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 585

requires less investment capital than direct approaches. Merchant wholesalers and

retailers who pay for products when they purchase them, and who pay the costs of

carrying inventory, help a producer’s cash flow. Working with public warehousers

and transportation firms may help reduce the capital requirements for logistics

facilities.

Promotion blends that focus on stimulating consumer pull usually require a big

front-end investment in advertising and consumer promotions. For example, it’s not

unusual for a consumer packaged goods producer to spend half of a new product’s

first-year sales revenue on advertising. Thus, it may be less risky for a firm with lim-

ited capital to put more emphasis on a strategy that relies on push rather than pull.

Similarly, capital requirements are less when intermediaries take on much of the

responsibility for promotion in the channel.

Production Must Be Coordinated with the Marketing Plan

In screening product-market opportunities, a marketing manager needs to have

a realistic understanding of what is involved in turning a product concept into some-

thing the firm can really deliver. If a firm is going to pursue an opportunity, it’s also

critical that there be effective coordination between marketing planning and

production capacity—the ability to produce a certain quantity and quality of

specific goods or services.

Different aspects of production capacity have different impacts on marketing

planning, so we’ll consider this topic in more depth.^6

If a firm has unused production capacity, it’s sensible for a marketing manager to

try to identify new markets or new products that make more effective use of that

investment. For example, a company that produces rubber floor mats for automo-

biles might be able to add a similar line of floor mats for pickup trucks. Expanded

production might result in lower costs and better profits for the mats the firm was

already producing—because of economies of scale. In addition, revenue and profit

contribution from the new products could improve the return on investment the

firm had already made.

If a firm’s production capacity is flexible, many different marketing opportunities

might be possible. For example, in light of growing consumer interest in fancy sport

utility vehicles, the marketing manager for the firm above might see even better

profit potential in color-coordinated rubber cargo area liners than in commodity

floor mats. Opportunities further away from its current markets might be relevant

too. For example, there might be better growth and profits in static-electricity-free

mats for Internet server equipment than for auto accessories.

While excess capacity can be costly, it can also serve as a safety net if demand

suddenly picks up. For example, many firms that make products for the construc-

tion industry faced costly excess capacity during the early 1990s. However, many of

those firms were glad that they had that capacity when construction turned into a

booming market a few years later. Whether excess capacity is a wasteful cost or a

safety net for handling unexpected demand depends on the opportunity costs and

likelihood of the two situations.

Excess capacity may exist because the market for what a firm can produce never

really materialized or has moved into long-term decline. Excess capacity may also

indicate that there’s too much competition—with many other firms all fighting for

the same fixed demand. In situations like these, rather than struggling to find minor

Production capacity

takes many forms

Use excess capacity

to improve profits

Excess capacity may

be a safety net

Or it may be a

signal of problems