104 ACCOUNTING FOR MANAGERS
include the professionalism, courtesy, reliability and responsiveness of staff. Image
drivers reflect the confidence of customers in the company or brand name, which is
built through the other three drivers and by advertising and promotional activity.
Doyle (1998) recognized that each of these value drivers has cost drivers.
Thesales mixis the mix of product/services offered by the business, each of
which may be aimed at satisfying different customer needs. Businesses develop
marketing strategies to meet the needs of their customers in differentmarket
segments, each of which can be defined by its unique characteristics. These segments
may yield different prices and incur different costs as customers demand more or
less of different product/services.
Pricing of product/services is crucial to business success, in terms of increas-
ing the perceived value so as to maximize the margin between price and cost
and to increase volume and market share without eroding profits. Pricing
strategies may be aimed atpenetration– achieving long-term market share – or
skimming– maximizing short-term profits from a limited market.
A focus on customer relationship management entails taking a longer-term
view than product/service profitability and emphasizes the profits that can be
derived from a satisfied customer base. Doyle (1998) describes loyal customers
as assets, quoting research that tried to measure the value of a loyal customer.
Doyle says, ‘If managers know the cost of losing a customer, they can evaluate
the likely pay-off of investments designed to keep customers happy’ (pp. 51 – 2).
Doyle explained that the cost of winning new customers is high, loyal customers
tend to buy more regularly, spend more and are often willing to pay premium
prices. This is an element of the business goodwill, part of the ‘intellectual capital’
that is not reported in financial statements (see Chapter 7).
A further element of marketing is the distribution channel to be used. This
may range from the company’s own salesforce to retail outlets, direct marketing
and the number of intermediaries between theproduct/service provider and the
ultimate customer.
Marketing texts typically introduce marketing strategy as a combination of
the 4 Ps of product, price, place and promotion. The marketing strategy for a
business will encompass decisions about product/service mix, customer mix,
market segmentation, value and cost drivers, pricing and distribution channel.
Each element of marketing strategy implies an understanding of accounting, which
can help to answer questions such as:
žWhat is the volume of product/services that we need to sell to maintain
profitability?
žWhat alternative approaches to pricing can we adopt?
žWhat is our customer, product/service and distribution channel profitability in
each of our market segments?
This chapter is concerned with answering these questions. Although information
on competitors, customers and suppliers is likely to be limited, strategic manage-
ment accounting (see Chapter 4) can apply the same tools and techniques in the
pursuit of competitive advantage.