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

592 Chapter 20

Marketing jobs are done for specific purposes too. With some planning, the costs

of marketing can also be assigned to specific categories, such as customers and prod-

ucts. Then their profitability can be calculated.

Marketing managers often need
to assign costs to specific
products or customers to be able
to understand the profitability of
different possible strategies.

Internet

Internet Exercise ITW, Inc., has a variety of different businesses that pro-

duce different products. ITW mainly targets business markets, but its ITW

Brands division sells through home improvement retailers. Go to the ITW

website (www.itwinc.com) and then select the list of other ITW websites. After

you briefly review the descriptions of ITW’s different websites, select ITW

Brandsand study it in more detail. From a cost standpoint, does it make

sense to have a unit like ITW Brands? Why or why not?

The first step in marketing cost analysis is to reclassify all the dollar cost entries

in the natural accounts into functional cost accounts. For example, the many cost

items in the natural salaryaccount may be allocated to functional accounts with

the following names: storing, inventory control, order assembly, packing and ship-

ping, transporting, selling, advertising, order entry, billing, credit extension, and

accounts receivable. The same is true for rent, depreciation, heat, light, power, and

other natural accounts.

The way natural account amounts are shifted to functional accounts depends on

the firm’s method of operation. It may require time studies, space measurements,

actual counts, and managers’ estimates.

The next step is to reallocate the functional costs to those items—or customers

or market segments—for which the amounts were spent. The most common

reallocation of functional costs is to products and customers. After these costs are

allocated, the detailed totals can be combined in any way desired—for example, by

product or customer class, region, and so on.

The costs allocated to the functional accounts equal, in total, those in the natural

accounts. They’re just organized differently. But instead of being used only to show total

company profits, the costs can now be used to calculate the profitability of territories,

products, customers, salespeople, price classes, order sizes, distribution methods, sales

methods, or any other breakdown desired. Each unit can be treated as a profit center.

First, get costs into
functional accounts

Then reallocate to
evaluate profitability of
profit centers