Interface of Marketing with Finance

Q. What is the connection of Marketing to Finance?

Ans: Marketing is one of the main drivers of earnings, growth, and valuation. Finance is about
measuring the effects of marketing—from the decisions to operate in specific markets and serve
specific customers to pricing, basic advertising and messaging, product design, and the scope of
product lines.
 Tools for Marketing Control
Four sets of analyses can be useful for Annual plan control:
1. Sales Analysis: It measures and evaluates actual sales in relationship to goals.
Two separate tools make it work here.
--- Sales Variance Analysis: measures the relative contribution of different factors
to a gap in sales performance.
--- Microsales analysis: looks at the specific products, territories, and so forth, that
failed to produce expected sales.

2. Market share Analysis: Company sales don’t reveal how well the company is
performing relative to competitors. For this, the management needs to track its
market share in one of three ways:
--- Overall market share expresses the company’s sales as a percentage of total
sales.
--- Relative market share:

A useful way to analyze market share movements is in terms of four components:

Overall market share= Customer penetration* Customer Loyalty* Customer Selectivity* Price selectivity

Customer penetration= percentage of all customers who buy from the company
Customer Loyalty=
Customer Selectivity= Size of the average customer purchase
Price Selectivity= Average price charged by the company
 Conclusions from market share analysis:
• The assumption that outside forces affect all companies in the same way is often
not true.

• The assumption that a company’s performance should be judged against the

average performance of all companies is not always true.

• If a new firm enters the industry, every existing firm’s market share might fall.

• Sometimes a market share decline is deliberately engineered to improved profits.

• Market share can fluctuate for many minor reason.

3. Marketing Expense-to-Sales Analysis: Annual plan control requires making sure the company
isn’t overspending to achieve sales goals. The key ratio to watch is market expense-to-sales.
--- E.g., in a company, this ratio was 30 percent and consists of five component expense to sales
ratios: sales force to sales (15%), advertising to sales (5%), sales promotion to sales (6%),
marketing research to sales (1%), and sales administration to sales (3%).
--- Fluctuations outside the normal range are cause for concern.
--- Management needs to monitor period to period fluctuations in each ratio on a control chart
(The control chart is a graph used to study how a process changes over time.)

--- A control chart always has a central line for the average
 Financial Analysis
Management uses financial analysis to identify factors that affect the company’s
rate of return on net worth.
 Profitability Control
• Steps in marketing profitability analysis:
1. Identifying functional expenses
2. Assigning functional expenses to marketing entities
3. Preparing a profit-and-loss statement for each marketing entities

Determining the Corrective Action: