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 591

needs to have a reasonable understanding of the costs associated with production—

especially when product features called for in the marketing plan drive costs.

A well-informed marketing manager can play an important role in working

with production people to decide which costs are necessary to add value that

meets customer needs and which are just added expense with little real benefit.

For example, a software firm was providing a very detailed instruction book along

with the disks in its distribution package. The book was running up costs and

causing delays because it needed to be changed and reprinted every time the firm

came out with a new version of its software. The marketing manager realized that

most of the detail in the book wasn’t necessary. When users of the software had

a problem, they didn’t want to search for the book but instead wanted the infor-

mation on the computer screen. Providing the updated information on the disk

was faster and cheaper than printing the book. Further, packaging costs were lower

without the book. And as icing on the cake, customers were more satisfied with

the online help.

In a situation like this, it is easy to identify specific costs associated with the pro-

duction job. However, often it’s difficult to get a good handle on all of the costs

associated with a product without help from the firm’s accountants.

Cut costs that

don’t add value

for customers

Accounting Data Can Help in Understanding Costs and Profit

Accounting data that helps managers track where costs and profit are coming

from is an important aid for strategy decisions. Unfortunately, accounting statements

that are prepared for tax purposes and for outside investors often aren’t helpful for

managers who need to make decisions about marketing strategy.

Understanding profitability depends on being able to identify the specific costs

of different goods and services. You saw this in the last chapter when two basic

approaches to handling costs—the full-cost approach and the contribution-margin

approach—resulted in different views of profitability. At that point, however, we

didn’t go into any detail about how marketing managers and accountants can work

together to get a better understanding of costs—especially how to allocate costs that

seem to be commonto several products or customers making allocation of costs dif-

ficult. In recent years, some accountants have devoted more attention to approaches

to this problem and given it the name “activity-based accounting.” In spite of the

new name, the basic ideas behind marketing cost analysis were developed years ago

by a marketing specialist.^15

Marketing cost analysis usually requires a new way of classifying accounting data.

Instead of using the type of accounts typically used for financial analysis, we have

to use functional accounts.

Natural accountsare the categories to which various costs are charged in the

normal financial accounting cycle. These accounts include salaries, wages, social

security, taxes, supplies, raw materials, auto, gas and oil expenses, advertising, and

others. These accounts are called natural because they have the names of their

expense categories.

However, factories don’t use this approach to cost analysis—and it’s not the one

we will use. In the factory, functional accountsshow the purposefor which expen-

ditures are made. Factory functional accounts include shearing, milling, grinding,

floor cleaning, maintenance, and so on. Factory cost accounting records are orga-

nized so that managers can determine the cost of particular products or jobs and

their likely contribution to profit.

Natural versus

functional accounts—

what is the purpose?