Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

20. Managing Marketing’s
    Link with Other Functional
    Areas

Text © The McGraw−Hill

Companies, 2002

Managing Marketing’s Link with Other Functional Areas 581

Financial managers usually think about two different uses of capital. First, capital

may be required to pay for investments in facilities, equipment, computer networks,

and other “fixed assets.” These installations are usually purchased and then used,

and depreciated, over a number of years. In addition, a firm needs working capital—

money to pay for short-term expenses such as employee salaries, advertising,

marketing research, inventory storing costs, and what the firm owes suppliers. A

firm usually must pay for these ongoing expenses as they occur. As a result there is

usually a continuing need for working capital.

Capital is usually a critical resource when a marketing plan calls for rapid

growth—especially if the growth calls for expensive new facilities. Clearly, a plan

to build a chain of 15 hotels requires more money for buildings and equipment, as

well as more money for salaries, food, and supplies, than a plan for a single hotel.

Such a plan might require that the firm borrow money from a commercial lender.

In contrast, a plan that simply calls for improving the service in an existing hotel,

perhaps by adding several people to handle room service, would require much less

money. In fact, increased food sales from room service might quickly generate more

than enough earnings to pay for the added people.

As these examples imply, there are a number of different possible sources of

capital. However, it’s useful to boil them down to two categories: external sources,

such as loans or sales of stocks or bonds, and internal sources,such as cash accumu-

lated from the firm’s profits. A firm usually seeks outside funding in advance of when

it is needed to invest in a new strategy. Internally generated profits may be accu-

mulated and used in the same way, but often internal money is used as it becomes

available. In other words, with internally generated funding a firm’s marketing

program may be expected to “pay its own way.”

The timing of when financing is available has an important effect on marketing

strategy planning, so we’ll look at this topic in more detail. We’ll start by looking

at external sources of funds.

While a firm might like to fund its marketing program from rapid growth in its

own profits, that is not always possible. New companies often don’t have enough

money to start that way. An established company with some capital may not have

as much as it needs to make long-term investments and still have enough working

capital for the routine expenses of implementing a plan. Getting started may also

involve losses, perhaps for several years, before earnings come in. In these circum-

stances, the firm may need to turn to one of several sources of external capital.

A firm may be able to raise money by selling stock—a share in the ownership

of a company. Stock sales may be public or private, and the buyers may be indi-

viduals, including a firm’s own employees, or institutional investors (such as a

pension fund or venture capital firm).

People who own stock in a firm want a good return on their investment. That

can happen if the company pays owners of its stock a regular dividend. It also hap-

pens if the value of the stock goes up over time. Neither is likely if the firm isn’t

consistently earning profits. Further, the value of a firm’s stock typically doesn’t

increase unless its profits are growing.This is one reason that marketing managers

are always looking for profitable new growth opportunities. Profits can also improve

by being more efficient—getting the marketing jobs done at lower cost, doing a bet-

ter job holding on to customers, and the like. Ultimately, a firm that doesn’t have

a successful or at least promising marketing strategy can’t attract and keep investors.

On the other hand, it’s a sad reality that a firm with a great strategy can’t always

attract investors. As in other aspects of business, investors sometimes get caught up

in a current fad. One week they want to invest in anynew biotech firm, and then

the next week the only thing that gets their attention is the stock, say, for a dot-com

Working capital pays

for short-term

expenses

Capital comes from

internal and external

sources

External funding—

investors expect a

return