What is Salam Financing

 

Salam

Salam (Advance Payment against Deferred Delivery of Goods) Salam (also referred to as Bai Salam, Al-Salam, Bai al-Salam) is an ancient form of forward contract wherein the price is paid in advance at the time of making a contract of sale for goods to be delivered at a future date.

What is given in exchange for the advance payment of the price should not in itself be in the nature of money. For the payment in advance, the contracting parties stipulate a future date for the supply of goods of specified quantity and quality Salam may be considered as a kind of debt, because the object of the salam contract is the liability of the seller, up to the agreed future date, to deliver the object for which advanced payment of the price has already been made. 

There is consensus among Muslim jurists on the permissibility of salam, because the object of the contract is that the goods are a recompense for the price paid in advance, just as the price is recompense paid for getting the goods in advance. Salam is permitted, notwithstanding the general principle of the Shari´ah that does not permit the sale of a commodity which is not in the possession of the seller. When Prophet Muhammad (pbuh) came to Madinah (the second holiest city in Islam, after Makkah), the people used to pay in advance the price of fruits (or dates) to be delivered within one, two or three years. But such a sale was carried out without specifying the measure, weight and the time of delivery. Prophet Muhammad (pbuh) said: "He who sells on Salam (money in advance) must sell a specific volume and a specific weight to a specific due date (to be delivered later)". The practice of salam, as ordained by the Prophet Muhammad (pbuh), continued during his life time and also in later periods. The list of items covered by salam suggests that it benefited the owners of farms and orchards. Barring a few exceptions, the Muslim jurists have now expanded the list of items which can be sold under salam to cover all homogeneous commodities that can be precisely determined in terms of quality and quantity.

Rules for a Valid Salam Contract

Only those fungible (mithli) things which can be precisely determined in terms of quantity and quality can be contracted in salam. Besides, salam cannot take place between identical goods, e.g., wheat for wheat, Dollar for Dollar and potato for potato. All goods that can be categorized as belonging to the same species can be the subject of salam.

 For example, wheat, rice, barley or other grains of this type, motor cars of any trade mark, oil, iron and copper can all be sold through salam. Similarly, electricity measured in kilowatts can be considered a fungible commodity.  In salam, it is necessary to fix precisely the time of delivery of the goods. The buyer must unambiguously specify the quality and the quantity of the goods and the specifications must be applicable to the generally available items of the goods of the contract. The specification of goods should particularly cover all those characteristics which could cause variation in price. Thus the general terms and conditions of salam should be binding in nature and Q2P2T be followed. The first Q stands for the quantity of the commodity to be supplied. The second Q stands for the quality or variety of the commodity. The first P stands for the price to be paid in advance by the buyer and the second P stands for place of delivery. Finally, T stands for the time of delivery.

The buyer in salam should advance the price of the commodity at the time of making the contract

Risks in Salam-based Financing

Islamic banks may face the following risks in salam-based financing:

a) Counter-party Risk (the client may default after taking the payment in advance.)

b) Commodity Price Risk (at the time the goods are received the price may be lower than the price that was originally expected).

c) Quality Risk/ Low investment Return or Loss (goods received might not be of desired quality – unacceptable for the potential buyer)

d) Asset-Holding Risk / possibility of extra expenses on storage and takaful (the bank might not be able to market the goods in time, resulting in possible asset loss for the unsold goods and locking funds in the goods until they are sold)

e) Asset-Replacement Risk (in case the bank has to purchase goods from the market in parallel salam where the third party fails to supply the specified goods under the parallel contract.

f) Fiduciary Risk in the case of parallel salam (original salam seller might not deliver).

Islamic banks need to take proper measures for mitigation of the above risks. They should purchase only those goods which have good marketing potential; take proper security and a performance bond; insert a penalty clause in the contract as a deterrent against late delivery; obtain a binding promise from the prospective buyers along with a sufficient amount of earnest money in deposit; and fulfil the responsibility of parallel salam-purchase similar goods from the market on spot to supply these to the buyer and recover the loss, if any, from the seller in the original salam.

Parallel Salam and Disposal of Salam Goods – to manage and mitigate risk

For the disposal of goods purchased under salam, Islamic banks have a number of options, including:

i) to enter into a parallel salam contract where the bank is involved as a buyer on one side and as a seller on another side,

ii) an agency agreement with any third party or with the client (seller) to sell the goods on behalf of the bank and / or

iii) a sale in the open market the bank itself by entering into a promise with any third party or direct selling upon taking the delivery.

Where the bank (as buyer) enters into a parallel salam contract there cannot be any condition or linkage to the first salam contract. (Parallel Salam is allowed with a third party only. The seller in the first contract cannot be made purchaser in the parallel contract of salam, because it will be a buy-back contract, which is not permissible in the Shari’ah). Each one of the two contracts entered into by a bank should be independent of the other, but the bank (as seller) can sell the goods on parallel salam on similar conditions and specifications as previously purchased on the first salam contract without making one contract dependent on the other. This arrangement cannot be tied up in such a manner that the rights and obligations of one contract are dependant on the rights and obligations of the parallel contract. The period of parallel contract in the second transaction is usually shorter and the price may be a higher than the price of the first salam transaction. The difference between the two prices is the bank’s profit

The parallel contract arrangement may not be an attractive mode of disposal of goods for banks, as the amount invested by the bank (the advance payment of the price in the first salam) would be disinvested when the buyer in the parallel contract made the advance payment to the bank for the purchase of the goods under the parallel contract. Under an agency agreement, the Islamic bank may appoint the seller its agent to sell the salam goods on its behalf at a given price which would include the bank’s profit. Some Islamic banks are, therefore, using salam for purchasing goods and appointing the sellers as their agent for subsequently marketing the goods at a price with a suitable profit margin for the bank. In the case of an agency, the salam contract and the agency agreement should be separate and independent of each other. The purchased goods cannot be sold back to the salam seller, hence a parallel salam cannot be entered into with the original seller in the salam contract as it would be considered as being a ‘buy-back’, which is prohibited under the Shari’ah rules.

In the third option, the Islamic bank (as buyer under salam) may obtain a binding promise from a third party to purchase the goods from the bank. This promise should be unilateral from the prospective buyer. The bank (as buyer) will not have to pay the price in advance, as the prospective buyer is merely making a promise and it is not an actual sale. However, the bank can ask for earnest money (a security deposit as an act of good faith). As soon as the bank purchases the goods, they will be sold to the third party at the pre-agreed price, according to the terms of the promise. Banks may also wait until receipt of the goods and sell them in the open market, but they will be taking the asset-risk for the period the goods remain in the bank’s inventory. It is important to note again that the salam goods cannot be sold back to the original seller owing to the prohibition of the ‘buy-back’ arrangement.

 

 

Premium Branding for New and Innovative Products

 

Premium Pricing Strategy

Pricing is a major element of marketing any product, and it is vitally important to set the right price. A price that is too high or too low for the target market can seriously affect sales. Premium pricing can use for several purposes. A premium pricing strategy involves setting the price of a product higher than similar products. This strategy is sometimes also called skim pricing because it is an attempt to “skim the cream” off the top of the market. It is used to maximize profit in areas where customers are happy to pay more, where there are no substitutes for the product, where there are barriers to entering the market or when the seller cannot save on costs by producing at a high volume. Premium pricing can also be used to improve brand identity in a particular market. This is called price-quality signaling, because the high price signals to consumers that the product is high in quality. Competition

BRAND AWARENESS

Some brands can continue to charge a premium price because their entire brand image is based around premium. Unique products usually have the best chance of commanding premium prices.

The first step is to understand that in the so-called luxury market, there are three possible strategies, which I named in my book as luxury, fashion and premium. The difference between these three strategies is huge. It does not change much in the eyes of most basic consumers, at least in the short-term. But when one has to manage a brand, the difference is pivotal. In fact, if you decide to implement a fashion or a premium strategy, the classical marketing styles works pretty well. But if you decide to implement a luxury strategy, you need to reconsider all the aspects of your marketing management.

The luxury strategy aims at creating the highest brand value and pricing power by leveraging all intangible elements of singularity- i.e. time, heritage, country of origin, craftsmanship, manmade, small series, prestigious clients, etc. The premium strategy can be summarized as “pay more, get more.” Here the goal is to prove -through comparisons and benchmarking- that this is the best value within its category. Quality/price ratio is the motto. This strategy is, by essence, comparative.

Here are six factors that will influence your ability to establish and maintain premium price position and reap the rewards:

Become a Premium Provider. Identify the features that would be considered high-end on the value scale, and then highlight those crucial elements in your marketing. Resist the urge to offer a basic service level or baseline product. Stick with the premium level of service if you plan to maintain your premium pricing strategy.

Define Your Value. Help your customers understand why your prices are higher. If you know how competitors are undercutting your prices, and you feel the competitors' lower cost equates to poorer quality or service, explain this difference. In other words, don't hide your price; instead, explain your value to the customer, and be prepared to demonstrate the ROI associated with your service or product.

Go the Extra Mile. You'd be surprised how many business owners declare they offer superior service simply because their people are friendly. Successful companies have more than friendly employees.

Don't Sacrifice Price, Even When Times are Tough. Just explain why your product or service is worth the investment, but be a little flexible for long-time customers.

Don't Play the Lowest Price Game. Weaker competitors are quick to cut prices to earn business. Don't play their game.

Project Financial Stability. A colleague told me about his expensive dilemma. He needed to replace his entire home air conditioning system. He asked two local companies for estimates.

Challenging a Timeless Tradition

Ending prices with the number nine is one of the oldest methods in the book, but does it actually work? The answer is a resounding yes, according to research from the journal Quantitative Marketing and Economics. Prices ending in nine were able to outsell even lower prices for the same product.

Time Spent vs. Money Saved

Stanford University’s Jennifer Aaker argues that in many product categories, customers recall more positive memories when asked to remember time spent with the product over the money

saved.

Different Levels of Pricing

Test #1

Four out of five people chose the more popular premium option.

Test #2

The cheap option was ignored and it upended the ratio of standard to premium purchases.

 

These examples show just how important it is to test out different pricing brackets, especially if you believe you may be undercharging. Some customers are always going to want the most

expensive option. Get smart with your pricing strategy. Great products and services are priced on purpose. They have prices that develop over time and are guided by debate, scrutiny, and, most importantly, feedback from paying customers.

Strategies that help grow premium perceptions

Commenting on a recent survey that found 88 percent of U.S. consumers love store brands, Pat Conroy, vice chairman at Deloitte LLP and U.S. Consumer Products leader, stated that many name brands suffer "from a crisis of the similar," giving consumers no compelling reason to choose their product instead of a store brand. He is right.

 

Build perceptions of product superiority

Innovation, the type that produces a step change in product performance, is still the most effective way to build competitive advantage. Tide Pods and Singapore Airlines are good examples of brands that have used product innovation to improve premium perceptions and justify prices. P&G's commitment to innovation paid off in the U.S. with the introduction of Tide Pods—a three-in-one liquid tablet that allowed the new product to gain market share at a significant price premium.

Build perceptions of value

By framing perceptions of value premium, brands can gain competitive advantage over cheaper brands provided the claim is defensible and not undermined by consumer experience.

Build premium credibility

Irrespective of how the redesign impacts flyers in-flight experience, Singapore Airlines sends a clear signal that they perceive themselves as a luxury brand by teaming up with BMW. In China, Häagen-Dazs presents a unique, indulgent, and adult ice cream experience, primarily through its retail stores. It justifies a significant price premium through locating those stores in upmarket areas, offering unique desserts, and selling wedding cakes designed to appeal to wealthy celebrities. For Johnnie Walker, special blends and gift packs offer the chance to ask a higher price for their well-known brand. Mechanisms like these are designed to build credibility around a brand's premium positioning, making it easier for consumers to justify why they are paying a higher price for the brand.

Advantages of Premium Pricing

The following are advantages of using the premium pricing method:

Entry barrier. If a company invests heavily in its premium brands, it can be extremely difficult for a competitor to offer a competing product at the same price point without also investing a large amount in marketing.

High profit margin. There can be an unusually high gross margin associated with premium pricing. However, a company engaging in this strategy must attain sufficient volume to offset the hefty marketing costs associated with it.

  

What is Mudarbah Finance

 

Mudarabah Financing in Islam

Mudarabah: mudarabah or partnership in the profits of capital and labour, is a partnership in which one party is entitled to profit on account of its capital while the other party is entitled to profit on account of its labour. This is considered to be the purest form of Islamic financing, because profits are shared in pre-agreed proportions and losses are shared in proportion to the investment made by each investor. On loss, there is unanimity among Muslim jurists on the principle that a party who has no capital invested does not have to share the loss.  Mudarabah is an important variant of Shirkah (partnership), in which a financier as an investor (rabbulmal) or a group of investors provides capital to an agent or manager (mudarib), who undertakes to do business with the capital provided and the profit is shared according to the pre-agreed proportions. The term “Mudarabah” is interchangeably used with Qirad and Muqaradah.

Rules relating to Mudarabah Capital

The rabbulmal (the capital-provider or financier) is responsible for providing the capital for the business enterprise and should hand over the capital to the mudarib before the mudarib starts the business. The mudarib may also employ his capital with the permission of the original capital provider. All losses must be borne by the capital-provider, in other words the financier.

Rules regarding to Profit and Loss

Profit from the business under mudarabah is to be shared in an agreed ratio. In Mudarabah, the payment of profit to the capital-provider/financier cannot be in the form of a fixed amount or any percentage of the capital employed. The risk for the investor is that any loss is always exclusively borne by him. The risk for the mudarib is the loss suffered by way of expended time and effort, for which the mudarib does not get any remuneration on account of the loss in the business venture. Any ambiguity or lack of clarity regarding capital or ratio of profit makes the mudarabah contract invalid. The rabbulmal (the capital-provider) can contribute his/her labour subject to the permission of the mudarib.

Both the parties of a mudarabah are at liberty to agree on the proportion or ratio of profit-sharing between them with mutual consent. They can agree on equal sharing or allocate different proportions. However, a lump sum amount or profit/return on investment for any of the parties cannot be agreed upon. The profit earned is to be divided in the strict proportion agreed at the time of the contract. If loss occurs in some transactions and profit is realised in some others, the profit can be used to offset the loss in the first instance, then the balance, if any, can be distributed between the parties according to the agreed ratio.

The parties in mudarabah can agree with mutual consent that in the event the profit is over a particular ceiling, then one of the parties would take the additional profit. However, if the profit is below, or equal to, the stipulated ceiling, then the distribution will be according to the agreed ratio. The profits realised from the mudarabah business cannot be finally distributed until all the expenses have been paid, in accordance with custom and the original agreement.

Use of Mudarabah by Islamic Banks

Mudarabah is a viable basis for Islamic banking whereby an Islamic bank plays the role of a financial intermediary. The arrangement can be made adopting a two-tier mudarabah agreement. The first tier of the mudarabah agreement is between the bank and the depositors, who agree to put their money in the bank’s investment account and to share the profit with it. In this case, the depositors are the capital providers (rabbulmal) and the bank functions as a manager of the funds. The second tier of the mudarabah agreement is between the bank and the entrepreneur, who seeks financing from the bank; they agree that the profits accruing from the business will be shared between them and the bank in an agreed proportion, but any loss will be borne by the financier only (the bank). In this instance; the bank functions as the provider of the capital and financier while the entrepreneur works as a manager. In cases where there is more than one financier of the same project (one project jointly financed by several banks), profits are to be shared in a mutually agreed proportion previously determined, but any loss is to be shared in the proportion in which the different financiers have invested the capital.

Mudarabah is the basis of Islamic banking in the sense that funds are mobilised by banking and non-banking financial institutions mainly under this arrangement. Islamic banks, other financial institutions, a mutual fund or a company can also mobilize funds for investment by issuing negotiable Mudarabah Certificates, representing ownership in the funds collected and providing for the profit earned from the investment of those funds to be distributed on mudarabah principles. The investment can be related to the financing of specific projects for a fixed duration. As defined by the Islamic Fiqh Academy of the OIC, Mudarabah Certificates are investment instruments, which mobilise the mudarabah capital by floating certificates as evidence of capital ownership, on the basis of shares of equal value, registered in the name of their owners, as joint owners of shares in the venture capital or whatever shape it may take, in proportion to the each one’s share therein. If the funds so mobilised are also invested on the basis of mudarabah, it will be arrangement of a two-tier mudarabah and the investors would get a variable return or bear loss according to the result of the economic activity conducted by the institution.

If any individual or institution serving as mudarib is doing business on the basis of trade and ijarah-(leasing)-based modes, the investors / financiers receive a fixed or quasi-fixed return to be distributed on mudarabah principles. A Mudarabah Sukuk (bond) can also be issued on the mudarabah principle. On the assets side, mudarabah is best suited for project-and trade-financing. Islamic banks can undertake project financing through a mudarabah singly or through syndication with other banks. It can be used for financing import trade on a single transaction or a consignment basis in the case of a firm order and a letter of credit without margin, where the whole investment has to be made by the bank. Its use is also possible for running businesses and for the purpose of securitisation. In a twotier mudarabah arrangement, the bank acts as a mudarib (agent of manager) for the savers / investors and as financier for the entrepreneurs. If the bank employs the client’s deposits without committing any of its own, it acts as mudarib for the client until the conclusion of the business transaction for which the funds were invested. The bank receives an agreed share of the profit for services rendered. Banks provide funds on the basis of mudarabah usually for single transactions or for fixed durations. Similarly, mudarabah can be for the whole business of a company or for any specific project whose expenses and revenues can be segregated from the main business. The accounts of mudarabah projects are periodically audited in order to determine the distributable profit, which is arrived at after taking into account all expenses. The liability of the Islamic bank under mudarabah is limited to the amount of capital provided by the bank and the creditors of a mudarabah have no recourse to other assets of the bank.

In cross-border financings, exchange risk, political risk and the stability of the country concerned have to be taken into consideration before signing a financing contract on the basis of mudarabah. The bank may also closely monitor the performance of the mudarib during implementation of the project in order to ensure that there are no completion delays, cost overrun, material pilferage, etc. If the financing contract permits, the bank may appoint its representative to the Boards of the financed institution.

 

 

What is Musharkah Finance

 

The Main Features Of Musharakah

Musharakah is a term used by contemporary Muslim jurists for both broad and limited connotations. It is a term frequently referred to in the context of Islamic modes of financing, but is a little more limited than the term shirkah, which is more commonly used in Islamic jurisprudence. In traditional books, joint businesses have been discussed mainly under the heading of shirkah, which is regarded as a set of broad principles that can accommodate many forms of joint business. Contemporary Muslim jurists use the term musharakah in a limited sense to mean a contractual partnership in which all partners provide funds or capital, through not necessarily equally. They have the right to work for the joint venture, conduct it jointly and agree to share the profit on a pre-determined ratio and to bear the loss, if any, to the extent of the investment of each partner. In a specific sense, it is an amalgam of musharakah and Mudarabah, where a mudarib (the entrepreneur partaking in a mudarabah), as well as the financier partner, also invests in the capital. This arrangement is also permissible, according to Muslim jurists. Another form of musharakah, developed more recently, is

'Diminishing Musharakah'. According to this concept, a financier and his client participate either in the joint ownership of a property, or piece of equipment, or in a joint commercial enterprise. The share of the financier is further divided into a number of units and it is understood that the client will purchase the units of the share of the financier, one by one, periodically, until all the units of the financier have been purchased by the client so as to make the client the sole owner of the property or the commercial enterprise. 'Diminishing Musharakah' will be discussed more fully in a separate lesson.

Musharakah

Musharakah is a relationship that is established between parties by a mutual contract, so all the necessary ingredients of a valid contract must be present here also. It is the modern term for Shirkah Al Amwal structured on the basis of “inan”. In addition, there are number of conditions that are special to the contract of musharakah. Musharakah is not a binding contract and any partner may unilaterally terminate it unless provided otherwise in the contract.

The key features of musharakah may be summed up as below:

(a) All the partners provide capital

(b) Profit sharing may be based on capital contribution, or negotiable, or depending on the work performed by a partner

(c) Loss will be shared only according to capital contribution

(d) Management by all the partners is not a requirement

(e) Musharakah is not a binding contract

Musharakah Agreements by Islamic banks

An Islamic bank can finance industry, trade, real estate, contracting and almost all legal enterprises through partnership. Musharakah is arranged on the basis of a written agreement between the bank and the client for a specific transaction, consignment, or project or for a fixed period of time that can be renewed. They can also enter into musharakah with interest-based banks to carry out operations acceptable in the Shari´ah, provided it is ensured that the rules and principles of the Shari´ah are observed during the operation of the partnership. A partnership business or its assets can also be securitised, giving Musharakah Certificates or Sukuk (bonds) to the investors. Clients desiring to raise funds for investment in a large project can use musharakah and offer to sell Musharakah Certificates in the market. The Musharakah Certificate represents the direct pro-rata ownership of the holder in the assets of the project. If all the assets of the project are in liquid form, the certificate will represent a certain proportion of money at face value owned by the project; in such cases the Musharakah Certificates cannot be sold in the market except at their face value, as an increase would fall under the prohibition of riba under the Shari’ah. However, after the project is started and has acquired non-liquid assets representing tangible assets, these certificates can be traded in the secondary market and above the par value. It is allowed under the Shari’ah, as the subject matter of the sale is a share in the tangible assets and not in money alone; therefore the certificate may be taken as any other commodity which can be sold at a profit or at a loss. In the case of a completed project, the business will involve a combination of tangible assets and non-liquid assets arising from the sale in business transactions. In such cases, the Muslim jurists generally find it acceptable to trade in Musharakah Certificates, where the musharakah portfolio should not comprise more than 50% in the form of nonliquid assets.

Profit projections can play an important role in the musharakah operations. The client is required to provide the bank periodically with the results of operations of the business. Disputes can be resolved through a Review Committee comprising persons to be named in the musharakah agreement or separately with the mutual understanding of the parties. Musharakah-based applications and instruments will be discussed in detail in the Modules on Islamic Banking Operations and Islamic Financial Markets.

 

What is Diminishing Musyarakah/ Musharkah

 

Diminishing Musyarakah/ Musharkah

Diminishing musyarakah or musyarakah mutanaiqisah is another form of musyarakah which was developed recently by the scholars. It is a musyarakah in which the Islamic bank agrees to transfer gradually to the other partner its (the Islamic bank’s) share in the musyarakah, so that the Islamic bank’s share declines and the other partner’s share increases until the latter becomes the sole proprietor of the venture. According to this concept, a financier and his client participate either in the joint ownership of a property or an equipment, or in a joint commercial enterprise. The share of the financier is further divided into a number of units and it is understood that the client will purchase the units of the share of the financier one by one periodically, thus increasing his own share until all the units of the financier are purchased by him so as to make him the sole owner of the property or the commercial enterprise.

Diminishing musyarakah has taken different forms in different transactions. Some examples are given below:

A. It has been used mostly in house financing. The client wants to purchase a house for which he does not have adequate funds. He approaches the financier who agrees to participate with him in purchasing the required house. 20 per cent of the price is paid by the client and 80 per cent of the price by the financier. Thus the financier owns 80 per cent of the house while the client owns 20 per cent. After purchasing the property jointly, the client uses the house for his residential requirement and pays rent to the joint owner for using their ownership in the property.

At the same time, the share of the financier is further divided in eight equal units, each unit representing 10 per cent ownership of the house. The client promises to the financier that he will purchase one unit after three months. Accordingly, after the first term of three months, he purchases one unit of the share of the financier by paying 1/10th of the price of the house.

It reduces the share of the financier from 80 per cent to 70 per cent. Hence, the rent payable to the financier is also reduced to that extent. At the end of the second term, he purchases another unit increasing his share in the property to 40 per cent and reducing the share of the financier to 60 per cent and consequently reducing the rent by that proportion.

This process goes on in the same fashion until after the end of two years, the client purchases the whole share of the financier reducing the share of the financier to ‘zero’ and increasing his own share to 100 per cent. This arrangement, among other forms of diminishing partnership, allows the financier to claim rent according to his proportion of ownership in the property and at the same time allows him periodical returns of a part of his principal through purchases of the units of his share. B. ‘A’ wants to purchase a taxi to use it for offering transport services to passengers and to earn income through fares received from them, but he is short of funds. ‘B’ agrees to participate in the purchase of the taxi. Therefore, both of them purchase a taxi jointly; 80 per cent of the price is paid by ‘B’ and 20 per cent is paid by ‘A’. After the taxi is purchased, it is employed to provide transport the passengers whereby the net income of 1000 ringgit is earned on a daily basis. Since ‘B’ has 80 per cent share in the taxi it is agreed that 80 per cent of the fare will be given to him and the remaining 20 per cent will be retained by ‘A’ who has a 20 per cent share in the taxi. It means that 800 ringgit is earned by ‘B’ and 200 ringgit by ‘A’ on a daily basis. At the same time the share of ‘B’ is further divided into eight units. After three months ‘A’ purchases one unit from the share of ‘B’. Consequently the share of ‘B’ is reduced to 70 per cent and the share of ‘A’ is increased to 30 per cent, i.e. from that date ‘A’ will be entitled to 300 ringgit from the daily income of the taxi and ‘B’ will earn 700 ringgit. This process will go on until after the expiry of two years, whereby the whole taxi will be owned by ‘A’ and ‘B’ will take back his original investment along with income distributed to him as aforesaid.

Both the Buyer and the Bank will each contribute towards the purchase of the home. For example, the Bank may contribute 90% and the Buyer 10% of the purchase price. Over a period of up to 25 years, the Buyer will make monthly purchase installments through which the Bank will sell its share (90%) of the home to buyer. With each payment installment, the Bank's share in the property diminishes while the Buyer’s share correspondingly increases. While the purchase installments are being made, the Bank will charge the Buyer rent for the use of its share of the property, the rent being calculated according to the respective number of shares owned.

Many see this as little different from a conventional mortgage, because, under both methods, monthly payments are made which may be similar in amount. However, unlike a conventional mortgage, where money is lent to help with the purchase of a property, the Bank makes its profit through the property's physical use via buyer occupation as a tenant. This is one of the fundamentals of Islamic finance whereby you can charge for the use of something physical, like a property, but you cannot charge for the use of money, because this is interest. The relationship between buyer and the Bank is also quite different.

E-commerce Sales Strategy

 

 

Sales Strategy

1. Micro-Target an Online Audience. E-commerce is basically about establishing a “territory”: defining and designing a site to reach an audience with a common interest or characteristic. Whatever your product or service, define your company’s niche markets that you can penetrate online with specialized offerings.

2. Personalize. Site visitors are demanding one-of-a-kind experiences that cater to their needs and interests. Technology is available, even to smaller players, to capture individual shoppers’ interests and preferences and generate a product selection and shopping experience led by individualized promotions tailored to them.

3. Create Content to Build Stickiness. Winning e-commerce deploys crowd-sourced content to make a site “sticky” for potential buyers. Amazon attracted millions of consumers by encouraging them to share their opinions of items like books and CDs. What is your strategy to help potential customers for your products or services find you via Google? Use keywords and meta tags to raise your ranking in search results.

4. Tailor the Browsing Experience to Target Segments. Brand-appropriate site design and well-structured navigation remain key ingredients for attracting an audience and getting them to come back. Provide an enticing browsing experience across online platforms. If you want to sell backpacks to college students, for example, use vibrant colors with a flashy design to evoke a sense of youth and adventure.

5. Integrate Across Channels. Create multi-channel offerings, enabling your consumers to experience your brand consistently, whatever their shopping method of choice. But be sure that products you are selling via different channels are sufficiently differentiated to account for price differences.

6. Invest in Mobile. Mobile commerce is growing at a rate of over 130 percent annually. If you lack a robust mobile commerce platform, you will see a dramatic drop off in revenue over the next several years. To stay competitive, you need to offer mobile-accessible services such as delivery status, real-time notifications, click-to-call, maps, and product information.

7. Tap into Logistics. To accommodate growth, you may need to tap the capabilities of third party logistics providers (3PLs) to manage a high volume of complex orders. Reverse logistics, the ability to handle returns and exchanges quickly and economically, is becoming a key differentiator. Same-day delivery and innovative fulfillment networks can be competitive advantages.

8. Consider Subscription Commerce. Subscription commerce takes several forms. In the replenishment model, a commodity item is sent to the customer every month. The discovery model is more promising. It offers a subscription to a curated experience that delivers new, hard-to-find, or customized items periodically to the customer’s doorstep.

9. Bypass the Middlemen. The Internet is enabling small companies to reach lots of consumers quickly. Manufacturers, including factories in China, are increasingly willing to work with small brands. They have discovered that small brands are more likely to introduce new products to market because they are less constrained by shelf space limitations and complex supply chains.

10. Offer a Seamless Experience Across Channels. Your sales will grow if you ensure that product availability, promotional strategies, and brand experience are consistent across all channels -- whether online, in-store, or on a mobile device. Implement cloud-based supply chain technology to gain visibility into your performance across all channels.

11. Curate a Proprietary Selection. Proprietary selection is a strategy that focuses on “curating” a narrow and deep assortment of products in a particular segment. These sites make merchandise feel exclusive due to the depth and originality of the assortment, the difficulty in finding the products elsewhere, and the power of customer communities.

12. Sell Internet-Only Merchandise. This is a strategy that builds an exclusive brand – with ecommerce as the core distribution channel. By offering goods that are not available elsewhere and selling them directly to the consumer online, you maintain much greater control over your margins.

3 Ecommerce Strategies to Increase Online Sales & Repeat Business

1. Excellent Customer Service

Providing your customers with service that goes above and beyond is essential—you must exceed the expectations of your visitors. When Zappos first launched, it was a brand unfamiliar to the average consumer. After driving visitors to their site through traditional marketing efforts, they went out of their way to show the visitor just how dedicated they were to ensuring incredible customer service, using text in bold letters that prominently represented their policies. As shown above, Zappos highlights their major selling points—fast and free shipping, and how easy it is to return a product for free if the customer isn’t 100% satisfied with their purchase. Zappos proved that with superb customer service, a company could be successful, and this core value that they were built on is still what they stand behind today. When it comes to trusting a business online, returning to that site, and even recommending that site to peers, studies have shown that customer service is the first and foremost factor.

2. An Easy-To-Use & Clean Website

I mention this time and time again when talking about website design because it’s not something that should be taken lightly—your website must be responsive. A responsive design ensures that your site renders appropriately on all devices and platforms. Without this type of design, you’re likely to experience a high bounce rate due to poor usability when customers access your site from their mobile devices. Whether it’s excessive zooming in or zooming out, button sizes that aren’t appropriate for the screen, or other rendering issues, this can be detrimental to the user experience. In order to be strategic when reaching your customers, it’s critical that your site be optimized for whatever device they may be using.

3. Understand Your Customers & Market to Them Accordingly

Knowing who your customers are and following up with them appropriately is important. Most companies don’t truly know their customers, and fail to track which are frequent purchasers and which are one-time buyers, along with other insights related to purchase behavior. Existing customers shouldn’t all be marketed to in the exact same way. Marketing tactics should be used that reflect individual purchasing patterns based on historical onsite behaviors. If you have loyal customers that make purchases more regularly than the average customer does, serve them with special promotions or exclusive offers. Going out of your way to show that you value your customers is crucial. Take the time to understand who is purchasing and what segment they fall into. Perhaps one customer is ideal for a certain product line based on past behavior, or maybe they purchase the same product time and time again—whatever the behavior, implement follow-up marketing tactics that reflect this understanding. Your existing customers are the lowest cost-per-acquisition (CPA) for new sales. You spend money driving new leads to your site, so when you acquire a customer, you want to retain them. Marketing tactics should reflect your understanding of particular segments within your audience and convey how much you value them as customers.

A Strategic Approach to Improving Ecommerce Business

For any brand within the ecommerce sector, generating online sales and maintaining a loyal customer base can be difficult. Without the support of strong customer service, diligent marketing tactics that are tailored to individuals, and a user-friendly website design, accomplishing business goals is near impossible. Keeping your customers and their needs as the primary focus of all