Marketing Finance 1

8/8/2019 Marketing Finance 1

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MARKETING MANAGEMENT

WITH A FINANCE EMPHASIS

OR

MARKETING FINANCE INTERFACE


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.. The system of value exchange.

.the process of discovering and translating

consumer needs and wants in to product and

service specifications, creating demand and thenexpanding 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.


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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


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A marketing oriented approach.

Determining from the market, the direction

for planning and decision making .

satisfying wants and needs of the customerat optimum level of profit.

What is product concept?

What is selling concept?


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selling marketing

Production capability

Selling a product or

service

Push

Aggressivesalesmanship

Short to medium term

Market acceptabilityor product- marketcompatibility

Need identificationand fulfillment

Pull

Creating a marketniche

Medium to long term


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While selling While marketing

Automobiles

Bread

Cash registers

Mattresses

Tea

Calculating machines

computers

Transportation

Nutrition

Protection

Comfort

Beverage

Business machines

Information

technology


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Particular location?

Geographical territory?

Customer or a group of customers?

A category of customers?

Specific applications ,end uses of a product?

People?

Marketing is?


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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.


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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


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Geographic

Demographic

Psychological

psychographic

region, climate, sizeof city, populationdensity

Age, sex, marital

status, Income,education, occupation

Motivation,personality, attitudes,

values

Lifestyles, interests,opinions


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Social

Socio-cultural

Use-related

Use-situation

benefit

Social class, status,family life cycle

Culture, sub-culture, cross

culture, religionUsage rate,

awareness status,brand loyalty

Time, objective,location, person

Prestige,confidence, health,nutrition


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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.


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Market size

Market share

Marketing mix product, price, promotion,

place, people, process, physical evidence

Environments: regional, national,

international

Marketing research antenna

Marketing mix exercise?


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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


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FIXED ASSETS / CAPITAL WORKING CAPITAL

LAND

BUILDING

PLANT

MACHINARY

EQUIPMENTS

ALL ITEMS WHICH ARE

USED FOR A TIME

OVER ONE YEAR

DAY TO DAY REVENUE

EXPENSES LIKE

MATERIAL PURCHASE

PAYMENT OF WAGES

OVER HEAD EXPENSES


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INTERNAL EXTERNAL

OWN CAPITAL

INTERNAL EQUITIES

FOR FIXED ASSETS

FIXED ELEMENTS FOR

MOBILZING WORKING

CAPITAL

LOAN CAPITAL

EXTERNAL EQUITIES

EXTERNAL FINANCE(SHORT TERM)IS USEDFOR WORKING CAPITAL

LONG TERM EXTERNALFUNDS FOR EXPANSION/REPLACEMENT OFFIXED ASSETS AND

MODERNIZATION/DIVERSIFICATIONPROGRAMS


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CAPITAL GAINS / EXPENDITURES REVENUEINCOME / EXPENDITURE

Capital gains means

gains accruing from

the sales / disposition

of capital assets. Capital expenditures

are those incurred for

acquisition of assets

to be used for more

than one year

Revenue income i.e.accrue from normalbusiness operationslike sales, interestreceived, commissionearned.

Revenue expenditure

-salaries / wages

-travelling expenses-depreciation of

assets, bad debts


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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


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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 widenthe canteen space of the factory.

Loss of sale of old furniture Rs.5,000.by PQ

LTD.


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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 MAJORSTRUCTURAL CHANGES.

Preliminary expenses incurred by XY LTD

Rs.10 lakhs in connection with initial issue of

shares


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FINANCIAL ACCOUNTING: BOOK KEEPING OR

RECORDING OF FINANCIAL TRANSACTIONS.

COST ACCOUNTING: ACTUAL COST FINDING

MANGEMENT ACCOUNTING: PRESENTATION OF

ACCOUNTING INFORMATION TO ASSIST

MANAGEMENT DECISIONS


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Planning

Organizing

control

Ascertainment offinancial needs

Determination of

sources of finance Procurement of

funds

Allocation of funds

Monitoring of fundswith regard toutilization

Financial discipline


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auditing taxation

Critical examination

of books of accounts

to check their

accuracy Also detect and

prevent errors and

frauds

External audit Internal audit

Direct tax income

tax

Indirect taxes sales

tax, excise duty,octroi etc.


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insurance Personnel schemes

Insurance of assets

and property

Vehicles

Stocks insurance

Loss of profit

insurance

Provident fund

Superannuation

Gratuity

Group and accident

insurance

Executive commission


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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.


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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.


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The three components are a perspectiveview of marketing finance.

COST:

-setting up and running a marketingorganization

-the capital costs including depreciationand ammortization.

- recurring costs

REVENUE: what the organization earns

PROFIT/LOSS IS A FUNCTION OF REVENUE&COST


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To keep recurring ops going in marketing, thereare 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


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NET PROFIT

ROI = ----------------------------

CAPITAL EMPLOYED

NET PROFIT SALES

= ---------------------- * ------------------

SALES CAPITAL EMP.

= Net profit ratio * capital turnover ratio


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1. COST FINDING

2. COST CONTROL

- COST REDUCTION

- COST EFFECTIVENES

3. COST ANALYSIS


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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 COSTD

ETERMINATION: Prime Cost

Factory Cost

Total Cost

Cost of Sale


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Rs. Rs.

DIRECT MATERIAL 30

DIRECT LABOR 20

DIRECT E E SES

1. PRIME COST

WORK OVERHEADS 1

2. WORK COST 70

OFFICE OVERHEADS 7

3. TOTAL COST 77

SELLI G & DISTRIBUTI OVERHEAD 3

4. COST OF SALES 80

PROFIT

SELLI GPRICE

20

100


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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 )


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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 differentchannels, markets, regions

Product profitability for differing levels of

promotional expenses


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DIRECT SELLING COSTS salesman salary,commission, travelling, entertainment etc.

ADVERTISEMENT AND SALES PROMOTION COSTmedia ads, brochures, catalogues etc

MARKET RESEARCH in-house, external hire.

DISTRIBUTION COSTS transportation,warehousing and storage, insurance, etc.

CREDIT AND COLLECTION cost of collectionstaff, bad debts, cash discount.

FINANCIAL AND GENERAL ADMIN cost ofsales invoicing, interest in working capitallocked in finished goods and recievable


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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 warrantyetc.


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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 againstcontribution earned by the product grp.


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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 productionprocess etc

LIFE CYCLE COSTING

Marketing Finance 1

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