kenya i.e. The Nairobi Stock Exchange.

A person wishing to acquire shares will do so either at an IPO or in the secondary market. However, an investor cannot buy or sell stocks directly in the stock exchange market. They can only do so through stock brokers.

ROLES OF THE STOCK EXCHANGE MARKET

 

  PUBLIC CORPORATIONS (STATE CORPORATIONS)

These are organizations formed by and/or controlled by the government (the government has a controlling interest). This means that the government owns more than 50% shares in the corporation. Where the government has full ownership, the organization is known as a parastatal

Examples

Characteristics/features of public corporations

Formation

-Some are formed by an act of parliament while others are formed under the existing laws.

-When formed by an act of parliament, the Act defines its status obligations and areas of operation. The Act outlines the following;

Management

-The public corporations are managed by a board of directors appointed by the president or the relevant minister.

-The chairman and the board of directors are responsible for the implementation of the aims and objectives of the corporations.

-The chairman of the board of directors reports to the government (president) through the relevant minister.

-The managing director who is usually the secretary of the board of directors in the chief executive officer of the corporation

 

 

Sources of capital

–The initial capital is usually provided by the government as a vote of expenditure for the ministry concerned

-Those corporations jointly owned by the government and the public raise capital through the sale of shares

-financial institutions in form of loans

-Retained profits/profits ploughed back.

-Hire purchase.

Advantages of public corporations

Disadvantages of public corporations

Dissolution of public corporations

They can only be dissolved by the government due to;

 

TRENDS IN FORMS OF BUSINESS UNITS

This refers to the sharing of worlds resources among all regions i.e where there are no boundaries in business transactions

Some companies referred to as multinationals, have branches in many parts of the world e.g coca-cola company

Globalization has been made possible and effective through the development and improvement of information and technology organization i.e

Business Amalgamations/combinations

This occurs when two independent business enterprises combine to form one large organization

                  Levels of combinations

Example; A company producing cotton (raw materials) combining with a textile industry.

Types of Amalgamation/combination

Amalgamations whether vertical or horizontal can be achieved in these ways;

-A holding company is one that acquires 51 percent or more shares in one or more other companies.

-The various companies entering into such a combination are brought under a single control.

-These companies are controlled by the holding company and are called Subsidiaries.

-The subsidiary companies are however allowed to retain their original names and status, but the holding company appoints some members to be on the board of directors of these subsidiaries, so as to control their activities.

-Holding companies are usually financial institutions because they are able to buy controlling shares in subsidiary companies

This refers to a business taking over another business by buying all the assets of the other business which then ceases to exist.

Example; Kenya Breweries took over the castle company in Kenya

This is where two or more business organizations combine and form one new business organizations.

-The merging companies cease to exist altogether.

This is a group of related firms/ companies that agree to work together in order to control output, prices and markets of their products – O. P. E. C (organization of petroleum exporting countries) is an example.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOPIC 2

GOVERNMENT AND BUSINESS

BY THE END OF THE TOPIC, THE LEARNER SHOULD BE ABLE TO:

INTRODUCTION

Government involvement in business activities is one of the commercial duties it owes its citizens. It is the one that provides the necessary environment for investments to be undertaken by itself, or by the local and foreign investors. This, the government may do in various ways, these include;

Reasons for Government involvement in business

The following are the major reasons for the government’s involvement and participation in business activities;

METHODS OF GOVERNMENT INVOLVEMENT IN BUSINESS

The government gets involved in business activities through the following methods:

This refers to Rules and restrictions the government requires business units to follow in their business activities. Through this method, the government ensures high quality goods and services and puts in control measures to protect consumers from exploitation. The government regulation measures include;

A license is a document that shows that a business has been permitted by the government to operate. It is usually issued upon payment of a small fee.

Licensing is the process of issuing licenses to businesses. Some of the reasons why the government issues licenses include;

 

The government takes keen interest in training and advising people in business about business management strategies and better ways of producing goods and services. The government offers these services through seminars and courses. This is mainly done by the Kenya Business Training Institute (K.B.T.I).

Reasons for government training include;

This is a government initiated and supported policy to encourage local business people to enter into business. This is aimed at increasing the volume and variety of goods and services traded in.

Trade promotion is classified as either external trade promotion or internal trade promotion.

Commercial attaches are officers sent by the country’s government to work with the embassies in foreign countries as support staff in the field of commerce. Their main duty is to look at the interests of their home countries’ exports eg cash crops and manufactured goods.

Duties of commercial attaches

To perform these duties, the commercial attaché needs to:

This is done by the government through the ministry of trade. The ministry carries out various activities

CONSUMER PROTECTION

Definition:

Need For Consumer Protection

  1. To protect them against sale of poor quality goods and services.
  2. To protect them against sale of goods and services under unhygienic conditions and environment.
  3. Protect them against sale of harmful goods and services.
  4. Protect them against breach of contract.
  5. To protect them against overpricing of goods services.
  6. To protect them against hoarding of goods and services this may create artificial shortages.
  7. Protect them against cheating through misleading or false advertisements.
  8. To protect them against sale of underweight goods and inadequate services.
  9. Protect them against sale of socially unacceptable goods and services. For example, pornographic materials.
  10. Protect them against dangers that arise due to contamination of the environment.
  11. Protect them from dangers that may arise from the use of unsafe building.
  12. Protect them against sale of illegal goods and services.

METHODS OF CONSUMER PROTECTION

Government initiated methods

  1. Enactment of laws that safeguard interest of consumer such as:
  1. Encourage formation of consumer organizations to cater for the interests of consumers.

 

Consumer initiated methods

These are methods by the consumers to protect themselves from exploitation by business people by forming consumer associations.

Functions of consumer associations

Limitations of consumer initiated methods

Non-governmental Organisations (NGOs)

Emerging issues in business and government

 

 

T0PIC 4

COMMUNICATION

Meaning of communication

Note: The space between the sender (s) and the receiver (s) maybe as narrow as when people are talking to each other or as wide as between the North Pole and the South Pole.

Effective communication is vital/important for business in that it serves the following purposes.

Importance of communication (purposes)

For an organization to run smoothly there should be proper flow of information within the business and also between the firm and outsiders e.g. the manager may inform members of staff about a planned meeting. Similarly the business may receive a letter of inquiry from a customer

Through proper communication the organization is able to clarify confusing issues from within and without the firm for example in cases where there are many managers. It would be necessary to clarify the responsibilities of each manager.

Good/efficient communication enables the business to create a more positive image and a favorable reputation of itself to outsiders and overcome prejudices and negative attitudes that people may have against the business.

Proper communication enables the business to get new ideas make plans and ensure that they are implemented in the desired way.

Communication process

Communication is a process that involves interchange of information and ideas between two or more people. Communication therefore is a circular process i.e communication may lead to some reaction which in turn may generate further communication

or feedback. This flow can be illustrated as below:

(2) Message

(3) Receiver

Message                                                                                   3

Receivercdddd

Sender

(4) Feed back

Feedback

Lines of communication

Communication can be classified according to either the levels of the communicating parties or according to the nature of the message.

  1. I) Vertical
  2. ii) Horizontal

iii) Diagonal

 

This is where messages are passed between a senior and her/his juniors in the same organizations

Vertical communication can be divided into two parts

–Downward communication

-Upward communication

-Downward communication-This is a communication process which starts from the top manager to her/his juniors. This can be informed of:

-Upward communication-This is a communication process that starts from the juniors to the seniors and maybe in the form of:

  1. ii) Horizontal communication (lateral communication)

This is communication between people of the same level (rank) in the same organization e.g. departmental heads in an organization may communicate to achieve the following:

One of the major characteristics of this type of communication is that there are less inhibitions. The people involved are more open and free with each other than in the case of people with different ranks.

 

 

iii) Diagonal communication

This is communication between people of different levels in different departments or different organizations e.g. an accounts clerk may communicate with a sales manager of the same organization or of different organizations. Diagonal communication enhances team work.

  1. b) According to nature of message

This can either be;

  1. i) Formal communication
  2. ii) Informal communication

Formal communication

This is the passing of messages or information using the approved and recognized way in an organization such as official meetings, memos and letters. This means that messages are passed to the right people following the right channels and in the right form.

Formal communication is also known as official communication as it is the passing of information meant for office purposes.

Formal systems of communication are consciously and deliberately established.

Informal communication

This is communication without following either the right channels or in the right form i.e. takes place when information is passed unofficially. It is usually used when passing information between friends and relatives hence it lacks the formality.

Informal communication may also take the form of gossips and rumor-mongering.

Informal communication usually suppliments formal communication as is based on social relations within the organization.

Note: Both formal and informal communication is necessary for effective communication in an organization.

Essentials of Effective communication

For communication to be effective it must be originated produced transmitted received understood and acted upon. The following are the main essentials to effective communications.

  1. i) The sender/communicator

This is the person from whom the message originates. He/she encodes the message i.e. puts the message in the communicative form.

  1. ii) Message

This is the information to be sent. It is the subject matter of communication and may contain words, symbols, pictures or some other forms which will make the receiver understand the message

iii) Encoding; This is the process of expressing ones ideas in form of words, symbols, gestures and signs to convey a message

iv)Medium/channel;  This refers to the means used in communicating. This could be in the form of letters, telephones and emails among others.

v)The receiver; This is the person for whom the message is intended. The receiver decodes the message for proper understanding.

vi)Decoding; This is the process of interpreting or translating the encoded message to derive the meaning from the message

vii) Feed-back; This refers to the reaction of the receiver of the message. This maybe a reply /response which the receiver sends back to the sender.

The above can be represented in a diagram as shown below;

Receiver (5)

Channel (4)

Encoding (3)

Message (2)

Decoding (6)

Sender (1)

Feedback (7)

FORMS AND MEANS OF COMMUNICATION

Forms; These are channels or ways of passing on messages. The four main forms are;

  1. i) Oral communication
  2. ii) Written communication

iii )Audio –visual communication

  1. iv) Visual communication

Means; This is the device used to pass on information e.g. messages, letters, telephones e.t.c

This is where information is conveyed by talking (word of mouth)

It is also known as verbal communication

                                                                Means of communication

  1. i) Face-to-face conversation

This involves two or more people talking to each other. The parties are usually near each other as much as possible to ensure effective communication.

It is suitable where subject matter of discussion require convincing persuasion and immediate feed-back.

It may be used during meetings, interviews, seminars, private discussions, classrooms e.t.c

It is the most common means of oral communication

Advantages of face-to-face communication

Disadvantages of face-to-face communication

ii)Telephone

This form of communication is commonly used in offices and homes. It is useful in sending messages quickly over short and long distances.

It is however not suitable for sending;

In Kenya telephone services are mainly provided by Telkom Kenya Limited. The subscriber is required to purchase the telephone equipment from the post office or other authorized dealers before installation.

Installation is done on application by the subscriber (applicant).He/she pays the installation fee in addition; the subscriber is sent a monthly bill with the charges for all the calls made during the month.

The charges for calls depend on the time spent time of the day of the week and distance of the recipient from the caller e.g. it is cheaper to call at night than during the day. It is also cheap to make calls during public holidays and weekends than on weekdays.

There are also mobile phones which have no physical line connection to exchange and may be fixed to a vehicle or carried in pockets. In Kenya these services are provided by safaricom, Airtel, orange and Yu mobile communications.                                                         

       Advantages of Telephones

Disadvantages of Telephone

Reasons why mobile phones have become popular

iii) Radio calls

This involves transmitting information by use of radio waves i.e. without connecting wires between the sender and the receiver

The device used is called a radio telephone. It is commonly used in remote areas where normal telephone services are lacking or where telephone services are available but cannot be conveniently used e.g. policemen on patrol in different parts of a town

Radio transmission is a one way communication system i.e. only one person can speak at a time. It is therefore necessary for the speaker to say’over’ to signal the recipient that the communication is through so that the recipient can start talking. To end the conversation, the speaker says ‘over and out’

The radio calls are commonly used by the police, game rangers, researchers, foresters, ship owners and hotels situated in remote areas. They are also used for sending urgent messages such as calling for an ambulance and fire brigade

Note; Radio calls are not confidential since they use sound frequencies that can be tapped by any radio equipment that is tuned to that frequency

Advantages of Radio calls

Disadvantages of Radio calls

  1. iv) Paging

This is a means of communication used to locate staff or employers who are scattered in an organization or who are outside and need to be located urgently

When within the organization portable receivers, lighted signals, bells, loudspeakers etc are used

When outside the organization employees are contacted using portable receivers (pocket-size) used to send messages through sms (short message services)

The paying system can only be used within a certain radius. When using a portable receiver, the caller will contact the subscriber by calling the post office which will then activate the pager.

The subscriber is then informed to contact the originator of the message.

Paging is mostly used in emergency cases

v)Radio

Usually messages intended for a wide audience can be transmitted through a radio more quickly and economically than by using other forms of communication.;`

Radio is used for different reasons apart from advertising e.g for formal notices, and venue for activities

Advantages of oral/verbal communication

               Disadvantages of oral/verbal communication

Written Communication

This involves transmission of messages through writing. It is the most formal way of communication because the information is in recorded form and can be used for reference

Means of written communication

                 (i)Letters

Letters are the most commonly used means of communication.

There are two categories of letters;

a)Formal letters

  1. b) Informal letters
  2. a) Formal letters; These include business letters and official letters.

Business letters are written to pass messages and information from businessmen to customers and vice versa e.g. letters of inquiry and acknowledgement notes.

It can also be used between employees and employers in an organization e.g. a complimentary note.

Official letters are letters between people in authority and others that touch on the activities of the organization e.g. an application letter for an advertised vacancy in an organization.

Formal letters have a salutation clause which usually starts with “Dear Madam “or “Dear Sir”. It also bears the addresses of both the sender and the recipient, a subject heading and a complimentary clause ending with “Yours faithfully”.

 

  1. b) Informal Letters; these are letters between friends and relatives

They are also known as Personal letters

  1. ii) Telegrams

This is a means of communication provided by the post office. The sender obtains the telegram form fro the post office and fills the message on it in capital letters and hand it over to the post office employees at the counter. Alternatively the sender may use a telephone to read the message to the post office. The post office then transmits the message to the recipient post office.

The charges of a telegram are based on the number of words used, the more the words used the higher the charges. However there is a standing charge.

Telegrams are used for sending urgent messages.

Note; Due to changing technology telegrams have lost popularity. Short messages can now be sent by cell phones (mobile phones) using the short messages services (sms)

iii) Telex

This is a means of communication used to send short or detailed messages quickly by use of a teleprinter. The service is provided by the post office on application.

A message is sent by use of two teleprinters one on the senders end and another on the recipients end. When sending information through a teleprinter which is a form of electric typewriter producing different electric signals, its keys are pressed and automatically the message is printed at the recipient’s machine.

Telex saves time for both the sender and recipient as the messages are brief precise and received immediately. However it’s an expensive means of communication

  1. iv) Facsimile (Fax)

This involves transmission of information through a fax machine. Both the sender and the receiver must have a fax machine. These machines are connected using telephone lines

Fax is used to transmit printed messages such as letters, maps, diagrams and photographs. To send the information, one dials a fax number of the required destination and then the document is fed into the sender’s machine. The receiving machine reproduces the document immediately. It is used for long distance photocopying service.

  1. v) Memorandum (Memo)

This is printed information for internal messages within an organization. It is normally used to pass information between departments or offices in an organization.

Memoranda have no salutation or complimentary clause. They are suitable for informing the officers within an organization of matters related to the firm.

A memo is pinned on the notice board of an organization if it is meant for everybody otherwise passed to the relevant staff.

 

 

  1. vi) Notice

This is a written communication used to inform a group or the public about past current or future events. It is usually brief and to the point. It can be placed on walls, in public places, on trees, in newspapers or on notice boards

viii) Reports

These are statements/within records of findings recommendations and conclusion of an investigation/research. A report is usually sent to someone who has asked for it for a specific purpose.

viii) Circulars

These are many copies of a single letter addressed to very many people when the message intended for each is the same.

  1. ix) Agenda

This is an outline of the items to be discussed in a meeting. It is usually contained in a notice to a meeting sent in advance to all the participants of the meeting. The notice of the meeting contains;

  1. x) Minutes

These are records of the proceedings of a meeting. Keeping minutes of certain meetings is a legal requirements e.g companies

Keeping minutes for other meetings are for management purposes to ensure that decisions made at the meetings are implemented

Advantages of written communication

 

 

Disadvantages of written communication

3) Visual Communication

This is the process of passing information by use of diagrams, drawings pictures, signs, and gestures e.t.c

A photograph is an image (visual representation of an object as it appeared at the time when the photograph was taken

Photographs are self-explanatory and may not be accompanied by any narration or explanation. The recipient is able to get the message at a glance.

  1. b) Signs

Refer to marks, symbols, drawings or gestures whose purpose is to inform the public about such things as directions, distances, dangers and ideas.

Examples; road signs, traffic lights and danger signs on electricity poles

This means of communication can only be effective if the meaning of the sign used is understood.

Graphs; These are used to show and illustrate statistical information

Charts; These are diagrams which show or illustrate the flow of an idea e.g. an organization chart illustrates the whole organization structure indicating the chain of command

Advantages of visual communication

The information may be obtained at once

Disadvantages of visual communication

4) Audio-Visual communication

This is a form of communication in which messages are sent through sounds and signs .

This form of communication ensures that the receiver gets the message instantly.

It is suitable where both the sender and the receiver know the meaning of specific sounds and signs

Means of Audio-visual communication

A television can be a very suitable means of sending urgent messages especially when it gives live coverage of events.

Advantages of Audio-visual communication

Disadvantages of Audio-visual communication

5) Audio Communication

This is when the message is transmitted through sounds. Examples include

Other methods of audio communication include drums, alarms, and bells among others

Advantages of Audio communication

Disadvantages of Audio communication

FACTORS TO CONSIDER WHEN CHOOSING MEANS OF COMMUNICATION

BARRIERS TO EFFECTIVE COMMUNICATION

  Communication is said to be complete only when the recipient gets the message the way the sender intends it to be. When information is not received the way it was intended then it has been distorted. Distortion of a message is brought about by some communication barriers which may exists in the path of the message between the sender and the recipient. Some of these barriers are;

 

 

 

 

SERVICE THAT FACILITATE COMMUNICATION

Services that facilitate communication include;

Mailing services

This refers to handling of letters and parcels. They are offered by organizations such as postal corporation of Kenya (P.C.K) securicorl courier and Document handling Limited (D.H.L)

Some of the services offered by the postal corporation include;

The sender pays the normal postage fee plus a fee for special service. An example of such a service is Expedited Mail Service(EMS) speed post

These include surface mail and air mail.

Surface Mail; These include letters and parcels delivered by road, rail, water and hand.

Air Mail; This consists of letters and light parcels delivered by air.

An express mail is/must be presented at the post office counter by the sender and the envelope clearly addressed and a label with the word “express” affixed. Normal postage plus an extra fee (commission) is charged

The mail is delivered to the receivers nearest post office from where the post office makes arrangements to deliver the mail to the receiver within the shortest time possible.

NOTE: For speed post special arrangements to deliver the mail start at the sender’s post office whereas express mail, the arrangements start at the addressers post office.

Under this arrangement when addressing the letter, the words poste Restante must be written on the envelope clearly. The addressee must identify himself/herself when collecting the correspondence from the post office.

There is no additional charge made apart from normal postage charges. This service can only be offered for three months in the same town

This service is offered by the post office for sending articles of value for which security handling is required. A registration fee and a commission is paid. The commission depends on the weight of the article and the nature of registration. The sender is required to draw a horizontal and a vertical line across the faces of the envelope.

A certificate of registration is given to the sender. In case of loss,the sender may be paid compensation on production of the certificate of registration.

A green card is sent to the recipient. The card bears his name and the post office  at which the mail was registered. The recipient will be required to identify himself before being allowed to posses the mail.

Items that may be registered include jewels, certificate, land title deeds e.t.c.

The service is useful/more common with firms which would like to encourage their customers to reply their letters. Customers are issued with reply card envelopes (or envelopes marked ‘postage paid’)

They can send letters to the business by using these envelopes/the card. The customers then place the card/envelope in the post box and the firms post office branch will deduct postage charges from the lump some amount.

These are services where a service provider receives transports and delivers parcels or important documents to destinations specified by customers in return for payment of fees or charges.

Examples; Akamba bus service, Securicor courier services e.t.c

ii)Telephone services

Telkom Kenya, through the post office, provides telephone services which offer direct contact between people who are far apart. It makes conversation between people at any distance possible, as long as there are transmission facilities between them. Urgent matters can be discussed and consultations can take place so that instant decision or actions are taken. The telephone assists organizations to establish a fast and convenient machinery for its internal and external communication network.

These are hand held telephones with digital links that use radio waves. They are sometimes called cell-phones since they use power stored in a dry cell

In Kenya mobile phone services are provided by safaricom Ltd.(a subsidiary of Telkom Kenya)and Airtel communications Ltd(formally Kencel Communication Ltd)which is a joint venture between a French company and a Kenyan company, yu mobile services and Orange mobile services . This sector therefore greatly benefits from foreign investment to improve services.

The use of this service is popular. Apart from the provision of telecommunication service, cell phones have different attractive features or services such as short messages service (sms) whereby a caller can send a written message. Recent models of mobile phones enable the user to access the internet and send e-mail messages

Advantages

Disadvantages

iii) Broadcasting services

Communication commission of Kenya is a regulatory body that receives applications and issues licences for radio and television broadcasting stations.

Radio broadcasting is a very important mode of giving news and information to people in the whole world.

The liberalization of the communications sector in Kenya in 1999, Kenya has witnessed a mushrooming of F.m Stations which are owned by private sector operators e.g. Kiss Radio, Easy fm,Classic fm,Family fm,Kameme e.t.c

They have helped to spread news and information countrywide. Before liberalization, Kenya Broadcasting corperation (KBC) radio was operating as a state owned monopoly.

Television broadcasting (telecasting) does not reach as wide an audience as radio broadcasting in Kenya. It however serves the same purpose of relaying news and information to Kenyans. Both radio and television stations are widely used for advertising purposes.

The T.V subsector has been liberalized since 1999 and a number of privately owned stations have emerged e.g Kenya Television Network (KTN) Nation Television, Family T.V etc. Prior to that time KBC television was in operation as a state owned monopoly.

Other services that facilitate communication

Current trends and Emerging issues in communication

With the advancement of information technology (I.T) there has been a lot of revolution in communication.

The following are some of the current trends and emerging issues in communication;

These are privately owned kiosks where telephone services are sold. The owner of the kiosk must get authority from the service provider in order to run the bureau. The individual wishing to use the services of the bureau makes payments to the owner of the service. Other services offered by the bureau include selling of scratch cards for mobile telephones and credit cards for landline telephone services.

These are hand held telephones with digital links that use radio waves. They have become an important business and social tool. This is because most people and traders want some flexibility to be able to communicate whenever they are.

Other reasons that have led to the popularity of cell phones include:

This is a service provided through the internet for sending messages.

It is similar to sending a letter through the postal system only that it is done electronically.

-Messages can be sent to anyone on the network, anywhere in the world. For this to take place, computers have to be connected to each other to form a network.

-To communicate, one is required to have an email address e.g raeform2 @ yahoo.com. Messages arrive at the e – mail address immediately they are sent.

-It is only the addressee of the message who can retrieve the message since a password is required to access the mailbox.

-E – mail can also be used to send documents and photographs like certificates by scanning and attaching.

– More and more businesses are using e- Mail to communicate with other businesses, their customers and suppliers.

* QUESTION: OUTLINE THE ADVANTAGES OF USING E- MAIL AS A MEANS OF COMMUNICATION.

  1. iv) Internet

The internet links computers all over the world. Written and oral information is transmitted on the internet through the use of telephone wires, fibre- optic cables and wireless devices.

The internet has changed the way people communicate in the following ways;

The future office will rely largely on computers. Most of the communication will be done through computers. This may result in less use of paper, hence the use of the term “the paperless office”.

Vi ) Decline in the use of postal services

Decline in the use of postal services is a result of the impact of the internet. E-mail has become a popular and preferred mode of communication since it is fast and cheap. However, ordinary mail/ use of postal services may not be completely phased out since the government, businesses and people do not regard an e-mail as a binding or formal communication.

Vii) Transformation of language

The language used to pass and receive messages has evolved through time.e.g the youth have adopted the use of “sheng” in exchanging messages. such language is largely understood by its youthful users. There is also the use of cell phones to send short text messages; which are highly abbreviated and may use slang whose meaning is only known to the users e.g  ‘av a gr8 day’.

COMMUNICATION REVESION QUESTIONS

  1. Define the term communication

-Communication is the process by which information is passed from one person or place to another.

  1. Outline the role played by communication in any given organization
  1. Briefly explain the following levels of communication

(a) Vertical communication

Involves the flow of information either downwards or upwards, for example, from a senior employee to a junior employee

(b) Horizontal communication

Is also referred to as lateral communication which is passing of information between people of the same rank or status, for example from one departmental manager to another departmental manager

(c) Diagonal communication

Is communication of different people in different levels of management or departments for example a receptionist communicating to a production manager.

  1. Distinguish between formal and informal communication

Formal communication is official and documented and follows certain rules for example a worker writing an official letter to an organization’s seniors. Informal communication does not conform to any time, for example communicating to friends and relatives.

  1. State the essential elements in communication.
  1. Highlight the various types of verbal communication

 

 

  1. State the advantages and disadvantages of verbal communication

Advantages

Disadvantages

  1. Outline the various barriers to effective communication

 

 

  1. Highlight reasons that would make an organization use cell phones for communication within and outside the organization.
  1. State the various types of written communication.
  1. State the reasons why an organization would use written communication instead of verbal communication.
  1. State the disadvantages of written communication
  1. Outline the various means of visual communication
  1. State the advantages and disadvantages of audio-visual of communication

Advantages

Disadvantages

  1. Outline the various service that facilitate communication
  1. State the various trends in communication
  1. Highlight the factors to be considered when choosing a means of communication.
  1. Advice Mary Wakio why she should not use telex to communicate to her friends
  1. State circumstances when sign language can be the most appropriate form of communication
  1. Explain four factors that have led to the popularity of mobile phones as a means of communication.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOPIC 3:

TRANSPORT

TOPIC OBJECTIVES

By the end of the lesson, the learner should be able to:

MEANING OF TRANSPORT

Transport is the physical movement of people and goods from one place to another. It helps bridge the gap between producers and consumers hence creating place utility.

Importance of Transport to Business

 ESSENTIAL ELEMENTS OF TRANSPORT

In order for a transport system to function efficiently it should have certain basic elements. These elements are:

Unit(S) of carriage

This refers to anything i.e. vessel that is used to transport goods and people from one place to another. Units of carriage include: ships, trains, aeroplanes, motor vehicles, bicycles and carts. Units of carriage are also referred to as means of transport.

Methods of propulsion

This is the driving force (source of power) that makes a unit of carriage to move.The power for most vessels may be petroleum products, electricity, human force or animal power.

Ways

It refers to either the route or path passes by the vessel. The route can be on land, on water or through air. Examples of ways are roads, railways, paths, canals, seaways and airways. The ways can be classified into either natural ways or manmade ways.

Terminals (terminuses)

The vessel used to carry goods and people starts from one destination and ends up at another. At these destinations the loading and off-loading take place respectively. The loading and off-loading places are referred to as terminals or terminus. Examples of terminuses are bus stations, airports and seaports.

 

 

 

 

MODES OF TRANSPORT

Mode refers to the manner in which transport is carried out. There are three modes of transport namely:

Land transport

This mode of transport involves movement of goods and people using units of carriage that move on dry land. The various means under this mode includes:

This involves human beings carrying goods on their heads, shoulders or backs. Human Porterage as a means of transport is the oldest kind of transport and is still very common in our society. The means is suitable for transporting light luggage over short distances. It is also appropriate where other means of transport are not available or convenient.

Advantages of Human Porterage

Disadvantages of human Porterage

Carts

Carts are open vessels usually on two or four wheels that are pushed or pulled by either human being or animals such as oxen and donkeys. The carts pushed or pulled by human beings are referred to as hand carts or mikokoteni. The ones pulled by animals, on the other hand, are called animal driven carts. Carts are used to carry relatively large quantities compared to human porterage. Like human porterage, they are not suitable for long distances. Types of goods that are transported using this means include, agricultural produce, water and animal feeds.

Advantages of carts

Disadvantages of carts

Vehicles

These are means (units of carriage) of transport that ferry goods and people on roads. Vehicles are the most commonly used means of transport.

Vehicles are either passenger or goods carriers. Passenger carriers may be buses, matatus, taxis and private cars while goods are transported using Lorries, pick-ups, tankers and trailers. Vehicles are expensive to acquire and maintain. The convenience of vehicles may depend on the nature of the road on which they travel.

Some roads are impassible especially when it rains while others are usable throughout the year (all weather roads).Of special concern in road transport is the matatus. These are privately owned passenger vehicles which were introduced to supplement the existing mainstream transport companies that were inadequate at independence. They got their name from the amount of fare they used to charge originally that is, mapeni matatu. The operators have to obtain the relevant documents such as insurance cover in order to be allowed to operate. Their owners may form associations which take care of their interests along given routes or in certain areas.

Advantages of matatus

Disadvantages of matatus

Advantages of vehicles

Disadvantages of vehicles

Trains

Trains are vessels that transport goods and people on rails hence the term railways.

The terminuses of trains are the railways stations. Therefore; the goods to be transported by trains have to be taken to the railway station. Railway transport is suitable for heavy and bulky goods as well as passengers. There are two types of trains: cargo and passenger train.

Advantages of Trains

Disadvantages of Trains

Pipeline Transport

This is the movement of liquids and gases from one place to another through a pipe. Products transported through pipes include water, gases, petrol and diesel. Solids that cannot be dissolved or damaged by water may also be transported through pipes as suspension. Examples coffee berries from machines to drying places. The pipeline is both a vessel and a way.

Products flow by the force of gravity or pressure from an original station. If the original terminal is at a higher level than the receiving terminal, the force of gravity is adequate to move the product. But if the receiving terminal is at a higher level than the original than the originating terminal, then power is required to pump the product uphill. For example, petroleum from Mombasa which is at sea level needs pressure to pump it to all the receiving stations.

Advantages of pipeline Transport

Disadvantages of pipeline Transport

         Water Transport

It is a mode of transport where the units of carriage transport goods and people on water. Water in this case includes; navigable rivers, lakes, seas and oceans. The means of transport which are the units of carriage or vessels using this mode include; ships, dhows, boats, steamers and ferries. Water transport can be divided into inland waterways and sea transport.

Inland waterways

This is transport carried out on lakes, rivers and inland canals. The Lake Victoria facilitates transport among the three east African countries i.e. Kenya, Uganda and Tanzania. Ferries also connect the mainland to islands such as Rusinga Islands, found in Lake Victoria.

Water hyacinth has however been a threat to transport on the lake. Most rivers in Kenya are not navigable due to reasons such as:

Sea Transport

This is where goods and people are transported in seas and oceans. All types of water vessels may be used in sea transport. Sea transport is important as it connects continents of the world thereby facilitating international trade. Kilindini in Mombasa provides a good natural harbor facilitating sea transport between Kenya and other countries of the world. Ferries also connect the island of Mombasa and the mainland.

Types of Water vessels

A ship is a large vessel that transports people or goods through water. Their sizes however vary depending on quantity of goods and passengers they carry. Ships help in connecting countries or places which borders the sea. They load and offload in terminals referred to as harbors found at sea ports. For example, the Kilindini harbor is found in the port of Mombasa.

Ships that transport people are referred to as passenger ship while those that transport goods are referred to as cargo ships. Cargo ships are c are convenient for carrying heavy and bulky goods.

Ships may also be classified as either liners or tramps.

Liners

These are ships that are owned and operated by shipping companies called conferences. Each conference is responsible for specifying the route on which each liner would operate the rates to be charged and setting the rules and regulations to be followed by the members.

Characteristics of liners

Tramps

These are ships that do not follow a regular route or time table. Their routes therefore depend on demand. During times when demand is high, they charge higher rates and when demand is low they lower their rates. Tramps can therefore be likened to matatus. Tramps may be owned by either individuals or firms.

Characteristics of tramps

NB: Liners and tramps owners are in constant competition business. Traders therefore need to choose the type of ships to hire. Liners are however more popular than tramps among traders because of their reliability.

When a trader hires an entire ship to transport goods to a given destination, he/she and the ship owner signs a document called a charter party. This document shows the terms and conditions under which the goods would be transported.

Other information included in the agreement are destination, nature of the goods and freight charges. When the ship is hired to carry goods for a given journey the document signed is referred to as voyage charter. On the other hand, if the ship is hired to transport goods for a given period of time, the document signed is called time charter.

Ships may be specially built to carry special commodities. These may include tankers specially built to transport petroleum products and other liquids. Refrigerated ships may also be available to transport perishable commodities such as meat, fish and fruits.

These are water vessels used in transporting goods and people over short distances. They are therefore found in both inland water transport and also the sea transport e.g. the Likoni ferry in Mombasa carries people from and to the island of Mombasa and the main land.

Advantages of water transport

Disadvantages of water transport

This refers to the movement of goods, people and documents by aircrafts. Aircrafts/ aeroplanes are the units of carriage and air the way. The terminals include airports and airstrips.

Aeroplanes are fast compared to other means of transport i.e. they are the fastest means of transport. They are therefore suitable for transporting urgently required goods like drugs and perishable goods Such as flowers over long distances.

Aircrafts may be classified as either passenger planes or cargo planes. Passenger planes transport people from one place to another. On the other hand, cargo planes transport light cargo to the required destinations. Aeroplanes may be fitted with special facilities for handling special goods. Aeroplanes are expensive to acquire and to maintain. Their operations may also be affected by weather conditions.

Advantages of Air Transport

Disadvantages of Air Transport

Containerization

This is a recent development in transport. It refers to the packaging of goods in standardized ‘box like’ containers designed for use in transporting cargo. The containers are mainly made of metal though a few are made of wood. They can either be hired or bought from firms that provide them. The hired containers are returnable to the owner after the goods have been transported.

Containers are designed in a way appropriate to transport goods by ships, train, lorry or by air. To safeguard the goods against risks such as theft and unfavorable weather conditions the containers are sealed immediately after goods have been packed. The sealed containers are then transported up to the final destination where they are off-loaded. The consignee can then break the seal.

Goods can be transported in containers as Full Container Load (F.C.L) or as Less Container Load (L.C.L).Full container load applies where the container is filled with goods belonging to one person. In FCL, goods are delivered to the consignee intact.  On the other hand, less than container load applies where a container is filled with goods belonging to several consignors. This may be the case where a single consigner does not have enough goods to fill a container. When such a container reaches the destination, it is opened and the various consignees take their goods.

There are special handling facilities for loading and offloading containers onto and from the units of carriage.

Apart from the container depot at Mombasa, Kenya Ports Authority (K.P.A) has established inland container depots referred dry ports. An example of a dry port is found at Embakasi in Nairobi. The establishment of dry ports aims at relieving congestion at the sea port. It also aims at making handling of cargo easier and efficient for inland importers and exporters.

When containers are off loaded from ships at Mombasa, they are loaded into special container trains called railtainer which transports them by railway to the inland container depot at Embakasi. Containers can also be transported by specially designed trucks between the ports or from the port to consumer’s destination.

Advantages of containerization

Disadvantages of containerization

Factors that influence the choice of appropriate means of transport

Trends in transport

Motor cycles are also being used as bodabodas in various areas. Similarly, the three wheeled vehicles commonly known as ‘Tuk Tuk’ is a major feature in cities and most towns.

 

 

 

 

 

END.

 

REVISION QUESTIONS ON TRANSPORT

KCSE PAST PAER 1

Mode of transport                                                Units of carriage

KCSE PAST QUESTIONS PAPER 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOPIC 5

WAREHOUSING

Warehouse; This is a building or a part of a building where goods are received and stored until need arises for them.

-Other terms used to refer to a warehouse are depot, a go down or a silo.

Warehousing; This is the process of receiving goods into a warehouse, protecting such goods against all types of hazards and releasing them to users when need arises for them

-There are three distinct stages in warehousing process namely:

Importance of warehousing to Business

Essentials of a warehouse

These are the features and resources a warehouse should have in order for it to function effectively.

These include;

Types of warehouses

Warehouses can be broadly classified into three namely:

 

Private warehouses

These are warehouses that are owned by private individuals/organizations for the purpose of storing their own goods only. They include;

  1. a) Wholesalers warehouses

These are warehouses for storing the wholesalers’ goods as they await distribution or sale. They need warehouses because they buy goods in bulk from producers and store them until they are needed by retailers.

-The wholesalers warehouses also act as showrooms i.e. they display their goods in the warehouse.

-These warehouses also enable the wholesalers to prepare their goods for sale e.g. branding, blending, packing and sorting may be carried out in the warehouse

  1. b) Producers warehouses;

-These warehouses are owned by producers and they are for storing goods prior to their demand.

-The producers may be manufactures of finished goods or farmers

-Such warehouses are built near the manufactures factories or the farmers production points.

-Manufactures who export may locate some warehouses near ports through which they export e.g Mumias sugar warehouse, Bamburi Portland cement warehouse e.t.c

  1. c) Retailers warehouses

Some large-retailers such as chain stores and supermarkets own warehouses for storing their large stores

-It becomes necessary for such business to have warehousing facilities due to their large and bulky purchases dictated by the nature of their business

-Goods are distributed from their warehouses to the retail outlets or to the branches

Advantages of private warehouses

Disadvantages of private warehouses

Public warehouses

These are warehouses owned by individuals or organizations who do business by renting space. To those traders who are in need of storage facilities to store goods temporarily. They have the following characteristics;

Advantages of a public warehouses

Disadvantages of public warehouses

Bonded warehouses

These are public warehouses for keeping imported goods until customs duties have been paid against them. They are mainly located at the points through which goods enter a country

-Imported goods are kept in this type of warehouses if the owner has not paid customs duties. Such goods are said to be “goods under bond”or “goods in bond”

–Bonded warehouses are so called because the owners of such warehouses give a ‘bond’ to the customs authorities i.e. a sum of money as guarantee that they will not release goods from the warehouses until customs duties have been paid.

-The importer may withdraw the goods either in part or in full after the customs duties have been paid for the goods he/she intends to collect.

-If the goods are sold while still in a bonded warehouse, the new owner of the goods pays the duty before taking them out of the warehouse.

-If the goods re-exported to another country while still in a bonded warehouse, the importer does not have to pay the customs duties e.g an importer may import some goods and further prepare them for sale inside a bonded warehouse and can then re-export them without having paid the customs duties

-When the importer pays the duties to the customs officials, a “release warrant” is issued. This is a document that enables the importer to have his/her goods released from a bonded warehouse

-Bonded warehouses have resident customs officials who monitor the movement of goods in and out of a bonded warehouse.

Features of a bonded warehouse

Advantages of bonded warehouse to the importer

Advantages of Bonded warehouse to the Government

Disadvantages of a bonded warehouse

Free warehouses

These are warehouses in which tax-free goods are kept awaiting sale or collection by owners

-Goods stored in these warehouses can be either locally produced, requiring no taxation or imported goods for which customs duties have already been paid.

NOTE: i) All warehouses apart from bonded warehouses are free warehouses since goods held in them are not subject to control by customs authorities. This includes all private and public warehouses

  1. Locally produced goods are stored in free warehouses since no custom duties are paid for them.

Advantages of free warehouses

Disadvantages of free warehouses

Current trends and emerging issues in warehousing

Warehousing technology is undergoing important changes in both building design and handling in storage equipment. These may include;

Computerization has also greatly helped in monitoring the movement of stock in and out of storage. This has eased the handling, especially in loading and unloading of goods.

-Other times they are burned causing air pollution with toxic gases. Some goods when thrown on land are dangerous to human life

-To avoid the effects of improper disposal of expired or spoilt goods the warehouse owners should come up with methods that are environmentally friendly such as recycling of these goods. They should also be socially responsible for whatever goes out from their warehouses.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOPIC 6

INSURANCE

Insurance-This is an undertaking or contract between an individual or business and an insurance an occurrence of risk(s) (i.e. against events whose occurrences are unforeseen but causes financial losses or suffering to the affected parties.

Risks are also referred to as contingencies, hazards or perils and include:

–Fire outbreak

-Accidents

-Thefts

-Deaths

-Disabilities

-Risks are real and unforseen.Methods to eliminate such risks has achieved very little and thus has necessitated the need for insurance.

Importance of insurance

Every business enterprise is exposed to a variety of risks e.g. fire, theft e.t.c.The occurrence of such risks often result in financial losses to the business. Insurance provides adequate protection against such risks in that, if a trader suffers losses as a result of insured risk, she/he is compensated, thus he/she is able to continue with business operations.

Insurance enables investors to invest in profitable yet risky business projects that would otherwise avoided.

Not all the money received as premiums (by the insurance companies) is used up for compensation to those who have been exposed to risk and suffered losses. The rest of the money is invested in other businesses to earn profits.

Insurance does provide employment opportunities to members of the public.

The profits earned are a source of revenue for the government i.e. insurance companies are profit-making organizations which generate revenue to the government through payments of taxes

The insurance industry have also established credit or lending facilities which the business community uses by borrowing. Loans are made available to the public for different investment projects in different sectors of the economy and also for personal requirements.

The insurance industry plays a crucial role in the development of urban facilities in major towns. Both residential and office buildings have been developed by insurance firms. The firms also participate in development projects in the areas where they operate. They contribute to development of a region by constructing and infrastructural facilities

THE THEORY OF INSURANCE

The insurance business relies on the law of large numbers in its operations. According to this law, there should be a large group of people faced with similar risks and these risks spread over a certain given geographical area.

Every person in the group contributes at regular intervals, small amounts of money called premium into a “common pool”. The pool is administered and controlled by the insurance company.

 

 

Pooling of risks

The insurance operation is based on the theory that just a few people out of a given lot may suffer a loss. There is therefore a “pooling of risks” i.e the loss of the unfortunate few is spread over all the contributors of the group, each bearing a small portion of the total loss. This is why the burden of loss is not felt by the individuals because it is “shared” by a large group.

Benefits of the “pooling of Risks” to insurance company

Terms used in Insurance

Insurance

This is a written contract that transfers to an insurer the financial responsibility for losses arising from insured risk.

Premium

This is the specified amount of money paid at regular intervals by the insured to the insurer for coverage against losses arising from a particular risk.

Risk

These are perils or events against which an insurance cover is taken. It is the calamity or problem a person or business faces and results into losses.

Note: The calculation of premiums depends upon the type of risk insured against. The higher the probability of the risk occurring, the higher the premium. The more the risks the business or person is exposed to the more the premiums payable.

Pure risk

This is a risk which results in a loss if it occurs and results in no gains if it does not occur. For example, if a car is involved in an accident, there will be a loss and if the accident does not occur there will be no gain or loss

 

Speculative risk

This is a risk which when it occurs, may result in a loss or a profit. For example, a person may buy shares at ksh.50 each, one year later the shares may be valued at ksh40 each meaning a loss of ksh.10

Alternatively, their value might not have changed or might have increased to ksh.45 each. Speculative risk lures people to venture into business in the first place.

Insured

This is the individual or the business that takes out the insurance cover and therefore becomes the policy holder

The insured pays premiums to the insurance company to be compensated should the risk insured against occur or cause loss.

Insurer

This is the business company that undertakes to provide cover or protection to the people who suffer loss as a result of occurrence of risks

Actuaries

These are people employed by an insurance company to complete expected losses and calculate the value of premiums.

Claim

This is a demand by the insured for payment from the insurer due to some loss arising from an insured risk.

Policy

This is a document that contains the terms and conditions of the contract between the insurer and the insured. Its issued upon payment of the first premium.

 

Information contained in a policy includes;

Actual value

This is the true value of the property insured

Sum insured

This is the value for which property is insured, as stated by the insured at the time of taking the policy.

Surrender value

This is the amount of money that is refunded to the insured by the insurer incase the former(i.e. the insured) terminates payment of the premiums before the insurance contract matures. The policy holder is paid an amount less than the total amount of the premium paid.

Grace period

This is term allowed between the date of signing the contract and the date of payment of the first premium. During this period the insurance contract remains valid. This period is usually a maximum of thirty (30) days.

Proposer

This is a person wishing to take out an insurance cover (prospective insured)

Cover note (Binder)

This is a document given by the insurance company to an insured on payment of the first premium while awaiting for the policy to be processed. It is proof of evidence that the insurer has accepted to cover a proposed risk.

Annuity

This is a fixed amount of money that an insurer agrees to pay the insured annually until the latter’s death. It occurs when a person saves a lumpsum amount of money with an insurer in return for a guaranteed payment which will continue until he/she dies.

Consequential loss

This is loss incurred by a business as a result of disruption of business in the event of the insured risk occurring.

Assignment

This is the transfer of an insurance policy by an insured to another person. Any claims arising from the transferred policy passes to the new policy holder called an assignee

Beneficiaries

These are people named in a life assurance policy who are to be paid by the insurer in the event of the insured

Nomination

This is the act of designing one or more people who would be the beneficiaries in the event of death of the insured. These people are called nominees

Average clause

This clause is usually included in policies to discourage under-insurance. The clause provides that the insured can only recover such proportions of the loss as the value of the policy bears on the property insured. It is usually included in marine or fire insurance policies.

 

 

The amounts recoverable are arrived at using the following formulae:

Compensation =   value of the policy *  loss

Value of property

Example:

If a house worth kshs.800,000 and insured against fire for kshs.600,000 was damaged by fire to the tune of kshs.400,000,the insured would be compensated;

Compensation= (600,000 x 400,000)

800,000                                                          (value insured x Actual loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Double insurance

This is taking of insurance policies with more than one company in respect to the same subject matter and the risk. It is significant because if one of the insurers is insolvent at the time the claim arises the insured can enforce his/her claim against the solvent insurer or if both insurers are solvent then they share compensation.

(Insolvency is a state where a business is not able to pay all its liabilities from its existing assets)

Co-insurance

This is an undertaking by more than one insurance company to provide insurance cover for the same risk for an insured. This will usually occur for properties that have great value and face great risk exposures that an insurer cannot successfully make compensation for e.g. value of aeroplanes, ships e.t.c

Co-insurance help spread risks to several insurers, each insurer covering only a certain proportion of the total value. The insurance company with the largest share is called the “leader” and acts on behalf of all the participating insurance companies’ e.g. in collecting premiums from the insured and carrying out documentation work, making claim after collecting each insurers premium contribution e.t.c

Note: Co-insurance is different from double-insurance in that in co-insurance company approaches another insurance company to help in covering the insured property while in double-insurance; it’s the insured who decides to approach different insurance companies to insure the same property against the same risk.

Re-insurance

‘Re-insurance’ means insuring again. This is a situation where an insurance company insures itself with a bigger insurance company called le-insurer for all or part of the risks insured with it by members of the public

Re-insurance indirectly insure an individuals risks.Re-insurance helps to reduce the burden on an insurance company when the loss is too high for a single insurer. When such losses occurs, the claim is met by both the insurer and re-insurer(s) proportionately (according to agreed percentages)

Note: Re-insurance deal with the protection of insurance companies only, while insurance companies protect individuals and business organizations.

Factors that may make it necessary for an insurance company to Re-insure

Under-insurance

This occurs when the sum insured as contained in the policy is less than the actual value of the property e.g. A property of shs.500, 000 can be offered for insurance as having a value of shs.400, 000

Over-insurance

This is a situation where the sum insured is more than the correct value of property e.g. a person insures property of shs.300,000 for shs.600,000.If total loss occurs, he is compensated the correct value of the property i.e. that which he has lost

Agents

These are people who sell insurance policies on behalf of the insurance company. They are paid on commission that is dependent upon the total value of policies sold

Insurance Brokers

These are professional middlemen in the insurance process. They connect the people wishing to take insurance with the insurers. They act on behalf of many different insurance firms, unlike agents. Their activities include:

He receives a commission (reward) known as brokerage.

PRINCIPLES OF INSURANCE

Principles of insurance provide guidance to the insurance firms at the time they are entering into a contract with the person taking the cover. These insurance principles include:

It is therefore important that a prospective insured (person wishing to take insurance policy) has basic knowledge of these principles as stated in the insurance law.

The insurance principles include;

This principle states that an insurance claim cannot be valid unless the insured person can prove that he has directly suffered a financial loss and not just because the insured risk has occurred.

Going by this principle one cannot insure his parents or friends or other people’s property since he/she has no insurable interest in them. If such properties are damaged or completely destroyed, he/she will not suffer any financial loss.

For example, Mr.x has no insurable interest in the property of his neighbours.He does not suffer any financial loss should they be destroyed. This principle ensures that people are not deliberately destroying other people’s properties/life in order for them to receive compensation.

In life insurance (life assurance) it is assumed that a person has unlimited interest in his/her own life. Similarly it is assumed that one has insurable in the life of spouse and children e.g. a wife may insure the life of her husband, a father the life of his child because there is sufficient insurable interest.

The essence of this principle is that the insurer will only pay the “replacement value” of the property when the insured suffers loss as a result of an insured risk.

This principle thus puts the insured back to the financial position he enjoyed immediately before the loss occurred.

It is therefore not possible, then, for anybody to gain from a misfortune by getting compensation exceeding the actual financial loss suffered as this will make him gain from a misfortune.

This principle does not apply in life assurance since it is not possible to value one’s life or a part of the body in terms of money. Instead, the insurance policy states the amount of money the insured can claim in the event of death.

In this principle the person taking out a policy is supposed to disclose the required relevant material facts concerning the property or life to be insured with all honesty. Failure to comply to this may render the contract null and void hence no compensation.

e.g.

-A person suffering from a terminal illness should reveal this information to the insurer.

-One should not under-insure or over-insure his/her property.

This principle compliments the principle of indemnity. It does so by ensuring that a person does not benefit from the occurrence of loss.

According to this principle, whatever remains of the property insured after the insured has been compensated according to the terms of the policy, becomes the property of the insure.

Example

Assuming that Daisy’s car is completely damaged in an accident and the insurance compensates for the full value of the loss, whatever remains of the old car (now scrap), belongs to the insurance company

Scrap metal can be sold for some values and should Daisy take the amount she would end up getting more amount than the value of the car which will be against the principle of indemnity.

Note: This principle cannot be applicable to life assurance since there is nothing to subrogate.

This principle states that for the insured to be compensated there must be a very close relationship between the loss suffered and risk insured i.e. the loss must arise directly from the risk insured or be connected to the risk insured.

Example

However if the property burns down as a result of sparks from the fire-place, the proximate cause of the loss is sparks which are directly related to fire. So the insured is entitled for compensation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CLASSES OF INSURANCE

Insurance covers are mainly classified into two,

  1. Life Assurance

The term assurance is used in respect of life contracts. It is used to mean that life contracts are not contracts of indemnity as life cannot be indemnified i.e. put back to the same financial position he was in before the occurrence of loss.(life has no money value, no amount of money can give  back a lost or injured life)

Life insurance (assurance) is entered by the two parties in utmost good faith and the premiums payable in such life contracts depend on:

Types of policies

–Whole life assurance covers disabilities due to illness or accidents i.e. if the insured is disabled during the life of the policy due to illness or accidents, the insurer will pay him/her for the income lost.

  1. ii) Endownment policy/insurance

This is whereby the insured pays regular premiums over a specified period of time. The sum assured is payable either at the expiry of the period (maturity of policy) or on death of the insured, whichever comes first.

The insured, at expiry of policy is given the total sum assured to use for activities of his own choice.(ordinary endownment policy)

-Where the insured dies before maturity of contract, the beneficiaries are given these amounts.

Note; The assured person may be paid a certain percentage of the sum assured at intervals until the expiry of the policy according to the terms of contract. Such an arrangement is known as Anticipated Endowment policy.

Advantages of Endowment policies

Differences Between a whole life policy and an Endowment policy

Whole life Endowment
·                  Compensation is paid after the death of the assured

 

 ·                  Compensation is paid after the expiry of an agreed period
·                  Premiums are paid throughout the life of the assured Premiums are paid only during an agreed period
·                  Benefits go to the dependants rather than the assured The assured benefits unless death proceeds the expiry of the agreed period
·                  Aims at financial security of dependants Aims at financial security of the assured and dependants

 

  iii) Term insurance

The insured here covers his life against death for a given time period e.g. 1yr, 5yrs e.t.c.

If the policy holder dies within this period, his/her dependants are compensated.

If the insured does not die within this specified period, there is no compensation. However, a renewal can be taken.

  1. IV) Education plan/policies

This policy is normally taken by parents for their children’s future educational needs.

The policy gives details of when the payments are due.

  1. v) Statutory schemes

The Government offers some types of insurance schemes which are aimed at improving/providing welfare to the members of the scheme such as medical services and retirement benefits.

A member and the employer contribute, at regular intervals, certain amounts of money towards the scheme.

Examples

Characteristics of life Assurance

  1. General insurance (property insurance)

This type of insurance covers any form of property against the risks of loss or damage. A person can insure any property he has an insurable interest in

General insurance is usually divided into;

This department covers all sorts of risks which occur by accident and includes the following;

-These provide compensation for partial or total loss to a vehicle if the loss results from an accident.

-The policy could either be third party or comprehensive.

–Third party policies cover all damages caused by the vehicle to people and property other than the owner and his/her vehicle. This includes pedestrians, fare-paying passengers, cows, fences and other vehicles

In Kenya, a motor-vehicle owner is required by law to have this policy before the vehicle is allowed on the roads. One can also take a third party, fire and theft policy.

Comprehensive policy covers damages caused not only to the third party but also to the vehicle itself and injuries suffered by the owner. Comprehensive policies include full third party, fire, theft and malicious damage to the vehicle.

 

 

-These policies are issued by insurance companies to protect the insured against personal accidents causing;

-If death occurs due to an accident, the insured’s beneficiaries are paid the total sum assured.

In case of a partial or total disability as a result of accident, the insured can be paid on regular periods, e.g. monthly as stipulated in the policy.

Compensation for injuries where one loses a part of his/her body can be done on a lump sum basis.

The insured is also paid the value of hospital expenses incurred if hospitalized as a result of an accident.

These are policies that specifically provide cover for loss of cash and goods in transit between any two locations.

E.g. Goods and cash moved from business to the markets, from suppliers to business e.t.c

  1. d) Burglary and Theft policies

These policies cover losses caused by robbers and thieves

Burglary policies are enforceable only if the insured has met the specified safety and precautionary measures for protection of the insured items.

E.g.-How much money should be maintained in different kinds of safety boxes

-Positioning of each of the cash boxes is also an important precautionary measure.

NB: The control measures are aimed at reducing both the extent and probability of loss occurring

  1. e) Fidelity Guarantee policies

These policies cover the employers against loss of money and/or goods caused by their employees in the cause of duty.

-The losses may be as a result of embezzlement, fraud, arithmetical errors e.t.c

-The policies may cover specified employees or all the employees

7) Workmen’s compensation (Employer’s Accident liability)

These policies provide compensation for employees who suffer injuries in the course of carrying out their duties.

The employer insures his employee against industrial injuries i.e the employer is only liable for the compensation of workers who suffer injuries at work.

  1. f) Public liability

This insurance covers injury, damages or losses which the business or its employees cause to the public through accidents.

The insurer pays all claims from the public upto an agreed maximum

  1. g) Bad debts

This policy covers firms against losses that might result from debtor’s failure to pay their debts.

iii)Marine Insurance

This type of insurance covers ships and cargo against the risk of damage or destruction at the sea. The main risks sea vessels are exposed to include; fire, theft, collision with others, stormy weather, sinking e.t.c

Types of Marine Insurance policies

The marine insurance covers are classified as Hull, cargo, freight and ship owners’ liability.

This policy covers the body of the ship against loss or damage that might be caused by sea perils.

Included here are any equipment, furniture or machinery on the ship.

A special type of marine hull is the part policy, which is for a specified period when the ship is loading, unloading or at service.

This type of policy covers the cargo or goods carried by the ship

The policy is taken by the owners of the sea vessels to cover the cargo being transported. It has the following sub-divisions.

Description of marine losses

The following are some of the losses encountered in marine insurance.

This occurs where there is complete loss or damage to the ship and cargo insured. Total loss can be constructive or actual.

In Actual total loss, the claims are as a result of the ships and/or cargos complete destruction. It could also occur;

-When a ship and its cargo are so damaged that what is salvaged is of no market value to both the insurer and the insured.

-When a ship is missing for a considerable period of time enough to assume that it has sunk.

–Constructive total loss occurs when the ship and/or cargo are totally damaged but retrieved. It may also occur;

-Where a ship and its cargo are damaged but of market value. This could be as a result of decision to abandon the ship and cargo as the probability of total loss appears imminent.

-If the cost of preventing total loss may be higher than that of the ship and its cargo when retrieved e.g many lives may be lost in the process of trying to prevent total loss.

Fire insurance-This type of insurance covers property damage or loss caused by accidental fire. Cover is offered to domestic commercial and industrial premises, plant and machinery, equipment, furniture fittings stock e.t.c

In order to claim for compensation as a result of loss by fire, the following conditions must be fulfilled;

There are several types of types of fire insurance policies. These include;

This covers or compensates the insured for the loss of profit suffered when business operations have

It is offered to protect future earnings of an enterprice after fire damage.

CHARACTERISTICS OF GENERAL INSURANCE

Factors to be considered when Determining Premiums to be charged

 

 

 

Insurance Gambling
-The insured must have insurable interest -A gambler has no insurable interest
-Reinstates the insured back to the financial position just before loss -Aims at improving the winners financial position
-The insured is expected to pay regular premiums for the insurance cover to remain in force -Gambling money is paid only once
-Insurance involves pure risks -Gambling involves speculative risks
-The event of loss might never occur -The event of bet must happen to determine the winner and the loser.

 

Procedure for taking a policy

Procedure of claiming compensation

INSURANCE AND GAMBLING

In most cases, insurance is erroneously taken to be the same as gambling in that small amounts are contributed by many people into a common fund which later benefits just a few people. They are however different and their differences include;

 

 

 

 

PAST KCSE QUESTONS

1.1995 Describe the procedures that should be followed when taking an insurance policy.              10mks)

2.1996 explain four ways in which the insurance industry promotes the growth of business enterprises.                                                                                                                                                       (5mks)

3.1997 Explain four ways in which the insurance industry contributes to the development of Kenya’s economy.                                                                                                                                        (10mks)

4.1998 Discuss various insurance policies under which an insurance company would not compensate the insured in the event of the loss.                                                             (10mks)

5.1999 Discuss various insurance policies that the owner of a supermarket may find it useful for the business.                                                                                                                                       (12mks)

6.2000 Explain four benefits of the ‘pooling of risks’ to an insurance company.   (8mks)

7.2001 Explain the factors that may make it necessary for an insurance company re-ensure.

8.2002 Explain the meaning of the following terms as used in insurance                              (10mks)

  1. i) Uberrimae fidei
  2. ii) Indemnity
  1. iv) Contribution.
  2. v) Subrogation

9.2003 Discuss four circumstances under which an insurance contract may be terminated.           (8mks)

10.2004 Explain five benefits that could be enjoyed by a person who decided to take out an endowment policy.                                                                     (10mks

 

 

 

 

 

 

 

 

 

 

 

TOPIC

PRODUCT PROMOTION

Product is an item or service offered to the consumers at a price. Therefore, product promotion is the communication or any activity undertaken to inform the consumers, persuade and remind them to buy the product from the market.

 

The purpose/Importance of product promotion

 

Methods of product promotion

Product promotion may be carried out in the following ways:

 

Personal selling

This is a method of promotion where there is an oral presentation in the conversation with the prospective customer. It is done by with the use of salesmen who informs the prospective buyer of all the aspects of the product

 

Methods of personal selling

Personal selling can be carried out in the following ways;

A case where the sales person approaches the prospective customers after drawing their attention, explaining details of the product and even demonstrating how the product works in order to persuade the customer to buy.

 

Steps involved in personal selling through sales person

 

 

 

 

Shows, trade fairs and exhibitions

This is where the manufacturer of a given product gets a chance to display publicly to the prospective customer to inform them about the product. The prospective customers’ attention is then drawn to the product and more information is given to him about the product at the point where it is displayed.

 

Advantages of shows, trade fair and exhibitions

Disadvantages of shows, trade fairs and exhibitions

 

Showrooms

These are large rooms where goods are displayed, especially bulky and durable goods like cars, furniture’s, etc for the customer to see and be informed about them to stimulate their interest in them

The room allows the customer to get more information about the product from the sales person in the showroom

 

Advantages of showrooms

 

Disadvantages of showrooms

 

Free Gifts

A gift is an item given to the customer free of charge after buying a product which it is pegged on or buying products of a given value. The gift may not necessarily be the same as the product bought, but they are meant to encourage the customer to buy more or give the customer opportunity to explore the product given as a gift.

 

Advantages of free gifts

 

Disadvantages of free gifts

 

Free Sample

This is a product on trial given to the customers freely to influence their demand towards the product. It mainly used when the product is new and the customer may have not known about the existence of the product

 

Advantages of free sample

 

Disadvantages of free sample

Circumstances under which personal selling is appropriate

 

Advantages of personal selling

 

Disadvantages of personal

 

 

Advertising

This is the presentation of information about a product through public media such as news papers, radios, billboards, etc

Types of Advertising

Advantages/Importance of advertising to the business

 

Disadvantages of advertising to the business

 

Advantages of advertising to the customer

 

Disadvantages of advertising to the consumer

 

Advertising media

These are channels or agents through which an advertisement message is conveyed to the target group. They includes both the print and electronic media which includes; newspapers, journals, magazines, posters, bill-boards, brochures’, radio, television, neon signs, etc

 

These are daily or regularly publications which contains advertisement. They includes, Daily nation, Standard, Taifa Leo, citizen, star, etc

Advantages of newspaper

Disadvantages of the newspaper

These are periodic publications meant to target a particular class or group of people. They may be published monthly, quarterly, annually, etc. The information reaches the targeted group as they read them

Advantages of magazines and Journals

 

Disadvantages of magazines and journals

 

Posters and Billboards

A form of advertising that may contain the information about the product either in words, pictures or both for the customer to see and read.

 

Advantages of posters and billboards

 

Disadvantages of posters and billboards

 

Transit/transport advertising

A form of advertisement whereby vehicles such as trailers, matatus, buses, etc are used to carry and convey the advertisement message

 

Advantages of transit advertisement

 

Disadvantages of transit advertisement

 

Brochures

These are small pamphlets carrying message and pictures about product being advertised.

Advantages of Brochures

 

 

Disadvantages of Brochures

 

This is a channel that allows for the advertised messages to be conveyed through sound to the listeners, with some background music accompanying the message

 

Advantages of Radio

 

Disadvantages of Radio

 

Television (T.V) and Cinema

Television is a form of media advertisement where the written words are combined with motion pictures and sound to pass the information

Cinema is where the advertised messaged is conveyed during film shows in the cinema halls. It may be before or after the movie.

 

Advantages of Television (T.V) and Cinema

 

Disadvantages of Television (T.V) and Cinema

 

 

Neon Signs

This is a form of advertisement where the message is passed to the public through the use of electrical signals transmitted through neon lights. They are usually common in the banks, airlines, jewel shops, etc

 

Advantages of Neon Signs

 

Disadvantages of Neon Signs

Advertising Agencies

These are businesses that specialize in advertising work and are hired to carry out the functions for other businesses. They are paid a commission for this

 

Functions of Advertising Agencies

 

Publicity

This is the mentioning of the product or the organization in the mass media to make it be known to many people. There two types of publicity, that is free publicity (where the payment is not required) and Special featured publicity (where there is payment, for example sponsoring an event in the public)

 

Advantages of Publicity

Disadvantages of Publicity

 

Public relations

A process of passing information with an intention of creating, promoting, or maintaining good will and a favourable image of the organization in the public. It involves informing the public about the firm’s achievement and how it is contributing to the community welfare and development, to get more approval of the public

 

 

Advantages of public relations

 

Disadvantages of public relations

Point of purchase (Window) display

This is where the items are arranged in the shops strategically, allowing the customers to see them easily. The arrangement is meant to attract the customer’s attention and induce them to buy goods as they pass close to the shop

 

Advantages of Point of purchase display

 

Disadvantages of point of purchase

 

Direct mail Advertisement

A form of advertisement which is sent to the potential customers directly in the form of a mail, for example the pricelist being sent to the potential customers

 

Advantages of direct mail advertisement

 

Disadvantages of direct mail advertisement

 

 

 

Catalogue

A booklet that gives information about the product that the organization deals in. It gives the description about the product, the picture as well as the prices of the product.

 

Advantages of catalogue

 

Disadvantages of catalogue

 

Guarantee (warranty issue)

An assurance given to the customer that the product will serve as expected if used according to the instructions given by the manufacturer. For the guaranteed period the seller will be willing to maintain repair or replace the product for the customer

 

Advantages Guarantee

 

Disadvantages of guarantee

Discount

This is a reduction in price of the commodity, allowing the buyer to pay less than what he would have paid the goods.

 

Types of discount

 

 

 

 

Sales promotion

These are activities carried out to increase the sales volume of a business. They are activities out of the ordinary routine of business that is carried out by the seller to increase his sales volume.

The methods of carrying out sales promotion includes all the methods of carrying out product promotion as discussed earlier, that is, shows and trade fair, showrooms, free gifts, free sample, personal selling, advertisement, window display, credit facilities, after sales services, etc

 

Factors to consider when choosing a promotion method

 

Ethical issues in product promotion

These are rules and regulations to be followed when carrying out promotion to avoid violating other people or businesses right. They include;

 

Trends in product promotion

The following are some changes that have taken place to improve the product promotion activities

Related Articles
↑
Exit mobile version