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MARKETING FINANCE INTERFACE

1. Introduction, 2. Marketing Finance Independence, 3. Marketing Finance

Interdependence, 4. Cost-Revenue-Investment Framework in marketing.

1. INR!"#CI!N

$e preceding two c$apters conve%ed a genera& idea a'out t$e nature and purpose o(

marketing on t$e one $and and t$e ro&e and (unctions o( (inance on t$e ot$er, 'esides

a 'ird)s-e%e view o( t$e various su'-(unctions 'road&% covered under 'ot$ marketing

and (inance (unctions in an organi*ation. $is C$apter wi&& endeavor to s%nt$esi*e

t$ese ideas and e+amine to w$at e+tent t$ese two important (unctions are independent

and a&so interdependent. n attempt wi&& a&so 'e made to $ig$&ig$t $ow t$e success

o( an enterprise wou&d, to a great e+tent, depend upon t$e c&osest possi'&e

coordination 'etween marketing and (inance.

$ere $as 'een a tendenc%, (or a &ong time now, to treat marketing and (inance as two

comp&ete&% di((erent (unctions and separate t$em into water-tig$t compartments.

#n(ortunate&%, t$is tendenc% $as 'een more evident among t%pica& Indian enterprises.

Marketing peop&e $ave tended to create an impression t$at t$e% are t$e mone%

spinners and accounting and (inance, ust as man% ot$er (unctions, is unproductive

sta(( parasites &iving on t$eir /i.e. marketing peop&es0 earnings and wit$ no

contri'ution o( t$eir own. Finance peop&e, on t$e ot$er $and, wit$ rigorous

pro(essiona& ua&i(ications in most cases, $ave tried to (ind (au&ts wit$ marketing

peop&e and despised t$eir &ack o( know&edge o( (inance and even sometimes

condemned open&% t$eir $ig$-$anded attitude or (rittering awa% t$e compan%)s

precious (inancia& resources.

$ere is, $owever, a we&come sign o( suc$ tendencies steadi&% %ie&ding p&ace to an

attitude o( co-operation and co-ordination wit$ a view to (u&(i&&ing t$e overa&&

corporate o'ectives. % now t$e% mig$t $ave &earnt t$e mora& o( t$e time-$onoured

(a'&e t$at i( t$e &im's o( t$e 'od% (ig$t wit$ one anot$er t$e overa&& $ea&t$ su((ers and

conseuent&% a&& t$e &im's, too.

et, some con(&ict does e+it 'etween marketing (unctions and (inance (unctions in

most o( toda%)s organi*ations. $e marketing manager is un$app% wit$ t$e

accountant w$en t$e &atter tig$t&% contro&s t$e marketing sta(()s trave&ing e+penses or

t$e sa&es promotion 'udges. n accountant)s (inancia& wi*ardr% o( keeping t$e

compan%)s interest cost &ow is (rustrated '% t$e marketing manager)s e+pertise at

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e+tending credit to t$e va&ued customers or $o&ding more stocks at distri'ution points.

$e attempt o( t$e management accountant to prepare a rea&istic 'udget (or t$e

compan% is serious&% $ampered '% t$e marketing manager)s $ig$&% optimistic or

$ig$&% pessimistic predictions. t t$e end o( t$e %ear t$e actua& sa&es are ver% muc$

di((erent. $en t$e% are 'e&ow t$e prediction &eve&, t$e marketing manager is sure to

produce $is 5Magna Carta) o( reasons to usti(% t$e disma& resu&ts w$ic$ $ad it not

'een (or $im, wou&d $ave 'een even more disma&. nd ne+t %ear once again come t$e

unrea&istic predictions w$ic$ t$e marketing manager insists are rea&istic and t$ere

'egins t$e management accountant)s predicament.

2. MR67IN8 FINNC7 IN"797N"7NC7.

:et us (irst e+amine to w$at e+tent marketing and (inance (unctions are independent

o( eac$ ot$er. I( %ou ana&%*e t$e nature o( t$ese (unctions, %ou wi&& (ind t$at t$ere

e+ists a great dea& o( independence.

Marketing (unctions '% and &arge &ie outside t$e organi*ation. !n t$e one side, t$ere

is t$e marketp&ace and on t$e ot$er, t$ere is t$e organi*ation. In t$e marketp&ace t$ere

are customers, negative customers and neutra& or potentia& customers. $e

marketp&ace is a&wa%s in a state o( (&u+. It is a&so continuous&% a((ected '% economic,

po&itica& and socia& c$anges. ;uc$ c$anges are again o( a ver% comp&e+ and

interdependent nature. && suc$ c$anges and (orces and interactions at t$e

marketp&ace are transmitted to t$e organi*ation t$roug$ one important (unction o(

marketing, vi*. market researc$. ased on suc$ (actors and (orces t$e organi*ation

takes certain decisions w$ic$ are again re(&ected in t$e marketp&ace.

Finance (unction '% its ver% nature is interna& to t$e organi*ation. n important part

o( t$e (inance (unction, i.e. statutor% accounting or custodian accounting, is

responsi'&e to outsiders, vi*., s$are$o&ders, 8overnment aut$orities, auditors etc. ut

a&& ot$er (unctions under (inance do not owe an% a&&egiance to outsiders and t$e

degree o( dependence, too, is &itt&e. Financia& management, particu&ar&% to t$e e+tent

it re&ates to making avai&a'&e (inancia& resources (rom outside, is in(&uenced rat$er

wide&% '% e+terna& (actors, especia&&% capita& market situations. ut t$is in(&uence is

signi(icant&% di((erent 'ot$ in c$aracter and ua&it% (rom t$e in(&uences t$at market

(orces constant&% e+ert on t$e marketing (unctions.

$ese points wou&d &ead us to 'e&ieve t$at t$e nature o( marketing is comp&ete&%

di((erent (rom t$at o( (inance. nd t$ese two (unctions $ave to 'e disc$arged more or

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&ess in an iso&ated manner. &so t$ese two (unctions reuire comp&ete&% di((erent

t%pes o( tec$nica& and $uman ski&&s. $is wou&d 'e evidence (rom t$e (act t$at a ver%

success(u& sa&esman o(ten turns out to 'e an utter (ai&ure as an accounts assistant ust

as a ver% e((icient accounts man ma% make a mess o( sa&es i( $e is asked to $and&e

t$is.

3. MR67IN8 FINNC7 IN7R"79N"7NC7

genera& tendenc% to treat marketing and (inance as two di((erent (unctions and

separating t$em into water-tig$t compartments is $appi&% %ie&ding p&ace to t$e coming

toget$er /o( t$ese two (unctions0 wit$ an attitude o( mutua& co-operation and

coordination. $is we&come c$ange ma% 'e traced to two reasons. First, t$ese two

sets o( peop&e $ave genera&&% rea&i*ed t$at t$e% are working (or a common cause in

order to (u&(i&& common corporate o'ectives o( surviva&, pro(ita'i&it% and growt$.

;econd, t$ere are uite a (ew important areas w$ere marketing and (inance

specia&i*ations tend to over&ap. ;ome o( t$ese are ", as t$e case ma%

'e0

;ome progressive companies in India $ave t$ere(ore set up Marketing Finance Ce&& on

t$e same &ines as Market Researc$ Ce&&s. Marketing Finance Ce&& is sta((ed '%

personne& possessing e+pertise in 'ot$ (inance and marketing, so t$at t$e% can provide

sta(( assistance to marketing management at a&& &eve&s in a&& t$e important areas &isted

a'ove, as and w$en necessar%.

4. C!; R7?7N#7 IN?7;M7N FRM7!R6 IN MR67IN8

$is is a perspective view o( marketing (inance, comprising t$ree components. $e

term cost $as a 'road meaning $ere and covers in its am'it a&& costs o( setting up as

we&& as running a marketing organi*ation. ;ome o( t$ese costs are o( one time

nature @t$e capita& costsA in accounting termino&og%. !t$er costs are @revenueA or

o( recurring nature. ut even t$ose one-time capita& costs 'ecome a part and parce& o(

t$e recurring costs t$roug$ t$e process o( depreciation or amorti*ation, so t$at in t$e

end a&& costs get a'sor'ed or recovered t$roug$ operations.

Revenue is w$at t$e organi*ations earn '% se&&ing its products andBor services to

customers outside t$e organi*ation. $e sum-tota& o( a&& revenues is matc$ed against

t$e sum-tota& o( a&& costs, 'ot$ direct and indirect and t$e di((erence is worked out.

$en t$e di((erence is on t$e positive side /i.e. tota& revenue e+ceeds tota& cost0, it

means a positive surp&us or pro(it. $e negative di((erence means a &oss.

o keep t$e recurring operations going in marketing t$ere $as to 'e some investments.

$ese are 'road&% o( two t%pes vi*. investments on capita& assets /e.g. motor cars,

ware$ouses, o((ice euipment, etc0 and t$ose on working capita& /e.g. inventor%,

accounts receiva'&e, etc.0. $e recurring costs o( suc$ investments $ave to 'e

a'sor'ed as stated a'ove, a&ong wit$ t$e direct costs, '% revenues earned t$roug$

marketing e((orts. Recurring cost due to investments in marketing usua&&% takes an%

or 'ot$ t$e (o&&owing (orms

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