By the end of the topic, the learner should be able to:
Public finance refers to the activities carried out by the government associated with raising of finances and the spending of the finances raised (it is the study of how government collects revenue and how it spends it)
The components of public finance are;
Purpose of public finance
Sources of public finance
There are two major sources of public finance i.e.
This is the income that the government gets from its citizens. The main sources of public revenue are:
This refers to borrowing by government from firms and individuals within the country. This may be done through:
Open market operation; the government sells its securities such as treasury bonds and treasury bills. This however has a disadvantage of causing ‘crowding out effect’ where the government leaves the private investors with little to borrow from.
Classes of public (National debt)
These are two classes of national debt:
This is borrowed money used to finance project(s) that can generate revenue. Such projects, once started may become self-sustaining and may contribute towards servicing/repaying the debt. E.g. money used to finance irrigation schemes, electricity production etc.
This is borrowed money that is used to finance activities that do not generate any revenue. Examples are money used to finance recurrent expenditure e.g. payment of salaries or for famine relief etc.
Dead-weight debt is a burden to members of the public since they are the ones who are expected to contribute towards its repayment.
Factors to consider before the government decides whether to borrow internally or externally
This refers to how the government spends the finances it has raised on behalf of its citizens.
Categories of government expenditure
This refers to government spending that takes place regularly e.g. payments of salaries to civil servants, fuelling of government vehicles e.g.
Every financial year, the government must allocate funds to meet such expenditure.
Recurrent expenditure is also known as consumption expenditure.
This is also referred to as capital expenditure .It is government spending on projects that facilitate economic development. Such projects includes construction of railway lines, roads, airports, rural electrification etc.
Once completed expenditure on such projects ceases and may only require maintenance.
This is expenditure on things/people who do not directly contribute to a country’s national income. Such expenditure include money spent on famine relief, pension, bursaries etc.
Principles of Public/Government Expenditure
These are the considerations that are necessary before any expenditure can be incurred by the government.
Tax: is a compulsory payment by either individuals or organizations to the government without any direct benefit to the payer.
Taxation-refers to the process through which the government raises revenue by collecting taxes.
Purposes/reasons for taxation
Principles of taxation
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question & answer session
Discuss five principles of taxation
Outline five sources of non-tax public revenue
Explain five principles of public expenditure
Highlight five reasons for imposition of tax by the government
Discuss five characteristics of a good tax system
Outline five reasons why the Kenya government must impose tax
KCSE PAST PAPERS
KCPE PAST PAPERS
MONEY AND BANKING
By the end of the topic, the learner should be able to:
Money and Banking
Selling bread to students
Warehousing of goods imported
Carriage of cargo to the market
- Reducing transaction between producers and consumers
- Breaking bulk
- Accumulating bulk
- Taking of holding goods
- Providing finance to producers
- Product promotion
- Transporting goods
- Storage goods
- Reduces the range of goods offered to the retailers
- Reduces the cost of goods acquired by retailers
- Lowers the price of goods because of reduction in the length of distribution
- Preparing to meet customers/locating prospective customers
- Opening sale/presenting the product
- Handling objections
- Closing of sales
- Where the commodity is perishable
- Where the commodity is a service
- Where the use of the commodity requires demonstration
- Where the quantity of the commodity is small
- Where technical advice is required
- Where immediate feed back is required
- Where the law requires to be done so
- Brand Kamp/ Exporter - Consumer
- Exporter / Brand Kamp-Government agent –Wholesaler- Consumer
- Exporter/ Brand Kamp-Government Agent – Wholesaler- Retail – Consumer
- Exporter / Brand Kamp-Wholesaler- Consumer
- Exporter / Brand Kamp- Import agent – Consumer
- Nature of products - perishable
- Availability of the channel
- The cost of the channel
- Channels used by competitors
- Market concentration not in use area
- Spread of the risk
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CONTENTS AND OBJECTIVES
Q & A
PRODUCT MARKETS - KCSE BUSINESS STUDIES NOTES, AUDIOVISUALS, QUESTION AND ANSWER
- explain the meaning of a market
- explain the meaning of product market
- discuss the features of various types of product markets.
- Meaning of a market
- Meaning of product market
- Features of various types of product markets
NOTE: The contact between sellers and buyers may be physical or otherwise hence a market is not necessarily a place, but any situation in which buying and selling takes place. A market exists whenever opportunities for exchange of goods and services are available, made known and used regularly.
Definition of Product market
TYPES OF PRODUCT MARKET
When markets are classified according to the degree of competition, there are four main types, these are;
- Perfect competition
- Pure monopoly (monopoly)
- Monopolistic competition
QUESTIONS ON PRODUCT MARKETS
- Explain five characteristic of a monopolistic market.
- By use of a diagram, explain how price and output are determined in a collusive oligopoly (centralized cartel) market situation
- Highlight five differences between perfect competition and monopolistic competition
- Using a well labeled diagram, explain how a monopolist enjoy a supernormal profit in both short and long run
- With the aid of a diagram, explain how a firm under monopolistic competition is at equilibrium in the short run
- With the aid of a diagram, explain the difference between perfect competition and monopoly revenue curves
- To check on the quality of goods produced by monopoly.
- Ensure there are a variety of goods in the market.
- Monopolist may resist emergence of new ideas or technology due to lack of competition.
- Monopolies tend to be inefficient in their operation due to lack of competition.
- The consumers may not enjoy quality goods and services because they can only consume what his monopolis produces.
- To control the prices charges by the monopolies
- Make sure monopolies operate at optimum capacity so as not to charge high prices.
- Sellers deal in homogeneous products
- Are not involved in promotion of products.
- It’s a price taker
- Large number of sellers
- Activities of one firm does not influence the activities of other firms
- Sellers deal in differentiated products
- incur heavy expenses in promotion of products
- it’s a price setter /giver
- Large number of sellers operating independently.
- Activities of one firm are closely monitored by the rest in the industry.
- When the product is a necessity
- When the product is the only one in the market
- When the consumers are not aware of the market changes
- When the price of the product makes an insignificant figure of the consumers income
THEORY OF THE FIRM - KCSE BUSINESS STUDIES NOTES, SCHEMES OF WORK, OBJECTIVES, QUESTIONS AND ANSWERS
THE THEORY OF THE FIRM
- Describe the meaning and distinction between firm and industry;.
- Discuss factors that influence the decision on what to produce.
- Discuss the various costs of production and their derivation.
- Differentiate between small and large firms
- Discuss the various factors influencing location of firms; reasons for localization and delocalization.
- Explain meaning of economies and diseconomies of scale and how they influence production decisions of the firm.
- Explain the reasons for continued existence of small firms despite economies enjoyed by large scale firms.
- Discuss environmental implications on production activities.
THE THEORY OF THE FIRM COURSE OUTLINE
- The concepts of a firm and industry
- Decision on what goods and serves to produce
- Costs of production:
Fixed costs and variable costs, Direct costs and indirect costs, Total costs, average costs and maral costs,
- Determining the size of a firm
- Location of a firm
- Economies and diseconomies of scale
- Localization and delocalization of firms in an economy.
- Existence of small firms in an economy
- Implications of production activities on the environment and community health
THEORY OF THE FIRM Definition:
- This is a single unit of business organization that brings together the factors of production to produce any given commodity.
- A firm may also be defined as a business enterprise under one management and control.
- Firms may be sole proprietorship, partnerships or companies. They may therefore be small e.g. an artisan or mechanic working in her/his garage or large like a multinational limited company producing many different products e.g. coca-cola company.
- A firm even though under one management and control may have several branches/plants.
This refers to all those firms producing the same product for a specific market/a group of related firms that compete with one another i.e.
- Firms that produce the same product e.g. the firms operating as sugar manufactures as Mumias Sugar Company, Sony Sugar Company and Miwani Sugar Company.
- Firms that extract the same raw materials e.g. the salt mining firms, Magadi Soda Company and other firms which mine salt at the North coast Region near Malindi.
- Firms that provide similar services e.g. the transport industry such as Akamba Bus service, coast Bus Company and Easy Coach Company.
- All firms are profit-maximisers i.e. they seek to make as much profit as possible.
- Each firm can be regarded as a single consistent decision making unit.
DECISION ON WHAT GOODS AND SERVICES TO PRODUCE
- What to produce
- How production is to take place e.g. what raw materials and machinery should be utilized
- Where a production plant should be located
- When to produce
- The scale of production e.g. how big should the factory
- When and where to invest
- How the production can be improved and controlled
- What type of business activity to engage in
- For a firm to decide on what goods and services to produce, market research to evaluate the likely success of the product is necessary.
- After establishing the viability of the product in the market, other activities like product design are carried out (the firm may consider redesigning existing products, introducing a product similar to the one in the market or developing a completely new product.
- production may then follow
Factors that influence decisions on what goods and services to produce
These factors include;
Whether the firm is product-oriented or market-oriented
Product oriented firms: This is when the nature of the product itself (its functions and unique qualities) are enough to make sure that the product sells e.g. when cars were first developed, its uniqueness sold it
Market oriented firms; these are firms that produce products that are meant to meet the consumer needs e.g. over time cars are being developed to suit consumer needs.
Level of competition
In order to survive in a competitive market, firms must come up with products that consumers prefer.
Firms may therefore develop products which are not currently available or copy rivals ideas and improve on them
Level of available technology
The level of technology has a strong influence on the product that a firm produces
New inventions and innovations often result in new products or improved products
Improved technology may also reduce the costs of production. This means the same output maybe produced using less factors of production or more output may be produced using the same factors of production.
Senior management have the sole responsibility of deciding on what product to produce. A wrong decision may ruin rather than bailed the enterprise. The manager’s ability to design a viable product is therefore a vital factor in product development
In order to determine whether a product will be viable or not, the cost of production and the expected returns should be considered. Funds may only be approved for the product that promises long term benefits to the firm. So if the benefits of the product outweigh the costs, then such product will be developed and if not so, it will be dropped.
Amount and type of capital in the firm
Capital refers to machines, equipment, factories, plants and other human made aids to production.
Both financial and physical capital facilitates the production process. The amount of capital in a business will therefore influence what goods it can produce and in what qualities i.e. a firm with physical capital that is very specific may not be able to produce other type of products e.g. a clothing factory may not be able to produce any other goods such as cement.
Other factors may include;
- Need of the consumers
- Need for better quality or more fashionable product
- Need for an easier to market product
- Unmet needs
- Need for a product for which factors of production and technology are easily available
COST OF PRODUCTION
This is a payment made to the factors of production for their services. Production costs thus refers to the expenses incurred in acquiring factors of production (inputs) The sum total of all payments to the factors of production engaged in its production.
Types of production costs:
These are values of any alternatives forgone. The cost forgone when the choice of one thing requires the next best alternative to be abandoned
A student with only sh.50 may have to decide on whether to buy a textbook or a pair of shoes. If she decides to buy a textbook, the pair of shoes will have to be forgone because it’s not possible to buy both with only sh.500.
The opportunity cost of buying a text book in this case is the cost of the pair of shoes which was abandoned.
Fixed and variable costs
Costs may be classified according to their behavior in relation to various levels of output as follows:
- Fixed costs
- Variable costs
- Semi-variable costs
These are expenses which do not change with changes in levels of output/quantity of output. These costs therefore remain the same whether the firm is producing anything or not i.e. whether production is maximum or zero.
- Rent for premises/buildings
- Depreciation charge on physical facilities
- Salary of administrative staff
- Interest paid on loans (borrowed capital)
- Licence fees etc.
FIXED COST (SH)
the theory of the firm questions on topic
- Highlight five reasons why a firm may be located near the market for its products
- Explain five reasons why the government may adopt the delocalization policy of locating
- Discuss five factors that may account for the existence of small firms in an economy
- Explain five factors that determine the size of a firm
- Explain five factors that determine the decision of a firm on what goods and services to produce
- Explain five circumstances under which a firm may be located near the source of raw Materials
- Outline any five reasons that account for the popularity of small scale retails in Kenya
- Explain five factors that may account for the survival of small firms in an industry.
Advantages of public relations
- May be used to correct the dented image of the firm
- It informs the public about the activities of the firm
- Assist in upholding the good image of the firm
- It improves the relationship between the firm and its customers
Disadvantages of public relations
- It is costly in terms of time and finance involved
- The customer may make premature buying arising from the picture created by the firm
- Effects may take long before they are actually realized
- It may be difficult to evaluate the impact of the message, since the customers are not obliged to respond to it
5. Point of purchase (Window) display
Advantages of Point of purchase display
- May induce the customer to buy the product due to their arrangement
- As the customers get in to the shop, they are likely to buy including the other goods that were not being displayed
- The customers are able to determine the features of the product with ease
- It is relatively a cheaper method of promotion
Disadvantages of point of purchase
- The method only work well with the potential customers who are near the shop and not far away
- They may also attract thieves especially if the product displayed is of high value
- In case the arrangement does not appeal so much to the customers, they may not get into the shop
- It may be expensive setting up the display area
6. Direct mail Advertisement
Advantages of direct mail advertisement
- It is able to reach the targeted group as they are sent to the potential customer directly
- The message may be made to suit the requirement of the specific customer to be
- There may be an immediate respond on the message
- The potential customers incurs no cost to acquire the information
Disadvantages of direct mail advertisement
- Some mails may not get to the intended customers in time
- The prospective customer may ignore the advertisement
- May not be effective where the customer needs to examine the product
- This method may be expensive especially in terms of material and money
- It may only appeal to the literate group only
Advantages of catalogue
- It may be used to advertise all the products in the organization
- The owner/organization has the total control over the catalogue
- It gives detailed information about the product
- Its colourful nature makes it an attractive promotion tool
Disadvantages of catalogue
- It is expensive to produce increasing the cost of production
- Change in price may affect the whole catalogue
8. Guarantee (warranty issue)
- The confidence built in the customer by the guarantee to the customers makes them to buy more products.
- It may create the customers loyalty to the product of the firm
- The fact that the product can be replaced if it gets spoilt within the period is an advantage to the customer
Disadvantages of guarantee
- Repairing or replacing the product may be very costly to the organization
- The method may only be suitable for the durable goods
- The customer may be tempted to mishandle the good during this period
Types of discount
- Quantity discount: - Allowed by trader to encourage him/her to buy more quantity of the product being offer
- Trade discount: - Allowed to another trader who is buying products for resale to the consumers
- Cash discount: - Allowed to the customer to enable him pay promptly for the goods bought
11. Psychological sellingPlaying with the customer’s psychology in terms of pricing by quoting odd prices such as 999, 199, 99, etc. to convince the customer that the price has been reduced
12. Credit facilitiesWhere the customer is allowed to take a product for his consumption and pay for it later. This entices the customer to buy more of the product
13. After sales serviceThese are services offered to the buyer after the goods have been bought. They may be in terms of packaging, transportation or installation which may be offered to the customers free of charge. This makes the customer to buy more goods with confidence
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
- The cost of the promotion that is whether the company can afford it or not, for some promotion methods are very expensive that may not be easily affordable to the company.
- The nature of the product being promoted especially whether it requires demonstration or not. Products which requires demonstration are best promoted through personal selling
- The targeted group for the advertisement, on whether they can be reached by that method or not. The promotion method must reach the targeted group, if it has to be effective
- The objective that the firm would like to achieve with the promotion, and whether the method is helping them to achieve that particular objective
- The method used by the competitor in the market to enable them choose a method that will enable them compete favourably
- The requirement of the law concerning product promotion, to enable them not use what the law does not allow
Ethical issues in product promotion
- Cheating on performance of the product to attract more customers by given them wrong and enticing information about what the product can do.
- Cheating on the ingredients of the product by telling them that the product contains a suitable type of ingredient which does not exist just to lure them to buy the product
- Not telling them the side effects of the product which may affect them should they continuously use the product due to fear of losing customer
- False pricing, especially a case where they overprice their and later on reduce them slightly just to lure the customer, yet exploit them
- Not caring about the negative effect of the product on the environment, which may include littering of the environment by the posters used for advertisement
- Social cultural conflict, especially putting up some forms of advertisement which are considered a taboo buy the community leaving around, such as hanging a billboard of a female advertising inner wears next to a church
Trends in product promotion
- Use of website/internet to advertise product worldwide, which has increased the coverage
- Encouraging gender sensitivity and awareness in product promotion to bring about gender balance
- Use of electronic billboards in advertisement to increase their visibility even at night
- Intensifying personal selling by the business to reach more customers
- Development of promotion convoys to move from one place to the other with music and dancers to attract more prospective customers
- Catering for the rights of the youths when carrying out product promotion and even involving them in carrying out the promotion
- Catering for the interest of those with special needs when carrying out advertisement
- Advertisement through mobile phones by sending them sms about the product
PRODUCT PROMOTION (12 LESSONS)
TOPIC/ SUB-TOPIC OUTLINES
- Meaning of a product
- Meaning and importance of product promotion
- Methods of product promotion
- Advantages and disadvantages of each method of product promotion
- Choice of promotion method
- Ethical issues in product promotion
- Trends in product promotion
- explain the meaning of a product
- explain the meaning and importance of product promotion
- explain the various methods of product promotion
- explain the advantages and disadvantages of each method of product promotion
- discuss factors which influence choice of promotion method
- recognize the need for ethical practices in product promotion
- discuss trends in product promotion.
introduction to Product Promotion.
The purpose/Importance of product promotion
- It informs the customer of the availability, price, and where to obtain the product to satisfy their wants
- It persuade the buyer to buy their products a head of their competitors’ products in the market
- It reminds the customers of the continued existence of a given product in the market
- It educate the consumers of the usage of the product to satisfy their needs fully
- It informs them on any improvement that has been made on the product
- It stimulates the demand of the product being promoted in the market
- It brings out the positive features of the product
- It opens new market for the product in the environment
Methods of product promotion
- Personal selling
- Sales promotion
1. Personal selling
Methods of personal selling
Through sales person approaching the customers
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
- Identify prospective customers who could possibly require the product
- Preparing the presentation by gathering all the possible information about the product , as well as designing an appropriate methods that he will be used to present to the customer
- Establishing the customers contact, as well as choosing an appropriate time to meet the customer to be. That is the time when the customer may receive him
- Arousing the consumers interest in the product by attracting his/her attention through approach and languages, as well as making the prospective customer develop interest in the product
- Dealing with the objections on the product which may have been brought about by the customer to be
- Closing the sale by inquiring whether the prospective customer will be interested in the product or not. This should be done in a polite manner
- Offering after sale service to the customer on the product that has been sold
Shows, trade fairs and exhibitions
Advantages of shows, trade fair and exhibitions
- It gives the customer an opportunity to compare various products before making a decision on what to buy
- It gives the sales person an opportunity to explain in fine details the features of the product to the prospective customers
- The manufacturers of the product gets a chance to receive immediate feedback from their customers through interactions during the shows
- The number of people visiting their stall to assess their products will help them determine their potential market size for the product
Disadvantages of shows, trade fairs and exhibitions
- It is expensive to hire a stall for the exhibition of the product
- The sales person may have to explain over and over again for the prospective customers as they may not enter into the stall at the same time
- The trade fairs are not frequently organized, therefore an organization rely on it as the only means of product promotion may not succeed
The room allows the customer to get more information about the product from the sales person in the showroom
Advantages of showrooms
- They enables the seller to get immediate feedback on the product
- They enable the customers to get clarification on the product they need to purchase
- It is a cheap method of production
- It provides an opportunity for the usage of goods to be demonstrated
- The information the prospective customer get from the show room is more reliable
Disadvantages of showrooms
- They are usually located away from the town centers, making them not be accessible by many
- It is expensive to hire showrooms
- They require security to protect the goods inside them which may be very expensive
- Some prospective customers may tamper with goods in the room while trying to operate them
Advantages of free gifts
- It enable the customer to enjoy the product given as a gift without paying for it
- It persuades the customer to buy more of the product in order to get the gift
- It is an additional product, and therefore increases the customers satisfaction
- It may help in creating loyalty in the product being promoted
Disadvantages of free gifts
- It makes the customer buy including products they didn’t require in order to the said gift
- The cost of the product may be very expensive for he customer
- Some middlemen may remove the gift and keep or even sell to the customer to maximize profit
Advantages of free sample
- It enables the customer try the product before making a decision to buy it
- The customer is able to enjoy the product that otherwise he may have not enjoyed
- The organization is able to get immediate feedback from the customer about their new product
- It enables the organization to acquire more customers for their product
Disadvantages of free sample
- Some of those receiving the sample may not come back to buy
- It may be an expensive method of promotion especially where many samples are to be given
- Goods given for free may reduce the value of goods that may have been sold to earn profit
- It is not suitable for expensive products
Circumstances under which personal selling is appropriate
- When launching a new product in the market which requires a lot of awareness to the prospective customers to enable them make a choice
- When a product is tailored to meet the customer’s needs, as different consumers have different needs, taste and preferences to be addressed.
- When demonstration is required on how the product works, especially the technical products
- When the organization has the capacity to finance the sales force carrying out the personal selling.
- Where the market is concentrated within a given region that can easily be accessible by the task force.
Advantages of personal selling
- It is more flexible than any other method for the marketer is able to meet the needs of different people
- It enable the prospective customer to know more details about the product before making a decision
- The sales person is able to demonstrate the use of the product
- The seller is able to get immediate feedback on the product
- The seller is able to obtain the personal contact of the prospective buyer
- It gives the buyer an opportunity to negotiate the terms of purchase
- It takes care of both literate and illiterate prospective customer
- The seller is able to persuade the prospective buyer to buy the product
Disadvantages of personal selling
- It is labour intensive and therefore very expensive when the area to be covered is wide method
- It is time consuming as it involves explanation and demonstration
- It may only target a particular group of people
- The seller has to meet the travelling and other expenses involved which may be very expensive
- Salespersons may misuse the resources allocated for them, making the target not to be achieved
- The process may inconvenience the prospective buyer’s program
- It may only cover a given region which may not be wide enough
Types of Advertising
- Product advertising: - this is a form of advertisement meant to promote a given product or a particular brand of product
- Institutional advertising: - this is a form of advertisement meant to improve the image of the institution or organization and not a particular product. It is meant to create confidence in the customers about the institution
- Primary demand advertising: - a form of advertisement meant to a new product that has been introduced in the market for the first time. It is mainly to create awareness of the existence of that particular product
- Celebrity advertising: - a form of advertisement where a famous/popular person is used to promote a particular product. It is meant to convince those who identify themselves with that personality to buy the product
- Informative advertising: - a form of advertisement meant to give the customer more information about the product to enable them make an informed decision
- Competitive/persuasive advertising: - a form of advertisement carried out with organizations producing similar product to persuade the customers to buy their products ahead of their competitors
- Corrective advertising: - a form of advertising meant to correct a misleading information that may have been given out about the product
- Reminder advertising: - a form of advertising meant to remind the customers that the product still exists in the market and is still capable of satisfying their needs.
Advantages/Importance of advertising to the business
- It maintain the sales of an already existing product
- It create awareness in the customers about a new product in the market
- It informs the customers about the changes that may have been made in the product
- It helps in building image or reputation of the selling organization
- It may increase the volume of the existing sales of a product
- It reaches peoples who may have not been reached by the sales person
- It complements the effort of the sales person to enable them achieve their sales objectives
- It clears the customers misconception and prejudice about the product
- It opens up new markets for the products.
Disadvantages of advertising to the business
- It may be costly to the business in terms of money and other resources
- It leads to increase in cost of production if at all it has to be done frequently
- The cost of the advertisement will always reduce the profit margin of the business
- Poorly planned advertisement may negatively affect the business
- Misleading advertisement may reduce the level of business operation
Advantages of advertising to the customer
- They educate them on the usage of the product
- They inform them on the products availability
- They guide them on where to get the product
- The outlines all the features about the product including prices to the customer
- Competitive advertisement may lead to improved quality of goods to benefit the customer
- Information on different prices through competitive advertisement makes the customer to benefit from the reduced prices
Disadvantages of advertising to the consumer
- The advertisement may not disclose the side effect of the product
- The advertising cost may be passed to the consumers through increased price
- Some advertisement may persuade customers to buy what they do not require leading to impulse buying
- Some customers may buy substandard goods due to misleading advertisement
Advantages of newspaper
- The can reach areas that other means may not reach
- Many people can afford them as they are relatively cheap
- They cover a wider geographical area, leading to a wider market
- The message on the newspaper can last for a longer period of time, making it to reach more customers
- The advertisement appearing in the newspaper is readily acceptable by the reader
- Colored print makes the advertisement to be more attractive to the reader who in turn gets the information
Disadvantages of the newspaper
- Many of them are written in English or Kiswahili, making them to only target those who can read and understand the language
- It discriminate against the illiterate group who cannot read the information
- They have short lifespan as they may be read only on the day it is circulated
- It cannot be used to focus on a specific target as they are read by almost everybody
- Some of the prospective customers are always in a hurry to read the newspaper and may not pay attention to the advertisement
Magazines and Journals
Advantages of magazines and Journals
- The specific information for the targeted people can be published
- They can be read and re-read before the next publication may the information to last longer and plead with the prospective customer
- Their publication is of high quality and colourful, making them to draw the attention of their targeted group easier and passing the information to them
- The quality material they are made of makes them to last longer and can be accessed even by those who may have not been around during their publication
Disadvantages of magazines and journals
- If the time gap between the publication time and circulation time is wide, the advertisement may fail
- They are a bit expensive which makes some of the potential customers not to afford them
- The cost of advertising on them may be expensive for the organization
- Their circulations may be limited to a small geographical region
- The publications may not be available in the vernacular language to reach those who are not able to read either English or Kiswahili
Posters and Billboards
Advantages of posters and billboards
- They are able to convey the information to the large audience, as they are placed in strategic position
- Posters are cheap and easy to prepare
- The use of different colors makes them to be more attractive and appealing to more audience
- It can be used by both literate and illiterate group
- The message may last for a longer period of time
- Billboards are conspicuous and hence attractive to the audience
Disadvantages of posters and billboards
- May be affected by adverse weather condition, especially rain
- If not placed strategically, it may not reach the targeted group
- Incase destroyed by the passersby, the information may not meet the targeted group
- Bill boards are expensive to make and maintain
Advantages of transit advertisement
- The message reaches most of the people in the environment
- They message last long as the paints always last on the vehicle
- Transit vehicles may carry the message a long way to their final destination
- It is captivating to the members of the public especially the promotion convoy, hence can easily reach the target
Disadvantages of transit advertisement
- During the rush hour, the crowd may hinder some from getting the information
- It mainly relay the information to those served by the vehicles
- The noise produced by the promotion convoy may be a nuisance to some members of the public
Advantages of Brochures
- They are easy to carry around as they are small in size
- They are effective in meeting the targeted group
- Their cost of production is not very high
- They can be distributed at different places to meet the targeted group
- Can be made attractive by the use of different colours
- They have a long life and therefore can be used repeatedly
- They can be used to direct others on where to get the product
Disadvantages of Brochures
- The information may not reach the illiterate group
- They may be ignored by the intended users
- They may require frequent updating if many changes are made on the product making it expensive
Advantages of Radio
- Different languages may be used to reach different people
- It is accessible even to the remote areas that is not covered by other media
- One can choose the time to advertise to reach the targeted group
- Able to serve many people at the same time
- It can be used for both literate and illiterate members of the group
- The advertisement can be repeated over and over again according to the advertisers needs
- The music accompaniment may attract many people to listen to the information
- Can reach even the blind as they are able to hear
- The message can be conveyed in different languages
Disadvantages of Radio
- Their advertisement does not have any reference
- It may be more expensive than the print media
- Poor timing may make the message no to reach the targeted group
- It may interrupt some programmes to the annoyance of the listener
- It short and brief advertisement may be missed by the listeners
- It is difficult for the listener to visualize the product
Television (T.V) and Cinema
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
- It appeals to most people as it is entertaining
- It makes it possible for the demonstration of the use of the product
- It is able to reach both the literate and illiterate viewers
- The advertisement can be aired over and over again to meet the targeted group
- The advertisement may be modified when need arise
- It has wide appeal to many people
- The message can be conveyed in different languages
Disadvantages of Television (T.V) and Cinema
- The cost of advertising through this media is high
- The television sets are expensive to acquire, hence many people may not have them
- Their uses are limited to places with electricity
- The advertisement may not last longer
- The time for airing the information may not suit the targeted audience
Advantages of Neon Signs
- The use of different colours makes them very attractive and catch attention of different people
- They can be put strategically making them to be visible to many people
- Can be used both at night and day
- They direct the customer on where the goods are to be found
Disadvantages of Neon Signs
- Can only be used where there is electricity
- They are expensive to buy and maintain
- The message may not easily reach the illiterate
Functions of Advertising Agencies
- They help the organizations in designing their trademarks, logos and advertising materials
- They book space and airtime for their clients in various media
- They offer advisory services to their client on selling techniques
- They advertise on behalf of their clients
- They choose on behalf of their clients the appropriate media to be used
Advantages of Publicity
- It saves the organization money in case of free publicity
- It is likely to cover a wider region as the publicity is in the media
- The organization may earn credibility due to positive publicity
- The information may be received positively by the customers as the message is likely to be more objective
- It may improve the competitiveness of the firm
Disadvantages of Publicity
- Unfavourable information about the organization may reach the public especially in free publicity
- It is irregular and short lived
- Might require special occasion or event in order to attract the mass media
- The firm does not have control on how the information will appear in the media and the extend of the coverage
4. Public relations
product promotion topical questions
The following are types of advertising
- Product advertising
- Competitive advertising
- Information advertising
- Institutional advertising
a) Create awareness about a product
b) Promotes the name of the manufacturer
c) Persuades a particular brand of a product
d) Promotes a particular brand of a product
2. 1995 P2
Abdullah, a manufacturer, exhibited his goods in a local trade shows. However his sales did not increase significantly thereafter. Outline five reasons that may have led to lack of significant sales increase. (10 marks)
3. 1996 P1
State four ways in which consumers benefit from advertising by business people. (4 marks)
4. 1996 P2
Describe the procedures involved in personal selling methods of sales promotion. (10 marks)
5. 1997 P1
Give three reasons why manufacturer may offer after sales services to his customers (3 marks)
6. 1997 P2
Outline five ways of attracting customers that traders may put into use. (10 marks)
7. 1998 P1
Outline four steps involved in personal selling process. (4 marks)
8. 1998 P2
Explain five benefits that a trader would get by advertising his goods through the radio. (10 marks)
9. 1999 P1
State four circumstances under which a trader would advertise his products over the radio instead of the television. (4 marks)
10. 1999 P2
Explain the reasons why the firms with popular products find it necessary to continually advertise the same products. (10 marks)
11. 2000 P1
Identify four disadvantages of advertising through television in Kenya. (4 marks)
12. 2000 P1
List four disadvantages of advertising through television in Kenya. (4 marks)
13. 2000 P2
A multinational company is planning to launch its products in the local Kenyan market. Highlight the factors that should be considered by the company when choosing the appropriate media through which to advertise the products. (10 marks)
14. 2001 P1
Highlight four limitations of after sales services as a method of promoting products.
15. 2001 P2
Explain the role of a sales department in a business firm (10 marks)
16. 2001 P2
What are the benefits accruing to a seller who uses personal selling methods to promote her products. (10 marks)
17. 2002 P1
Outline the advantages of after sales services as a method of sales promotion to a customer. (4 marks)
18. 2003 P1
Highlight three reasons why traders may engage in sales promotion. (3 marks)
19. 2004 P1
State four advantages of personal selling method of promoting sales. (4 marks)
20. 2004 P2
Advertising in the newspaper is one way of promoting sales of goods. Highlight five limitations of advertising goods in newspapers. (10 marks)
21. 2006 Q6 P1
What are the advantages of personal selling as a method of sales promotion? (4 marks)
22. 2007 Q4 P1
A firm wishes to introduce a new product into the market. Outline four factors that should be considered in choosing an appropriate medium for promotion.
23. 2008 Q15 P1
State four reasons why ethical practice is necessary in Product promotion (4 marks)
24. 2009 Q3 P1
Amboseli Enterprises has been spending heavily on promotion of its products though its sales have consistently declined. Outline four measurers that the company may take to reverse the trend. (4 marks)
25. 2012 Q22 P1
Highlight four advantages of promoting sales through the internet. (4 marks)
INSURANCE (12 LESSONS)
TOPICS / SUB-TOPICS OUTLINES
- Meaning and concept of insurance
- Importance of insurance
- Terms used in insurance
- Principles of insurance
- Classes of insurance
- Re-insurance and co-insurance
- Obtaining an insurance policy
- Making an insurance claim
- explain meaning and concept of insurance
- discuss the meaning and importance of insurance
- explain terms used in insurance
- explain the principles of insurance
- distinguish between the classes of insurance
- explain the meaning of reinsurance and coinsurance
- describe procedures of obtaining an insurance policy
- describe the procedure of making an insurance claim.
Definition of Insurance
Risks are also referred to as contingencies, hazards or perils and include:
- Fire outbreak
Importance of insurance
Every business enterprise is exposed to a variety of risks e.g. fire, theft etc. 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.
2. Investment projects
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.
3. Creation of employment
Insurance does provide employment opportunities to members of the public.
4. Government policy
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
5. Credit facilities
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.
6. Development of infrastructures
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
- Life policies can be used as security for loans from either the insurance company or other financial institutions.
- Provision of life and general insurance policies encourages Kenyans to plan ahead for their dependents thereby reducing the number of needy future students.
- Loss prevention-The insurance companies encourage the insured not to cause accidents thus channeling the unclaimed resources into the economy.
The Theory of Insurance
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.
- The fact that risks are geographically spread ensures that insurance does not have a concentration of risks in one particular area.
- The law of large numbers enables the insurance to accurately estimate the future probably losses and the number of people who are likely to apply for insurance. This is done in order to determine the appropriate premiums to be paid by the person taking out insurance.
Pooling of risks
Benefits of the “pooling of Risks” to insurance company
- Pooling of risks enables an insurance company to create a common pool of funds from the regular premiums from different risks.
- It enables the insurance company to compensate those who suffer loss when the risks occur
- The insurance company is able to spread risks over a large number of insured people
- Surplus funds can be invested in for example, giving out loans or buying shares in real estates
- It enables the insurance company to meet its operating costs by using the pool funds
- It enables the insurance company to calculate to be paid by each client
- It enables the company to re-insure itself with another insurance company.
Terms used in Insurance
This is a written contract that transfers to an insurer the financial responsibility for losses arising from insured risk.
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.
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.
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
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.
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.
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
These are people employed by an insurance company to complete expected losses and calculate the value of premiums.
This is a demand by the insured for payment from the insurer due to some loss arising from an insured risk.
This is a document that contains the terms and conditions of the contract between the insurer and the insured. It’s issued upon payment of the first premium.
Information contained in a policy includes;
- Name, address and occupation
- Policy number of the insured
- Details of risks insured
- Value of property insured
- Premiums payable
- Other special conditions of the insurance, for example nominees
This is the true value of the property insured
This is the value for which property is insured, as stated by the insured at the time of taking the policy.
This is the amount of money that is refunded to the insured by the insurer in case 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.
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.
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.
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 lump sum amount of money with an insurer in return for a guaranteed payment which will continue until he/she dies.
This is loss incurred by a business as a result of disruption of business in the event of the insured risk occurring.
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
These are people named in a life assurance policy who are to be paid by the insurer in the event of the insured
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
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:
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;
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)
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 etc.
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 etc.
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’ means insuring again. This is a situation where an insurance company insures itself with a bigger insurance company called re-insurer for all or part of the risks insured with it by members of the public
Re-insurance indirectly insure an individual’s 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
- Value of property - When the value of property is great, such as ship, the risk is too high to be borne by a single insurer
- High risk of loss - When chances of loss through the insured risks are high, it becomes necessary to re-insure.
- Number of risks covered - When the insurance company has insured many different risks, it would be too costly to compensate many claims at once, hence the need for re-insurance
- Need to spread the risk - When the insurance company wishes to share liability in the event of a major loss occurring
- Government policy - The government may make a legal requirement for an insurance company to re-insure
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
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
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
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:
- Examination of insurance market trends
- Correspondence between the insured and his clients
- Advising the insured and would be policy holders on the best policies for their property etc.
Principles of Insurance
- Help to determine whether a valid insurance contract exists between the two parties at the time claims are made.
- Provide checks and controls to ensure successful operations of insurance for the benefit of both the parties
The insurance principles include;
1. Insurable Interest
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.
3. Utmost good faith (uberrima fides)
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 with this may render the contract null and void hence no compensation.
- 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.
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.
5. Proximate cause
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.
- If a property is insured against fire then fire occurs and looters take advantage of the situation and steal some of the property, the insured will suffer loss from ‘theft’ which is a different risk from the one insured against, so he/she will not be compensated.
- 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
- Property (non-life) general insurance
- 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:
- Age; The higher the age the higher the premiums as the age factor increase the chances of occurrence of death.
- Health condition; A person with poor health i.e. sickly person pays higher premiums as opposed to one in good health.
- Exposure to health risks; the nature of a person’s occupation can make him susceptible to health problems and death.
- Whole life assurance - In whole life assurance, the assured pays regular premiums until he/she dies. The sum assured is payable to the beneficiaries upon the death of the assured. 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.
- Endowment 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 endowment policy)
Where the insured dies before maturity of contract, the beneficiaries are given these amounts.
Advantages of Endowment policies
- They are a form of saving by the insured, for future investments
- Premiums are payable over a specified period of time which can be determined to suit his/her needs e.g. retirement time
- Where the assured lives and time policy matures, he receives the value of sum assured.
- Policy can be used as security for loans from financial institutions.
Differences Between a whole life policy and an Endownment policy
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 dependents 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
- Term insurance- The insured here covers his life against death for a given time period e.g. 1yr, 5yrs etc. If the policyholder 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.
- 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.
- 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.
- Widows and children pension scheme (W.C.P.S)
Characteristics of life Assurance
- It is a cover for life until death or for a specified period of time
- It may be a saving plan
- It is normally a long term contract and does not require an annual renewal
- It has a surrender value
- It has a maturity date when the assured is paid the sum assured bonuses and interests.
- A life assurance policy can be assigned to beneficiaries
- The policy can be any amount depending on the assureds’ financial ability to pay premiums
- The policy can be used as security for a loan
1. General insurance (property insurance)
General insurance is usually divided into;
- Fire insurance/department
- Accident insurance/department
- Marine insurance/department
- 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
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.
Personal accident policy
- Injury to the person
- Partial or total physical disability as a result of the injury
- Loss of income as a result of death
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.
Cash and / or Goods in Transit policies
E.g. Goods and cash moved from business to the markets, from suppliers to business etc.
Burglary and Theft policies
Burglary policies are enforceable only if the insured has met the specified safety and precautionary measures for protection of the insured items.
- 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.
Fidelity Guarantee policies
- 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
Workmen’s compensation (Employer’s Accident liability)
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.
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 up to an agreed maximum
This policy covers firms against losses that might result from debtor’s failure to pay their debts.
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 etc.
Types of Marine Insurance policies
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.
- Voyage policy - Here cargo and ship are insured for a specific voyage/journey. The policy terminates automatically once the ship reaches the destination.
- Time policy - Here insurance is taken to cover losses that may occur within a specified period of time, irrespective of the voyage taken
- Fleet policy - This covers a fleet of ships, i.e. several ships belonging to one person, under one policy.
- Floating policy - This policy covers losses that may occur on a particular route, covering all the ships insured along that route for a specified period
- Mixed policy - This policy provides insurance for the ship and cargo on specified voyages and for a particular period of time. No compensation can be made if the ship was on a voyage different from the ones specified even if time has not expired
- Composite policy - This is where several insurance companies have insured one policy of a particular ship especially when the sum insured is too large to be adequately covered by one insurer.
- Construction policy/builders policy - This covers risks that a ship is exposed to while it is either being constructed, tested or being delivered.
- Freight policy - This is an insurance cover taken by the owner of the ship for compensation against failure to pay hiring charges by a hirer of the ship.
- Third parties liability - This is an insurance policy taken by the owner of the ship to cover claims that might arise from damage caused to other people’s property.
Description of marine losses
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.
- General average - This is a loss that occurs as a result of some of the cargo being thrown into the sea deliberately to save the ship and the rest of the cargo from sinking. The losses made are shared by the ship owners and the cargo owners proportionately as the effort was in the interest of both.
- Particular average - This occurs where there is a partial but accidental loss to either the ship or the cargo. When this happens each of the affected party is solidly responsible for the loss that has occurred to his property. A claim can, however be made if the loss incurred amounts to more than 3% of the value insured.
In order to claim for compensation as a result of loss by fire, the following conditions must be fulfilled;
- Fire must be accidental
- Fire must be immediate cause of loss
- There must be actual fire.
Consequential loss policy; (profit interruption policy)
It is offered to protect future earnings of an enterprise after fire damage.
- Sprinkler leakage policy - This provides cover against loss or damage caused to goods or premises by accidental leakages from firefighting sprinklers
- Fire and Related perils policy - This covers buildings which include factories, warehouses, shops, offices and their contents. The policy does not cover loss of profit arising from fire damage.
Characteristics of General Insurance
- It’s a contract of indemnity
- It cannot be assigned even to ones relatives
- The insured must have an insurable interest in the property to be insured
- Premiums charged depends on the degree of risk, the higher the premium charged.
- Compensation for loss can only be up to a maximum of the value of the insured property or the sum insured in case of under insurance.
- It has no surrender value
- It’s normally a short term contract which can be renewed periodically, usually after one year.
Factors to be considered when Determining Premiums to be charged
- Health of the person
- Frequency of occurrence of previous losses
- Extent of the previous losses
- Value of the property insured
- Occupation of the insured
- Age of the person or of the property in question
- Location of the insured(address and geographical location)
- Period to be covered by the policy
- Residence of the insured.
Procedure for taking a policy
- Filling a proposal form
- Calculation of the premium to be paid
- Issuing of cover note (Binder)
- Issuing of the policy
Procedure of claiming compensation
- Notification to the insurer - The insurer has to be notified about the occurrence of any incident immediately.
- Filling a claim form - The insurer provides the insured with a claim form which he fills to give details of the risk that has occurred
- Investigation of the claim - The insurer arranges to investigate the cause of the incident and to assess the extent of the loss incurred. The insurer is then able to establish whether the insured is to be compensated and if so, for how much.
- Payment of claim - On receipt of the report of the assessor, the insurer pays the due compensation to the insured. (Payment of the compensation shows that both the insurer and the insured have agreed on the extent of the loss and the payment is the settlement of the claim)
Insurance and Gambling
insurance questions on topic
Describe the procedures that should be followed when taking an insurance policy. (10 marks)
2. 1996 P2
Explain four ways in which the insurance industry promotes the growth of business enterprises. (5 marks)
3. 1997 P2
Explain four ways in which the insurance industry contributes to the development of Kenya’s economy. (10 marks)
4. 1998 P2
Discuss various insurance policies under which an insurance company would not compensate the insured in the event of the loss. (10 marks)
5. 1999 P2
Discuss various insurance policies that the owner of a supermarket may find it useful for the business. (12 marks)
6. 2000 P2
Explain four benefits of the ‘pooling of risks’ to an insurance company. (8 marks)
7. 2001 P2
Explain the factors that may make it necessary for an insurance company re-ensure.
8. 2002 P2
Explain the meaning of the following terms as used in insurance (10 marks)
i) Uberrimae fidei
iii) Third party motor vehicle insurance
9. 2003 P2
Discuss four circumstances under which an insurance contract may be terminated. (8 marks)
10. 2004 P2
Explain five benefits that could be enjoyed by a person who decided to take out an endowment policy. (10 marks)
11. 2006 Q2 P1
Outline four risks against which a shopkeeper may insure. (4 marks)
12. 2007 Q3 P1
Outline three features of a Re – insurance company
13. 2008 Q22 P1
Elephant Enterprises acquired a building valued at sh 1 000 000 on 1 January 2007. The building was insured with two insurance Companies. Zebra and Simba for sh. 600 000 and Sh.400 000 respectively. In May 2007, fire damaged the building, causing Elephant Enterprises to suffer a loss of 20% of the building value. Determine contribution made by Simba and Zebra to cover the loss. (4 marks)
14. 2009 Q25 P1
KAMAT owned a motor vehicle, valued at sh 1,000,000. He comprehensively insured the car at Sh 800,000. The motor vehicle was involved in an accident and declared a write off. Calculate the amount KAMAT should get from the insurer. (4 marks)
15. 2010 Q11 P1
Outline four differences between insurance and assurance. (4 marks)
16. 2012 Q4a P2
(a) Explain five characteristics of property insurance. (10 marks)
warehousing - kcse business studies notes, objectives, syllabus, schemes of work, questions, answers and more
Q & A
WAREHOUSING (6 LESSONS)
By the end of the topic, the learner should be able to:
- explain the meaning and importance of ware housing to business
- discuss the essentials of a warehouse
- identify the various types of warehouse
- explain the advantages and disadvantages of each type of warehouse.
TOPICS / SUB-TOPIC BREAKDOWN
- Meaning and importance of warehousing
- Essentials of a warehouse
- Types of warehouses
- Advantages and disadvantages of each type of warehouse
A warehouse is a building for storing goods and services until the need for them arises. A warehouse is also usually referred to as a go down, silo or depot.
Warehousing is the process and the systems for relieving goods, protecting them against all types of hazards and ensuring their availability to those who need them. Therefore, it involves three main processes:
- Receiving goods into a warehouse;
- Storing them
- Releasing them to the users.
Importance of Warehousing to Business
- It enables a steady flow of goods into the market as the producers store their commodities and regulating their supply as needs arise;
- It stabilizes the prices by reducing the supply of goods when the market is faced with surplus and increasing the supply whenever there is shortage;
- It protects the goods from adverse weather conditions thereby upholding their quality until they are sold;
- It facilitates the bridging of time between when the goods are manufactured and when they are demanded. This is especially so for goods with seasonal demands;
- It acts as a reserve that can meet a sudden unexpected demand, for instance cereals can be stored in a warehouse just in case a draught strikes;
- It enables ample time and opportunity for such practices like blending, branding, packaging, grading and sorting out of goods before they are sold.
- Warehousing ensures that goods are protected from loss through theft or pilferage;
- It enables buyers to inspect the goods before they buy them;
- Warehousing allows time for some goods to ripen or mature before they are sold, for instance ripe bananas or tobacco leaves;
- It encourages specialization in production and distribution. Producers concentrate on producing while distributors store the goods for sale to the consumers;
- By allowing manufacturers to buy raw materials in bulk as they await their needs to arise, warehousing ensures a continuous production schedule;
- It allows importance ample time to look for a market.
Essentials of a warehouse
- Proper buildings suitable to house various types of goods;
- They should be conveniently located to enhance accessibility by the users;
- Proximity to a good transport network system to ensure smooth movement of goods in and out;
- The warehouse should be equipped with appropriate protection equipment to keep the goods safe from water, sunshine, human animals, excess heat and such factors;
- It should be spacious enough to enable both storage of goods and movement of goods and personnel;
- It should be equipped with proper facilities for handling goods like forklifts and an necessary working materials and tools to facilitate operation;
- It should be equipped with adequate facilities to care for goods for instance coldroom facilitates for perishable goods;
- It should be manned by well trained staff for efficient delivery of services;
- The warehouse should be equipped with an efficient communication network.
- A warehouse should conform to the law of the land.
- It should have proper recording system to monitor movement of goods.
Types of Warehouses
I. Warehouse Types Based on Ownership
These warehouses are owned by individuals for storing goods. They include:
- Wholesalers warehouse – they enable the wholesalers to buy goods from the producers in bulk and prepare them so that they will be ready whenever the retailers need them;
- Producer’s warehouses – they store producer’s goods before the goods are released to the market. They are most conveniently located near the producers or their clients.
- Retailers – they are commonly owned by some large scale retailers like the chain store and supermarkets to suit the purchase of goods in large quantities and sell them gradually.
Advantages of private warehouses
- They enable the manufacturers more control over the manufacturing operations. They enable for instance coordination between the manufacturing process and delivery to the market
- They are usually flexible enough to adapt to the different requirements for different goods by offering special facilities not accessible in public warehouses;
- The owner can custom make the warehouse to suite any need;
- The owner does not incur the cost of hiring space unlike in public warehouse;
- Decision making is independent and therefore quick since the owner does not have to consult;
- The owner is not ted down by procedures of receiving and issuing the goods unlike in public warehouses;
Disadvantages of public warehouses
- When there is low volumes the resources may become underutilized;
- High initial cost of production;
- The owners may suffer some problems associated worth small scale firms like lack of enough funds to employ adequately qualified personnel.
The term public implies that these warehouses can be used any member of the public to store his/her goods whereby the owners of the premises lend parts or the entire warehouse to any individual. To enhance versatility and suitability, the owners site the warehouses strategically near ports. This is because they are most commonly used by importers or exporters.
Many public warehouses offer some additional services like packaging, clerical services, market reports, preparing export samples and insuring the goods. Ownership of the goods in the warehouse is usually proved and transferred from one owner to another through a document known as a warehouse warrant. This enables the owner of the goods to sell goods in the warehouse without having to physically transfer them from one place to another.
Advantages of Public Warehouse
- Public warehouses enable various small scale owners of goods to come together and sell their commodities together thus enjoying the economies of scale;
- The owner does not have to construct his/her own warehouse;
- Very convenient to traders since the goods can be sold while still in the warehouse;
- Goods are insured against some risk like damage by fire and theft;
- Traders can rent space to store their goods;
- The warehouse can offer additional services;
- The trader can access short term loans with the goods in the warehouse as collateral.
- The goods in the warehouse can be used as a collateral for a loan;
Disadvantages of Public warehouse
- Hiring space can eventually be more costly than constructing premises in the long run;
- Space allocation is not a guarantee, it depends on availability;
- The hirer may lose customer contact since they purchase directly from the premises;
- The presence of other suppliers in the warehouse brings in some competition;
- The presence of several hirers may lead to a complication and prolonged documentation and receipting process;
- Inconveniences emanate from the distant location of the warehouse from the hirer’s presence;
ii. Warehouse Types Based on Goods Stored
They store imported goods prior to payment of the duties. The warehouse owner’s offers cash guarantee to assure that the goods will not be released before clearing the duties. Goods under transit to another country may not attract duties, including those that are packaged outside the warehouse. The goods may be sold inside the warehouse and the new owner undertakes the payment of the taxes. Once cleared, the owner is issued with a warrant of release.
Features of Bonded Warehouses
- Goods can be sold while inside the warehouse;
- Goods are released only upon production of the warrant of release;
- Storage charges are made on all the goods under storage;
- Goods can be bonded till custom duty is paid;
- Goods can be inspected or prepared for sale while still in the warehouse;
- Goods can be re-exported while in the warehouse.
Advantages of using Bonded Warehouses to the importer
- Relieves the importer the burden of securing the goods;
- Some goods lose weight while in the warehouse an advantage to those whose amount of tax depends on the weight;
- It offers an opportunity to prepare the goods for sale;
- Some goods improve in quality while in the warehouse due to maturation duration;
- The importer transfers the burden of paying the duty onto a buyer who buys the goods while still in the warehouse;
- The importer can look for the market of the goods even before paying the tax.
Disadvantages of using Bonded Warehouses
- The importer pays rent for the space of goods;
- In case the importer fails to pay the duty, the custom authorities may be auction the goods;
- Withdrawing goods from the warehouse in bits ends up with a higher total tax than a one off fee.
Goods in these types of warehouses are not under the control of the custom authorities. The goods do not have any pending tax. These include locally manufactured goods or imported goods whose duty has been cleared.
Advantages of Free Warehouse
- Cheaper than bonded warehouse since no duties charges;
- Goods do not risk auctioning since there are no taxes charged;
- The warehouses are usually conveniently located for the goods’ owners;
- Release of goods cannot be not delayed by complicated protocols of having to produce signed release warrants
Disadvantages of Free Warehouse
- Inspection of goods is relaxed and therefore it is susceptible to habour illegal goods;
- The storing activity does not earn the government any revenue since no tax is paid;
- Hoarding of goods can occur in these uninspected warehouses.
Current Trends and Emerging Issues in Warehouses
- Computerised monitoring systems are tracking the goods inside and outside the warehouses;
- Conveyor belts and other mechanisms are replacing manual movement of goods in the warehouses;
- Newer designs with improved storage capacities are coming up;
- Better storage facilities like the use of racks is being employed in the warehouses;
warehousing kcse questions and answers
Outline four features of a bonded warehouse (4 marks)
2. 1995 P2
Explain five ways in which warehousing facilitates trade.
3. 1996 P1
Highlight four ways in which a warehouse is useful to a trader. (4 marks)
4. 1997 P1
List three advantages of warehousing to a manufacturer. (3 marks)
5. 1997 P2
Lobo Traders intends to consult a warehouse. Explain five measures that
Lobo would take to ensure smooth functioning of the warehouse
6. 1998 P1
Outline four benefits that consumers get from a warehousing (4 marks)
7. 1999 P1
Outline four factors that a trader would consider in locating a warehouse. (4 marks)
8. 2000 P1
State four benefits that a government gets from a bonded warehouse. (4 marks)
9. 2000 P2
In what ways does warehousing facilitate trade in a country?
10. 2001 P1
State four features of a bonded warehouse (5 marks)
11. 2002 P1
State four advantages of public warehouse to retailers. (4 marks)
12. 2003 P1
The table below contains descriptions relating to some types of warehouse. In the space provided, write the type of warehouse to which each description refers.
In which four ways are consumers likely to suffer in a situation where there is no warehousing?
14. 2007 Q13 P1
Outline four benefits to a business that uses its own warehouse. (4 marks)
15. 2007 Q6a P2
a) Explain five features that you would consider in establishing a warehouse for imported goods. (10 marks)
16. 2008 Q3 P1
State four ways in which a warehouse is of importance to a manufacturer. (4 marks)
17. 2010 Q3 P1
Name the types of warehouses associated with each of the statements given below: (4 marks)
Outline four conditions under conditions under which a warehouse may be considered to operating efficiently. (4 marks)