INVESTMENT MODES: MUDARABA, MUDHARAKA, BAI-SALAM AND ISTISNA’A

 Investment:

Investment is the action of Deploying Funds with the intention and expectation that they will earn a positive return for the owner.  Funds may be invested in either real assets or financial assets. When resources are spent to purchase fixed and real assets. For example, the establishment of a factory or the purchase of raw materials and machinery for production purposes.  On the other hand, the purchase of a legal right to receive income in the form of capital gains or dividends would be indicative of financial investment. Specific example of financial investment are, deposits of money in a bank account, the purchase of Mudaraba bonds.

 There are different modes of investment under the Islamic Shari’ah which can be classified into three categories:

1.  Trading or Baimode (Bai-Muazzal, Bai-Murabaha, Bai-Salam, Istisna’a)

2.  Partnership or Share mode (Mudaraba, Musharaka)

3.  Leasing/Izara mode (Hire purchase, Izara-Bil-Baia, Leasing) 

Bai Murabaha mode of investment:

The term “Bai-Murabaha” have been derive from Arabic words ‘Bai’ and ‘Ribhun’. The word ‘Bai’ means purchase and sale and the word ‘ribhun’ means an agreed upon profit. ‘Bai-Murabaha’ means sale on agreed upon profit.

Bai-Murabaha may be define as a contract between a Buyer and Seller Under which the seller sells certain specific goods permissible under Islamic shariah and the Law of land to the Buyer at a cost plus agreed profit payable in cash or on any fixed future date in limp sum or by installments.

 Important Features of Bai-Murabaha:

1. To offer an order by the client to the bank.
2. To make the promise binding upon the client to prophase from the bank and also to indemnity the damages caused by breaking the promise.
3. To take security in the form of cash/kind/collaterals.
4. To document the debts resulting from Bai-Murabaha.
5. Stock and availability of goods is a basic conditi9on.
6. Bank must bear the risk until delivery of goods to the client.
7. Bank may sell it at a higher price.
8. Price once fixed cannot be changed.

 Bai-Muajjal mode of investment: the term ‘Bai’ and the ‘Muajjal’ have been derive from Arabic words ‘Bai’ and ‘Ajalu’. The word ‘Bai’ means purchase and sale and the word ‘Ajalu’ means a fixed time or fixed period. ‘Bai-muajjal’ means sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on credit.

Bai Muajjal may be defined as a contract between a buyer and a seller under which the seller sells certain goods permissible under Islamic Sharia and the Law of the country to the buyer at an agreed fixed price payable at a certain fixed future date in lump sum or within a fixed period by fixed installment. The seller may also sell goods purchase by himas per order and specification of the buyer.

 Important Features of Bai-Muajjal:

1. It is permissible for the client to offer an order to purchase by the Bank particula goods deciding its specification and committing himself to buy the same from the bank on Bai-muajjal i.e. deffered payment sale at fixed price.
2. It is permissible to make the promise binding upon the client to purchase from the Bank, that is, he is either satisfy the promise or to identify the damages caused by breaking the promise without excuse.
3. It is permissible to take cash/collateral security to Guarantee the implementation of the promise or to identify the damages.
4. It is also permissible to document the debt resulting from Bai-Muajjal bu a Guarantor, or a mortgage.
5. Stocks and availability of goods is a basic condition for signing a Bai-Muajjal Agreement. Therefore, the Bank must purchase the goods as per specification of the Client of goods to acquire ownership of the same before signing the Bai-Muajjal Agreement with the client.
6. After purchase of goods the Bank bust bear the risk of goods until those are actually delivered to the Client.
7. The Bank must deliver the specified goods to the Client on specific date and at specific place of delivery as per Contract.
8. The Bank may sell the goods at a higher price than the purchase price to earn profit.
9. The price once fixed as per agreement and deferred cannot be further increased.
10. The Bank may sell the goods at one agreed price which will include both the cost price and the profit. Unlike Bai-Murabaha, the Bank may not disclose the cost price and the profit mark-up separately to the Client.

 Diference between Murabaha and Bai-Muazzal: 

Murabaha	Bai-Muazzal
1. Bank sell it at a higher price an spot payment or as any future date.	1. Bank sell it at a higher price but payment will be deffered.
2. Bank must bear the risk until delivery of goods to the client.	2. Client bear the risk of goods as the Possession of goods are in party control.
3. Possession  of goods under bank’s control.	3. Possession  of goods under party’s control.
4. Cost of the goods sold and the amount of profit should be mentioned in the Murabha Agreement.	4In Bai-Muazzal mode any selling price of goods should be mentioned in the Bai-Muazzal agreement i,e.
5. Pledge of goods by the bank.	5. Goods to be hypothecated  by the bank.

 MUDARABA

 Definition of Mudaraba:

Mudaraba is a partnership in profit whereby one party provides capital and the other party provides skill and labour. The provider of capital is called “Shahib al-maal” while the provider of skill and labour is called “Mudarib”.

 Types of Mudaraba:

Mudaraba Contracts are generally divided as under:

1. Unrestricted Mudaraba and
2. Restricted Mudaraba

 Unrestricted Mudaraba:

Unrestricted Mudaraba may be defined as a contract in which the Shahib al-maal permits the Mudarib to administer the Mudaraba fund without any restriction.

 Restricted Mudaraba:

Restricted Mudaraba may be defined as a contract in which the Shahib al-maal restricts the actions of the Mudarib to a specified period or to a particular location or to a particular type of business.

 Terms and elements of Mudaraba:

* Contracting Parties

There are two contracting parties in Mudaraba:

        1.      The provider of the capital i.e. ‘Shahib al-maal’ and

        2.      The Mudarib.

* Capital

Capital is the amount of money given by the provider of funds i.e. Shahib al-maal to the Mudarib with the purpose of investing it in the Mudaraba business.

 * Profit & Loss:

Profit should be for both Shahib al-maal and Mudarib as per agreed ratio. Loss should be borne by the Shahib al-maal.

 The main features of Mudaraba:

a)There should be two parties: Shahib al-maal (financer/Investor) and businessman is Mudarib (Who provides skill and labour).

b)There should be written agreement/contract between the Bank and the businessman which includes nature of business, period/time, sharing of profit etc.

c) Bank will finance and the businessman will run the business by providing his labour & skill.

d)  The Bank will not interfere in the business.

e) The businessman will appoint employee(s) and he will run the business independently.

f) The Shahib al-maal /Financier/Investor reserves the right to check/verify the accounts of the business at any time.

 MUSHARAKA

 Definition of Musharaka:

Musharaka is a contract of partnership between two or more parties in which all the partners contribute capital, participate in the management, share the profit in proportion to their capital or as per pre-agreed ratio and bear the loss, if any, in proportion to their capital/equity ratio.

 Types of Musharaka:

In the context of Islamic Banking financing, Musharaka may be of two types:

1. Permanent Musharaka
2. Diminishing Musharaka

Permanent Musharaka:

Permanent Musharaka may be defined as contract of partnership business between the Islamic Bank and its clients in which the Bank participates in the equity and share the profit at a pre-agreed ratio or bear the loss, if any, in proportion to the ratio of capital/equity where termination period of the contract is not specified. This is also called continued Musharaka.

 Diminishing Musharaka:

Diminishing Musharaka is a special form of partnership in which one of the partners promises to buy the share of the other partner gradually until the title to the equity is completely transferred to him.

 Contracting Parties:

There are two or more contracting parties known as partners. It is a condition that all the partners should be competent to give or be given power of attorney.

 Capital:

Capital contributed by the partners may be in the equal or unequal and in the form of cash or cash equivalent, goods & commodities, assets or properties etc.

 Distribution of Profit:

Profit should be distributed among the partners as per their ratio of capital or as per agreement.

 Distribution of Loss:

The loss, if incurred in the business, shall be borne by the partners exactly according to the ratio of their respective capital.

 Some Important Features of Musharaka:

1. Capital should be specific
2. Equal share is not a must
3. Nature of capital may be money or valuables
4. Active participation of partners
5. Ratio of profit prefixed
6. Variation in share of profit permissible
7. Participation and sharing profit & loss
8. Partners retains the ownership and right to management

 Difference between Mudaraba and Musharaka: 

Mudaraba	Musharaka
1. The capital in mudaraba is the sole responsibility of Shahib al-maal.	1. In Musharaka it comes from all the partners.
2. In Mudaraba, the Shaheb al-maal has no right to participate in the managemant which is carried out by the Mudarib only.	2. In Musharaka, all the partners can participate in the management of the business and can work for it.
In Mudaraba the loss, if any is suffered by the Shahib al-maal only, because the Mudarib does not invest anything. His loss is his labour and skill.	3. In Musharaka, all the partners share the loss to the extent of the ratio of their investment.

 BAI-SALAM

 Meaning:

Bai-Salam is a combination of two Arabic words Bai and Salam. Bai refers to Purchase and Sale while Salam means Advance. Payment of Bai-Salam transaction is made in advance. It is a form of sale on delayed terms in which the money may be paid first and the goods delivered at a later date.

 Definition:

Bai-Salam is sale whereby the seller undertakes to supply some specific goods to the buyer at a future date in exchange for an advanced price fully paid on the spot.

Bai-Salam may be defined as a contract between a Buyer and a Seller under which the Seller sells in advance the certain goods permissible under Islamic Shari’ah and the law of the land to the Buyer at an agreed price payable on execution of the said contract and the goods is/are delivered as per specification, size, quality at a future time in a particular place.

 The components of Bai-Salam:

The components of Bai-Salam contract are:

·  The contract parties i.e. Seller and Buyer

·  The price and the merchandise

·  The specifications of the contract.

 Important features of Bai-Salam:

a) A commodity /product sold without having the same in existence or possession of the seller. Commodity ready for sale, Bai-Salam is not allowed in Shariah.

b) Generally to meet instant need of the seller so that production is not hampered due to shortage of fund/cash and as such. Industrial and agricultural products are purchased/sold in advance under Bai-salam.

c) Permissible to obtain collateral security from the seller to secure the investment from any hazards (non supply, partial supply, low quality).

d) Permissible to obtain mortgage / or personal guarantee from a third party before or at the time of signing the agreement.

e) Bai-Salam on a particular commodity/product or on a product of a particular field or farm cannot be effected (Agri. Product only).

f) Bai-Salam is not permissible for any ready goods/products.

g) Unit price and total price of the goods must be fixed and mentioned in the contract.

h)  The exact time and place of delivery must be specified.

 ISTISNA’A

 Meaning:

The word Istisna’a has been derived from a Arabic word which means Industry. Istisna’a means to purchase specific product(s) by placing order to a manufacturer or to sale specific product(s) after having the same manufactured against order of a buyer.

Definition:

Istisna’a is a contract between a manufacturer/seller and a buyer under which the manufacturer/seller sells specific product(s) after having manufactured, permissible under Islamic Shari’ah and Law of the Country after having manufactured at an agreed price payable in advance or by instalments within a fixed period or on/within a fixed future date on the basis of the order placed by the buyer.

In short, it is a contract with a manufacturer to make something.

Features of Bai-Istisna’a:

a) Istisna’a contract is another exceptional method where by commodities are bought and sold without existence of it.

b) Delivery of goods is deferred and payment may also be delayed. Advance payment/ spot payment like Bai-Salam is not necessary. However payment may be made in advance or by installments.

c) Sometimes advance payment against the goods is being paid to meet the production cost.

d) Buyer gets the opportunity to make payment within the stipulated date in future or by installments.

e) If the production of the commodity started or part payment is made, none of them can revoke the contract.

f) If the product(s) are ready for sale, Istisna’a is not allowed in Shari’ah.

g) It gives the buyer opportunity to pay the price in some future dates or by installments.

h) Istisna’a is specially practised in Manufacturing and Industrial sectors. However, it can be practised in agricultural and constructions sectors also.

 Diference between Istisna’a and Bai-Salam: 

Istisna’a	Bai-Salam
1. The subject of istisna’a is always a thing which needs manufacturing.	1. Bai-Salam can be effected on anything, no matter whether it needs manufaturing or not.
2. It is not necessary in Istisna’a that the price is paid in full in advance.	2. It is necessary in Bai-Salam that the price is paid in full in advance.
3. The contract of Istisna’a can be cancelled before the manufacturer starts the work.	3. The contract of Bai-Salam, once effected, can not be cancelled unilaterally.
4. It is not necessary in Istisna’a that the time of delivery is fixed.	4. The time of delivery is an essential part of the sale in Bai-Salam.

 

 

7p’s in Detail

 a.      Products: The product is the most important aspect of the marketing mix. Products have both tangible and intangible benefits. Tangible benefits include benefits, which can be measured such as the top speed of a car. Intangible benefits are benefits that cannot be measured such as the enjoyment the customer will get from the product. It is important that the product is changed as necessary to bring it up to date and prevent it from being overtaken by competitors.

1. Exactly what product or service are you going to sell to this market? Define it in terms of what it does for your customer. How does it help your customer to achieve, avoid or preserve something? You must be clear about the benefit you offer and how the customer’s life or work will be improved if he or she buys what you sell.

The term “product” refers to tangible, physical products as well as services. Here are some examples of the product decisions to be made:

  Variety

  Quality

  Design

  Features

  Brand name

  Packaging

  Services

  Sizes

  Warranties

  Returns

1. b.  Price: It is very important that the correct price is charged for a product. If the price is too high consumers will avoid the product as they will believe it to be too expensive yet if the product is priced too low they may believe that there is something wrong with the product for it to be so cheap. Also if the company charges too low a price, it may not cover its costs. There are many different pricing strategies that companies can use to decide on a price for their product including market and psychological pricing methods.

 Exactly how much are you going to charge for your product or service, and on what basis? How are you going to price it to sell at retail? How are you going to sell it at wholesale? How are you going to charge for volume discounts? Is your price correct based on your costs and the prices of your competitors?

Some examples of pricing decisions to be made include:

  Pricing strategy (Skim, penetration, etc.)

  Suggested retail price

  Volume discounts and wholesale pricing

  Cash and early payment discounts/ bonus

  Seasonal pricing

  Bundling

  Price flexibility

  Price discrimination.

1. c.  Place :  The place is where you can expect to find your customer and consequently, where the sale is realized. Knowing this place, you have to look for a distribution channel in order to reach your customer.

The place is not where is located your business but where our customers are. For a retailer it is the same but for a boat producer located in Philippines the real place is the entire world. Do not confuse positioning and place. Here place means the real physical position of the customer in a geographic area or along a distribution channel. Distribution is about getting the products to the customer. Some examples of distribution decisions include:

  Distribution channels

  Market coverage (inclusive, selective, or exclusive distribution)

  Specific channel members

  Inventory management

  Intermediaries

  Distribution centers

  Order processing

  Transactions

  Reverse logistics

 In consumer marketing channels, we have to consider three main distribution channels:

  Selling to the customer

  Selling to the retailer

  Selling to the wholesalers

1. d.    Promotion: In the context of the marketing mix, promotion represents the various aspects of marketing communication, that is, the communication of information about the product with the goal of generating a positive customer response. Marketing communication decisions include:

  Promotional strategy (push, pull, etc.)

  Advertising

  Personal selling & sales force

  Sales promotions

  Public relations & publicity

  Marketing communications budget

However, the strategies for the four P’s require some modifications when applied to services. For example, traditionally promotion is thought of as involving decisions related to sales, advertising, sales promotions and publicity. In services these factors are also important, but because services are produced and consumed simultaneously, service delivery people are involved in real-time promotion of the service even if their jobs are typically defined in terms of the operational function they perform.

1. e.   People: All human action that plays a part in reference and information services delivery namely the liberating personnel.

1. f.  Process: Process means, the procedure mechanisms and flow of the activity by which the reference and information service are acquired.

1. g. Physical Evidence: Physical environment means, the environment in which the reference and information service are delivered that performance and communication of the service.

Decision Making Unit

 The decision Making Unit (DMU) is a collection or team of individuals who participate in a buyer decision process. Generally DMU relates to business or organizational buying decisions rather than to those of a family for example. There are a number of key players in this process namely the initiators, the gatekeepers, the buyers, the deciders, the users and the influencers. Let’s consider these individually prior to applying the decision making unit to an example of organizational buying.

Buzz Marketing

 Buzz marketing is a viral marketing technique that attempts to make each encounter with a consumer appear to be a unique, spontaneous personal exchange of information instead of a calculated marketing pitch choreographed by a professional advertiser. Historically, buzz marketing campaigns have been designed to be very theatrical in nature. The advertiser reveals information about the product or service to only a few "knowing" people in the target audience. By purposely seeking out one-on-one conversations with those who heavily influence their peers, buzz marketers create a sophisticated word-of-mouth campaign where consumers are flattered to be included in the elite group of those "in the know" and willingly spread the word to their friends and colleagues.

       Although buzz marketing is not new, Internet technology has changed the way it's being used. Buzz campaigns are now being initiated in chat rooms, where marketing representatives assume an identity appropriate to their target audience and pitch their product. Personal Web logs (blogs) are another popular media for electronic buzz marketing campaigns; advertisers seek out authors of the "right kind of blog" and trade product or currency for promotion. Instant messaging (IM) applications are also being looked at as a vehicle for carrying out buzz marketing campaigns with either humans or IM bots doing the pitching. As with all buzz campaigns, the power of the IM model relies on the influence an individual has in an established small network -- in this case, his buddy list. As technology continues to facilitate the delivery of a electronic buzz marketing message easier, and software applications make message deliveries easier to quantify, some advertising experts predict that electronic buzz marketing techniques will become a standard component in all cross-media advertising campaigns. Others warn that abuse of this potentially powerful electronic marketing technique will be its downfall. 

Emotional labor

 Emotional labor or emotion work is a requirement of a job that employees display required emotions toward customers or others.^[1] Example professions that require emotional labor are: nurses,^[2] doctors,^[3] waiting staff,^[4] and television actors.^[5] However, as particular economies move from a manufacturing to a service-based economy, many more workers in a variety of occupational fields are expected to manage their emotions according to employer demands when compared to sixty years ago.

The sociologist Arlie Hochschild provides the first definition of emotional labor, which is a form of emotion regulation that creates a publicly visible facial and bodily display within the workplace

According to Hochschild (1983), jobs involving emotional labor are defined as those that:

1. require face-to-face or voice-to-voice contact with the public.
2. require the worker to produce an emotional state in another person.
3. allow the employer, through training and supervision, to exercise a degree of control over the emotional activities of employees.^[7]

Hochschild (1983) argues that within this commodification process, service workers are estranged from their own feelings in the workplace.^[1]

Customer delightness

 Customer Delightness is surprising a customer by exceeding his/her expectations and thus creating a positive emotional reaction. This emotional reaction leads to Word of Mouth. Customer Delight directly affects sales and profitability of a company as it helps to distinguish the company and it’s products and services from the competition.^[1][2] In the past customer satisfaction has been seen as a key performance indicator. Customer satisfaction measures the extent to which the expectations of a customer are met (compared to expectations being exceeded). However, it has been discovered that mere customer satisfaction does not create brand loyalty nor does it encourage positive word of mouth.

Customer Delight can be created by the product itself, by accompanied standard services and by interaction with people at the front line. The interaction is the greatest source of opportunities to create delight as it can be personalized and tailored to the specific needs and wishes of the customer.^[3] During contacts with touch points in the company, more than just customer service can be delivered. The person at the front line can surprise by showing a sincere personal interest in the customer, offer small attentions that might please or find a solution specific to particular needs. Those front line employees are able to develop a relationship between the customer and the brand. Elements in creating motivated staff are: recruiting the right people, motivating them continuously and leading them in a clear way.^[4][5]

Telephone vs. Internet Banking

 Several people I know have expressed concerns recently over Internet banking. The news and other media are always running stories on how insecure the Internet is, but lets not forget that it beats the other methods of remote banking by a long shot.

Telephone banking, an alternative considered safer by many, is far from that. When using an Internet Banking site, your communications are encrypted with a strong symmetric encryption key, negotiated between the bank server and your web browser based on SSL (Secure Sockets Layer). Typically 128-bit keys are used, which are sufficiently secure to resist attack given today’s average computing power.

On the phone, however, there is no security at all. In many cases, operators, engineers and telephone hackers can listen in on any call they choose, alter the contents, and replay the calls at a later date. SSL-based Internet transactions are protected from such attacks by the implementation of SSL itself, but telephone banking is considerably less secure.

Perhaps, instead of scaring the world with stories of security lapses, thousands of credit card numbers being released and similar, it would be useful to show just how much Internet Banking has added to the security of transactions, and how banks fare online every single day, resisting attack from countless adversaries.

Maybe then, people would be less afraid of the Internet, and learn of the true dangers; sending bank details by e-mail, phishing attempts which involve requesting private information through unauthorised channels.

Security as a whole would be improved by reducing the scaremongering and emphasising what really matters!

Mobile Banking vs Online banking

 Mobile Banking

·         Mobile banking is just starting to arrive as an option to handle your finances. There are two types of transactions, a push transaction and a pull transaction.

·         A pull transaction is where the member initiates the transaction. One requests their balance, a funds transfer, or a transaction history request. The pull transaction is a two way notification, with a request from the member and a response from the financial institution. The push transaction is a one way notification, from the financial institution to the member.

·         Mobile banking can be used anywhere you take your device. Depending on what type of device is used, the options available to the member vary. Take a look at these:

·         First, there is the Interactive Voice Response (IVR) system that can be used on any phone, even if it is not a mobile phone. It is the automated system you find when dialing the bank’s phone number. You can press a certain prompt for the option you want, and it navigates the menu to arrive at the final page. There are few items that can be accessed through this feature.

·         Second, there is Short Message Service (SMS). Essentially, text messaging. SMS is capable of handling both push and pull transactions. It also works on almost all mobile devices, and is cost effective. But a few drawbacks are limited in the number of characters in the message and are generically generated.

·         Third, there is the Wireless Application Protocol (WAP) option. This is offered on smart phones and other more advanced devices. Being able to access the internet allows the user to visit the financial institution’s website. Because the screen on the device is small, the financial institution addresses that by adjusting their mobile site. That can lead to having to navigate through more clicks than what would be on a personal computer. Also, these types of devices are not enabled with anti-virus and firewall protection.

·         And last, there is the Mobile App. Banks create this application to be downloaded to the device in use. The app creates a reliable channel to access the accounts and perform more complex transactions. Though this option creates efficiency, the application may be only available to certain devices. And, again, the device itself is vulnerable to attack.

Online banking

is an electronic payment system that enables customers of a financial institution to conduct financial transactions on a website operated by the institution, such as a retail bank, virtual bank, credit union or building society. Online banking is also referred as Internet banking, e-banking, virtual banking and by other terms.

To access a financial institution's online banking facility, a customer with Internet access would need to register with the institution for the service, and set up some password (under various names) for customer verification. The password for online banking is normally not the same as for telephone banking. Financial institutions now routinely allocate customers numbers (also under various names), whether or not customers have indicated an intention to access their online banking facility. Customers' numbers are normally not the same as account numbers, because a number of customer accounts can be linked to the one customer number. The customer can link to the customer number any account which the customer controls, which may be cheque, savings, loan, credit card and other accounts. Customer numbers will also not be the same as any debit or credit card issued by the financial institution to the customer.

To access online banking, a customer would go to the financial institution's secured website, and enter the online banking facility using the customer number and password previously setup. Some financial institutions have set up additional security steps for access to online banking, but there is no consistency to the approach adopted.

Online banking facilities offered by various financial institutions have many features and capabilities in common, but also have some that are application specific.

The common features fall broadly into several categories:

• A bank customer can perform non-transactional tasks through online banking, including -
• viewing account balances
• viewing recent transactions
• Downloading bank statements, for example in PDF format
• viewing images of paid cheques
• ordering cheque books
• Download periodic account statements
• Downloading applications for M-banking, E-banking etc.
• Bank customers can transact banking tasks through online banking, including -
• Funds transfers between the customer's linked accounts
• Paying third parties, including bill payments (see, e.g., BPAY) and third party fund transfers(see, e.g., FAST)
• Investment purchase or sale
• Loan applications and transactions, such as repayments of enrollments
• Credit card applications

Customer loyalty

 Customer loyalty can be said to have occurred if people choose to use a particular shop or buy one particular product, rather than use other shops or buy products made by other companies. 

Customers exhibit customer loyalty when they consistently purchase a certain product or brand over an extended period of time. As an example, many customers stick to a certain travel operator due to the positive experiences they have had with their products and services.

Customer loyalty is the key objective of customer relationship management and describes the loyalty which is established between a customer and companies, persons, products or brands. The individual market segments should be targeted in terms of developing customer loyalty.

Types of Loyalty

To understand customer loyalty one must recognize there are different types and degrees of loyalty.  There is monogamous loyalty and there is polygamous.  There are also behavioral and attitudinal aspects.  A look at these concepts will clarify what “customer loyalty” really is, and this is important because having a solid understanding of the concept is critical if one hopes to design a reward program where loyalty enhancement is the primary objective.

Four different reasons for loyalty should be promoted:

• psychological;
• economic;
• technical/functional;
• contractual.

·         Example

·         Psychological

Customers might also develop a sense of loyalty to a certain person working for a company.  People can build up a good relationship with a bank advisor they have known for several years and who has always fulfilled their expectations.  The fact that people develop a sense of loyalty can be described as a psychological reason to stick to a specific product.

·         Economic

In business-to-business markets, it might also be possible that customer loyalty results from the fact that switching to another company would lead to the company facing economic disadvantages. In this case, loyalty is based on economic grounds.

Technical/ functional

Furthermore, it might be possible that a company adjusted and adapted its technical procedures to a particular supplier and a change would cause immense technical problems, thus, technical or functional reasons are the grounds for customer loyalty.

Contractual

A contractual reason for loyalty exists if a customer is bound to the company for a certain period of time due to a contractual agreement and for legal reasons. [1]

·         Loyalty is an old-fashioned word traditionally used to describe fidelity and enthusiastic devotion to a country, a cause, or an individual. It has also been used in a business context, to describe a customer’s willingness to continue patronising a firm over the long term, preferably on an exclusive basis, and recommending the firm’s products to friends and associates (Lovelock and Wirtz 2011).

Customer Centric

 customer-centric marketing is defined as looking at a customer’s lifetime value and focusing your marketing efforts on the high-value customer segment in order to drive profits (Dr. Peter Fader, author of Customer Centricity). Basically, customer-centric marketing puts the customer at the center of a marketing strategy to gain as much return as possible.

customer-centric marketing means asking yourself, “What more can we get out of them?” When customers experience your brand, they’ll always ask the question, “What’s in it for me?” before they purchase or engage

The monetary unit assumption

requires that companies include in the accounting records only transactions data that can be expressed in terms of money. This assumption enables accounting to quantify(measure) economic events. The monetary unit assumption is vital to applying the cost principle. This assumption prevents the inclusion of some relevant information in the accounting records. For example, the health of the owner, the quality of service, and the morale of employees are not included. The reason: Companies cannot quantify this information in terms of money. Though this information is important, only events that can be measured in money are recorded."

Social Responsibility in Marketing

 Most marketing organizations do not intentionally work in isolation from the rest of society. Instead they find that greater opportunity exists if the organization is visibly accessible and involved with the public. As we’ve seen, because marketing often operates as the “public face” of an organization, when issues arise between the public and the organization marketing is often at the center. In recent years the number and variety of issues raised by the public has increased. One reason for the increase is the growing perception that marketing organizations are not just sellers of product but also have an inherent responsibility to be more socially responsible, including being more responsible for its actions and more responsive in addressing social concerns.

Being socially responsible means an organization shows concern for the people and environment in which it transacts business. It also means that these values are communicated and enforced by everyone in the organization and, in some cases, with business partners, such as those who sell products to the company (e.g., supplier of raw material for product production) and those who help the company distribute and sell to other customers (e.g., retail stores).

In addition to insuring these values exist within the organization and its business partners, social responsibility may also manifest itself in the support of social causes that help society. For instance, marketers may sponsor charity events or produce cause-related advertising.

Marketers who are pursuing a socially responsible agenda should bear in mind that such efforts do not automatically translate into increased revenue or even an improved public image. However, organizations that consistently exhibit socially responsible tendencies may eventually gain a strong reputation that could pay dividends in the form of increased customer loyalty.

Promotion and Publicity

 Promotion is one of the market mix elements or features, and a term used frequently in marketing. The marketing mix includes the four P's: price, product, promotion, and place.^[1] Promotion refers to raising customer awareness of a product or brand, generating sales, and creating brand loyalty. Promotion is also found in the specification of five promotional mix or promotional plan. These elements are personal selling, advertising, sales promotion, direct marketing, and publicity.^[2] A promotional mix specifies how much attention to pay to each of the five subcategories, and how much money to budget for each. A promotional plan can have a wide range of objectives, including: sales increases, new product acceptance, creation of brand equity, positioning, competitive retaliations, or creation of a corporate image. Fundamentally, there are three basic objectives of promotion. These are:^[3]

1. To present information to consumers as well as others.
2. To increase demand.
3. To differentiate a product.

There are different ways to promote a product in different areas of media. Promoters use internet advertisements, special events, endorsements, and newspapers to advertise their product. Many times with the purchase of a product there is an incentive like discounts (i.e., coupons), free items, or a contest. This method is used to increase the sales of a given product.

Publicity is the movement of information with the effect of increasing public awareness of a subject. The subjects of publicity include people (for example, politicians and performing artists), goods and services, organizations of all kinds, and works of art or entertainment.

Publicity is gaining public visibility or awareness for a product, service or your company via the media. It is the publicist that carries out publicity, while PR is the strategic management function that helps an organization communicate, establish and maintain communication with the public. This can be done internally, without the use of media.

From a marketing perspective, publicity is one component of promotion which is one component of marketing. The other elements of the promotional mix are advertising, sales promotion, direct marketing and personal selling. Examples of promotional tactics include:

• Art people
• event sponsorship
• Arrange a speech or talk
• Make an analysis or prediction
• Conduct a poll or survey
• Issue a report
• Take a stand on a controversial subject
• Arrange for a testimonial
• Announce an appointment
• Invent then present an award
• Stage a debate
• Organize a tour of your business or projects
• Issue a commendation

Value based pricing

 Value-based pricing (also value optimized pricing) is a pricing strategy which sets prices primarily, but not exclusively, on the value, perceived or estimated, to the customer rather than on the cost of the product or historical prices.^[1][2] Where it is successfully used, it will improve profitability due to the higher prices without impacting greatly on sales volumes.

The approach is most successful when products are sold based on emotions (fashion), in niche markets, in shortages (e.g. drinks at open air festival at a hot summer day) or for indispensable add-ons (e.g. printer cartridges, headsets for cell phones). Goods that are very intensely traded (e.g. oil and other commodities) or that are sold to highly sophisticated customers in large markets (e.g. automotive industry) usually are sold using cost-plus pricing.

The value based approach

Value-based pricing is predicated upon an understanding of customer value. In business-to-consumer markets, sellers should understand the impact their products or services have on end user utility. In the business-to-business environment, companies must know how their offering helps customers, that is other businesses, become more profitable.^[3] In many settings, gaining this understanding requires primary research. This may include evaluation of customer operations and interviews with customer personnel. Survey methods are sometimes used to determine the value a customer attributes to a product or a service. Purchase intent, win/loss analysis and financial value measurement are examples of basic research methods that can unearth customer insights during the pricing process.^[3] The results of such surveys often depict a customer's 'willingness to pay.'

The principal difficulty is that the willingness of the customer to pay a certain price differs between customers, between countries, even for the same customer in different settings (depending on his actual and present needs), so that a true value-based pricing at all times is impossible. Also, extreme focus on value-based pricing might leave customers with a feeling of being exploited which is not helpful for the companies in the long run.

Long term, by definition, prices based on value-based pricing are always higher or equal to the prices derived from cost-based pricing (if they were lower, it would mean that the actual value perceived by the customer is lower than the costs of producing the good plus a profit margin, meaning that companies would not be interested to produce and sell at that price in the long term).

Frameworks for value-based pricing include amongst others Economic Value Estimation,^[4] Relative Attribute Positioning, Van Westendorp Price Sensitivity Meter and Conjoint Analysis.

However, despite being difficult in implementation, any production and any market positioning should have a consideration of the value the product brings to the customer at the very early stages of product development and is, in fact, employed by many companies.^[5]