brand loyalty article review and introduction

8/14/2019 brand loyalty article review and introduction

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Chapter-1

Strategy formulation

Strategy formulation is vital to the well-being of a company or organization. There are two major

types of strategy: (1) corporate strategy, in which companies decide which line or lines of business

to engage in; and (2) business or competitive strategy, which sets the framework for achieving

success in a particular business. While business strategy often receives more attention than

corporate strategy, both forms of strategy involve planning, industry/market analysis, goal setting,

commitment of resources, and monitoring.

Policy Formulation

Policy formulation is the development of effective and acceptable

courses of action for addressing what has been placed on the policyagenda.

Notice that there are two parts to this definition of policy formulation:

1. Effective formulationmeans that the policy proposed is regarded asa valid, efficient, and implementablesolution to the issue at hand. If

the policy is seen as ineffective or unworkable in practice, there is nolegitimate reason to propose it. Policy analysts try to identify effectivealternatives. This is the analytical phase of policy formulation.

2. Acceptable formulationmeans that the proposed course of action islikely to be authorizedby the legitimate decision makers, usually

through majority-buildingin a bargaining process. That is, it must

bepolitically feasible. If the policy is likely to be rejected by thedecision making body, it may be impractical to suggest it. This is thepolitical phase of policy formulation.

There are, then, two aspects to policy formulation: the analyticaland

the political. First, effective policy alternatives, presumably based on soundanalysis, must be conceived and clearly articulated. Second, a politicalchoice among these alternatives must be made: The policy must beauthorized through a political process, such as legislation or regulation. Both

phases --- analysis and authorization --comprise policy formulation.


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Strategic decisions

Strategic decisions are those which affect the long term performance of the business and which relate

directly to its aims and objectives. They are usually taken at the highest levels of management and carry

higher levels of risk. However, effective strategic decisions bring high levels of reward.

The strategic decision to undertake the 'Strategic Spare Parts Project' was taken by directors at the

highest level in RWE npower in order to support its objective of reliable supply. The expected rewards

from the project were fewer availability losses leading to reduced costs and improved customer

satisfaction.

Meaning and Characteristics of Financial planning.

Finance is the life blood of business. No business can run successfully without adequate finance. Finance

is required to bring a business into existence, to keep it alive and also to see it growing and prospering.

Meaning of Financial Planning:

Finance is an important function of business. The application of planning to this function is calledfinancial planning. Financial planning is mainly concerned with the economical procurement and

profitable use of funds. According to Gutlman and Dougall, "Financial planning is concerned with raising,

controlling and administering of funds used in business." In the words of Bouneville and Dewey,

"Financial planning consists in the raising, providing and managing of all the money, capital of funds of

any kind to be used in connection with the business." Financial planning is an important element of the

overall planning of business enterprise. Financial planning includes the following:


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Estimating the amount of capital required for financing the business enterprise;

Determining capital structure;

Laying down policies for the administration of capital;

Formulating the programmes to provide the most effective use of capital.

Characteristics of a Good/ Sound Financial Planning:

The main characteristics of a good financial planning are as follows:

Simplicity

The financial plan should be as simple as possible so that it can be easily understood even by a layman,property executed and administered. A complicated financial plan creates unnecessary complications

and confusion.

Based on Clear-cut Objectives

The financial plan should be based on the clear-cut objectives of the company. It should aim to procure

adequate funds at the lowest cost so that the profitability of the business is improved.

Flexibility

The financial plan should not be rigid, but rather flexible enough to accommodate the changes which

may be introduced in it as and when necessary. The rigid composition of the financial plan may cause

unnecessary irritation and may limit the future development of the business unit.

Solvency an Liquidity

The financial plan should ensure solvency and liquidity of the business enterprise. solvency requires that

short-term and long-term payments should be made on due dates positively. This will ensure credit

worthiness and good will to the business enterprise. Liquidity means maintenance of adequate cashbalance in hand. Sometimes insufficiency of cash may make a business enterprise bankrupt.

Planning Foresight

Financial planning should have due foresight and vision to access the future needs, scope and scale of

operation of the business enterprise. On the basis, financial planning should be done in such a manner

that any adjustment needed in the future may be made without much difficulty. As the business


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proceeds, the financial adjustments become necessary which should be adjustable properly as and when

desired.

Contingencies Anticipated

The financial plan should be able to anticipate various contingencies which may arise in the near future.

The financial plan should make adequate provision for meeting the challenge of unforeseen events.

Minimum Dependence on Outside Sources

A long-term financial planning should aim at minimum dependence on outside resources. This can be

possible by retaining a part of the profits for ploughing back.

Intensive Use of Capital

Financial planning should ensure intensive use of capital. As far as possible, a proper balance between

fixed and working capital should be maintained.

Profitability

A financial plan should be drafted in such a way that the profitability of the business enterprise is not

adversely affected.

Economical

The financial plan should be quite economical i.e., the cost burden of raising various types of capital

should be minimum.

Government Financial Policy and Regulation

The financial policy should be prepared in accordance with the government financial policy and

regulation. It should not violate it under any circumstances.

Difference btw strategic and financial planning :

Strategic planning will have both internal and external factors, while financial planning will only have

internal planning. For example, strategic planning will have to consider what courses of action

competitors are taking, and have to respond to things that they are doing. Financial planning would not

have to consider this, as they only consider things within the business. They look at the financial picture

of the firm, and they dont consider what other firms are doing or what the market is doing. This is part

of what makes strategic planning so complex and expensive for a company to adequately perform.

When it comes down to it, financial planning is about measuring the resources that a company has at its

disposal, while strategic planning is more about planning how to use those resources to maintain the

best competitive advantage that they can. Financial planning is a part of strategic planning, but they are

two different things. In the end, you cant really have one without the other, and having success with

both types of planning are necessary for a business to be successful over the long run.


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The standardized requirements in place for banks and other depository institutions, which determines

how much liquidity is required to be held for a certain level of assets through regulatory agencies such

as the Bank for International Settlements, Federal Deposit Insurance Corporation or Federal Reserve

Board. These requirements are put into place to ensure that these institutions are not participating or

holding investments that increase the risk of default and that they have enough capital to sustain

operating losses while still honoring withdrawals.

Also known as "regulatory capital".

Investopedia Says

Investopedia explains 'Capital Requirement'

In the United States, the capital requirement for banks is based on several factors, but is mainly focused

on the weighted risk associated with each type of asset held by the bank. The capital requirements

guidelines are used to create capital ratios, which can then be used to evaluate and compare lending

institutions based on their relative safety.

An adequately capitalized institution, based on the Federal Deposit Insurance Act, must have a Tier 1

capital-to-risk weighted assets ratio of at least 4%. Institutions with a ratio below 4% are considered

undercapitalized and those below 3% are significantly undercapitalized.

Definition of 'Linkage'

Linkage occurs when an investor is able to purchase a security on one financial exchange and sell it on

another. Certain depositary receipts, such as American Depositary Receipts (ADRs), allow for linkage,

which means that an investor can purchase shares of a company on a foreign exchange, such as the

Toronto Stock Exchange, and then sell those shares on a domestic exchange, such as the New York Stock

Exchange.

Investopedia Says

Investopedia explains 'Linkage'

Linkage should not be confused with arbitrage situations where an investor looks to profit from price

discrepancies for equivalent securities trading on different exchanges. As financial markets progress,specifically with the growth of electronic exchanges spreading, the phenomenon of linkage will become

more relevant and useful for investors in the future.

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brand loyalty article review and introduction