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

584 Chapter 20

that region. Success from selling through supermarkets in the Northeast generated

more volume and profit, which provided Sorrell Ridge with the financial base to enter

the big California market. The big supermarket chains there wouldn’t consider carry-

ing a new fruit spread without a lot of trade promotion, including hefty stocking

allowances. Sorrell Ridge had the money to pay for a coupon program to stimulate

consumer trial, but that didn’t leave enough money for the stocking allowance. How-

ever, the marketing manager had a creative idea that involved giving retailers the

stocking allowance in the form of a credit against future purchases rather than cash

up front. With a plan for that blend of trade and consumer promotion in place, one

of the best food brokers in California agreed to take on the line. And expanding into

the new market resulted in profitable growth.^4

As the Sorrell Ridge case shows, a firm with limited resources can sometimes

develop a plan that allows for growth through internally generated money. On the

other hand, a company with a mature product that has limited growth potential can

invest the earnings from that product in developing a new opportunity that is more

profitable. Lotus Development, the software company, is a good example. It used

profits from its Lotus 1-2-3 spreadsheet, which faced tough competition from

Microsoft’s Excel, to fund the development of Lotus Notes, an innovative product

for the fast-growing segment of computer users who wanted an easy way to com-

municate with other networked members of their work group.

A marketing manager who wants to plan strategies based on the expected flow of

internal funding needs a good idea of how much cash will be available. A cash flow

statementis a financial report that forecasts how much cash will be available after

paying expenses. The amount that’s available isn’t always just the bottom line or net

profit figure shown on the firm’s operating statement. Some expenses, like deprecia-

tion of facilities, are subtracted from revenue for tax and accounting purposes but do

not actually involve writing a check. So in determining cash flow, managers often

look at a company’s earnings beforesubtracting out these noncash expenses.^5

Most firms rely on a combination of internal and external capital. An adequate

overall amount of capital makes it possible to expand more rapidly or to implement

a more ambitious plan from the outset. However, when a marketing manager must

rely, at least in part, on internally generated funds to make a strategy self-supporting,

that may need to be considered in selecting between alternative strategies or in

specific marketing mix decisions for a given strategy.

When finances are tight, it’s sensible to look for strategy alternatives that help

get a better return on money that’s already invested. A firm that sells diagnostic

equipment to hospitals might look for another related product for its current sales-

people to sell while calling on the same customers. Similarly, a firm that has a

successful domestic product might look for new international markets where little

or no modification of the product would be required. A firm that is constantly fight-

ing to rewin customers might be better off with a program that offers loyal customers

a discount; the increase in the number of customers served might more than offset

the lost revenue per sale. Any increase in revenue and profit contribution that the

strategy generates—without increasing fixed costs and capital invested—increases

profit and the firm’s return on investment.

Strategy decisions within each of the marketing mix areas often have significantly

different capital requirements. For example, offering more models, package sizes, fla-

vors, or colors of a product will almost certainly increase front-end capital needs

and increase costs.

Place decisions often have significant financial implications, depending on how

responsibilities are shifted and shared in the channel. Indirect distribution usually

Cash flow looks at
when money will be
available

Adjusting the strategy
to money that’s
available

Improve return of
current investment

Market mix decisions
affect capital needed