MARKETING

FINANCE
MARKETING MANAGEMENT
WITH A FINANCE EMPHASIS
OR
MARKETING FINANCE INTERFACE
OVERVIEW – CONCEPTS OF
MARKETING MANAGEMENT
 ….. The system of value exchange.
 …….the process of discovering and translating
consumer needs and wants in to product and
service specifications, creating demand and
then expanding demand.
 The management function which organizes and
directs all those business activities involved in
assessing and converting customer purchasing
power in to effective demand for a specific
product or service and then by selling the
product to the final consumer achieving the
profit target set by the company.
CONTRIBUTION OF MARKETING
TO SOCIETY
 Wealth of a society increases thro’ increase
in added value.
 Example : handloom products.
 The economy benefits by
-greater quantum of capital formation
-grater revenue to the exchequer
-higher employment
-increased buoyancy in economic activities
MARKETING CONCEPT
 A marketing oriented approach.
 Determining from the market, the direction
for planning and decision making .
 satisfying wants and needs of the customer
at optimum level of profit.
 What is product concept?
 What is selling concept?
SELLING/ MARKETING CONCEPT
 Production capability  Market acceptability
or product- market
 Selling a product or compatibility
service  Need identification
and fulfillment
 Push
 Pull
 Creating a market
 Aggressive niche
salesmanship
 Short to medium term  Medium to long term
selling marketing
BUSINESS DEFINITIONS
 Automobiles  Transportation
 Bread  Nutrition
 Cash registers  Protection
 Mattresses  Comfort
 Tea  Beverage
 Calculating machines  Business machines
 computers  Information
technology

While selling While marketing

WHAT IS A MARKET?
 Particular location?
 Geographical territory?
 Customer or a group of customers?
 A category of customers?
 Specific applications ,end uses of a product?
 People?
 Marketing is?
DIFFERENT TYPE OF MARKETS
 Buyers market
 Sellers market
 Consumer goods market
 Industrial goods market
 Service market – banks, insurance, travel,
cons
 Social market – social service – education,
family planning, health care, literacy drive,
rural development.
MARKET SEGMENTATION
 Dividing the market in to several sub-markets
 Each of which is of significant characteristics
And together forms a homogeneous group.
 The purpose of segmentation is to determine
differences among buyers which helps in
marketing to them.
 Geographic, demographic, social,
psychological etc
VARIOUS SEGMENTATION BASES
 Geographic  region, climate, size of
city, population density
 Age, sex, marital
 Demographic status, Income,
education, occupation

 Motivation, personality,
attitudes, values
 Psychological
 Lifestyles, interests,
opinions
 psychographic
MORE SEGMENTATION BASES
 Social  Social class, status,
family life cycle
 Culture, sub-culture,
 Socio-cultural cross culture, religion
 Usage rate, awareness
 Use-related status, brand loyalty
 Time, objective,
location, person
 Use-situation  Prestige, confidence,
health, nutrition
 benefit
PRODUCT DIFFERENTIATION
 Securing measure of control over the demand
of a product by advertising and promoting
the differences with the competing products.
 Make it appear special in respect to quality,
style, image, functional features, price etc.
 The aim of segmentation as well as product
differentiation is to achieve market
effectiveness.
MORE MARKETING
TERMINOLOGIES
 Market size
 Market share
 Marketing mix – product, price, promotion,
place, people, process, physical evidence
 Environments: regional, national,
international
 Marketing research – antenna
 Marketing mix exercise?
BASIC FINANCE
CONCEPTS
THE FIRM AS AN ECONOMIC
UNIT
 A FIRM OR BUSINESS HAS TO SURVIVE AND
GROW.
 EFFICIENTLY USE ITS RESOURCES VIZ. MEN,
MATERIAL, MACHINES, MARKET, MONEY.
 MOST IMPORTANT IS MONEY – IT MAKES YOU
ACQUIRE ALL OTHER RESOURCE.
 MONEY FOR FIXED ASSETS, MONEY FOR
WORKING CAPITAL
FINANCIAL NEEDS AND
RESOURCES
 LAND  DAY TO DAY REVENUE
 BUILDING EXPENSES LIKE
 PLANT  MATERIAL PURCHASE
 MACHINARY  PAYMENT OF WAGES
 EQUIPMENTS  OVER HEAD EXPENSES
 ALL ITEMS WHICH ARE
USED FOR A TIME
OVER ONE YEAR

FIXED ASSETS / CAPITAL WORKING CAPITAL

SOURCES OF FINANCE
 OWN CAPITAL  LOAN CAPITAL
 INTERNAL EQUITIES
 EXTERNAL EQUITIES
 EXTERNAL FINANCE
 FOR FIXED ASSETS (SHORT TERM)IS USED FOR
 FIXED ELEMENTS FOR WORKING CAPITAL
MOBILZING WORKING  LONG TERM EXTERNAL
CAPITAL FUNDS FOR EXPANSION
/REPLACEMENT OF FIXED
ASSETS AND
MODERNIZATION/
DIVERSIFICATION
PROGRAMS
INTERNAL EXTERNAL
CAPITAL AND REVENUE
 Capital gains means  Revenue income i.e.
gains accruing from accrue from normal
the sales / disposition business operations like
of capital assets. sales, interest
received, commission
 Capital expenditures earned.
are those incurred for  Revenue expenditure
acquisition of assets
to be used for more -salaries / wages
than one year -travelling expenses
-depreciation of
assets, bad debts
CAPITAL GAINS / EXPENDITURES REVENUE INCOME / EXPENDITURE
DEFERRED REVENUE
EXPENDITURE
 A revenue expenditure involving a huge some
of money specially if it is found that the
benefits of such expenditure will be accrued
or felt for many a years to come.
 The expenditure in such cases may be
divided in 3 ,5, or 10 parts depending on the
no of years the benefit is estimated to be
applicable.
 E.g. a huge ad expense, R & D expenses,
NEW PRODUCT DEVELOPMENT EXPENSES
CAPITAL , REVENUE, DEFFERED
REVNUE/ EXPENDITURE
 Repairs of chairs and benches in a school for
Rs.10,000.
 Purchase of machinery Rs.50,000. by a dealer
in machinery and equipment.
 Transfer of Rs.12,000.worth of furniture from
his furniture factory to his office for office
use.
 Alteration expenses of Rs. 10,000. to widen
the canteen space of the factory.
 Loss of sale of old furniture Rs.5,000.by PQ
LTD.
CAPITAL, REVENUE, DEFFERED
REVENUE
 AN AMOUNT OF Rs.1,00,000. paid to some
management consultant to advise on the
capital structure planning of a company AB
LTD WHICH CONSIDERING MAJOR
STRUCTURAL CHANGES.
 Preliminary expenses incurred by XY LTD
Rs.10 lakhs in connection with initial issue of
shares
ACCOUNTING
 FINANCIAL ACCOUNTING: BOOK KEEPING OR
RECORDING OF FINANCIAL TRANSACTIONS.

 COST ACCOUNTING: ACTUAL COST FINDING

 MANGEMENT ACCOUNTING: PRESENTATION

OF ACCOUNTING INFORMATION TO ASSIST
MANAGEMENT DECISIONS
FINANCIAL MANAGEMENT
 Planning  Ascertainment of
financial needs
 Determination of
sources of finance
 Organizing  Procurement of funds
 Allocation of funds
 Monitoring of funds
 control with regard to
utilization
 Financial discipline
MORE FINANCE FUNCTIONS
 Critical examination  Direct tax – income
of books of accounts tax
to check their  Indirect taxes – sales
accuracy tax, excise duty,
 Also detect and octroi etc.
prevent errors and
frauds
 External audit
 Internal audit

auditing taxation
OTHER FINANCE FUNCTIONS
 Insurance of assets  Provident fund
and property  Superannuation
 Vehicles  Gratuity
 Stocks insurance  Group and accident
 Loss of profit insurance
insurance  Executive commission

insurance Personnel schemes

MARKETING FINANCE
INTERDEPENDENCE
 Product planning/portfolio
 Product pricing
 Product profitability analysis – evaluation of
marketing performance.
 Functional cost analysis to achieve cost
effectiveness
 Effective budgetary control systems in
marketing.
 Marketing investment decisions.
OTHER JOINT ISSUES OF
FINANCE AND MARKETING
 Sale on consignment basis
 Leasing and hire purchase transactions
 Interest on credit granted
 Bills of exchange and hundies
 Recovery of excise duty thro’ invoicing.
 Recovery of sales tax both central and state.
COST-REVENUE-INVESTMENT
FRAMEWORK IN MARKETING
 The three components are a perspective view
of marketing finance.
 COST:
-setting up and running a marketing
organization
-the capital costs including depreciation and
ammortization.
- recurring costs
 REVENUE: what the organization earns
 PROFIT/LOSS IS A FUNCTION OF REVENUE
&COST
COST-REVENUE-INVESTMENT
FRAMEWORK IN MARKETING
 To keep recurring ops going in marketing, there are
two types of INVESTMENTS.
 1.Investment on capital assets(motor cars,
warehouses, office equipments ,etc.)
 2.Investment for working capital: inventory,
account receivables etc.
 Such investments cause further costs
-depreciation or diminution of capital assets,
inventory, value of amount to be collected
-financing or interest charges on investment
 RETURN ON INVESTMENT(ROI):
REVENUE - COST/INVESTMENT
ROI
NET PROFIT
 ROI = ----------------------------
CAPITAL EMPLOYED
NET PROFIT SALES
= ---------------------- * ------------------
SALES CAPITAL EMP.

= Net profit ratio * capital turnover ratio

BASIC COST CONCEPTS
1. COST FINDING

2. COST CONTROL

- COST REDUCTION
- COST EFFECTIVENES

3. COST ANALYSIS
COST FINDING
 THE PRINCIPAL IS 2+3+4

 2 TYPES OF COST: Direct and Indirect

Direct Cost is called Prime Cost
Indirect Cost is called Overhead
 3 ELEMENTS OF COST: Material
 Labour
 Expenses
 4 STAGES OF COST DETERMINATION:
 Prime Cost
 Factory Cost
 Total Cost
 Cost of Sale
PROGRESSIVE COST BUILD-UP
Rs. Rs.
DIRECT MATERIAL 30
DIRECT LABOR 20
DIRECT EXPENSES 5
1. PRIME COST 55
WORK OVERHEADS 15
2. WORK COST 70
OFFICE OVERHEADS 7
3. TOTAL 77
COST
SELLING & DISTRIBUTI OVERHEAD 3

4. COST OF SALES 80
PROFIT 20
SELLING 100
STAGES OF REVENUE AND COST
BUILD-UP
 1. NET TURN OVER
 2. PRODUCTION COST OF SALES:
DIRECT MATERIAL
DIRECT LABOR
PRODUCTION OVERHEAD
 3. GROSS PROFIT (1 – 2)
 4.NON-PRODUCTION OVERHEADS:
SELLING OVERHEAD
DISTRIBUTION OVERHEAD
R & D COST
 5. NET PROFIT before INTEREST, DEPRECIATION,
and TAX ( 3 – 4 )
COST ANALYSIS IN MARKETING
 Determination of marketing costs product
wise.
 Evaluation of managers according to their
cost responsibilities.
 Analysis of cost involved in serving different
class of customers
 Cost per sales call, per order,
 Decisions-making regarding different
channels, markets, regions
 Product profitability for differing levels of
promotional expenses
FUNCTIONAL ANALYSIS OF
MARKETING COSTS
 DIRECT SELLING COSTS – salesman salary,
commission, travelling, entertainment etc.
 ADVERTISEMENT AND SALES PROMOTION COST –
media ads, brochures, catalogues etc
 MARKET RESEARCH – in-house, external hire.
 DISTRIBUTION COSTS – transportation,
warehousing and storage, insurance, etc.
 CREDIT AND COLLECTION –cost of collection
staff, bad debts, cash discount.
 FINANCIAL AND GENERAL ADMIN – cost of sales
invoicing, interest in working capital locked in
finished goods and recievable
FURTHER MARKETING COST
ANALYSIS
 ORDER GETTING COSTS – market research
expenses, advertisements, sales office
maintenance, salesmen salaries, travel, sales
promotion etc.
 ORDER FILLING COSTS – order processing,
warehouse, finished goods inventory carrying
costs, transportation, packing, installation,
credit collection, repairs during warranty
etc.
FURTHER MARKETING COST
ANALYSIS - FIXED AND VARIABLE
 FIXED COSTS – sales department salaries,
rents of sales offices, warehouses etc
 VARIABLE COSTS – all the rest viz. packing,
transportation, installation , commissions,
discounts etc.
 Only variable costs can be identified with
products – for product viability analysis
 the fixed costs are set off against
contribution earned by the product grp.
COST EFFECTIVENESS ANALYSIS
 To achieve max return on cost
 E.g. 1. trying out alternate modes of
distribution with varying cost estimates
 2. quality and quantity of ad responses.

 RELEVENT COST ANALYSIS – helps in new

product introduction, dropping a product or
product line, changing the production
process etc
 LIFE CYCLE COSTING