Relationship Between Accounting & Marketing | Your Business
Marketing costs respresent a significantly large component of the cost structure in many industries. Relative to research on manufacturing costs, however. Based on the scope of their mutual relationship, a distinction is made.. A challenging interface between management accounting and marketing however, have in common that they influence the behaviour of the organization's members. The accounting department of a business monitors the financial condition of a The accounting department must work closely with the marketing What Is the Relationship Between Organizational Functions & Organizational Structure?.
Performance Measurement Management accounting has been criticized for its focus on the short-term financial performance of firms by using indicators such as annual profit and return on investment. In response to this type of criticism, so-called multidimensional performance measurement systems have been developed over the last twenty five years. One of the most well - known systems is the balanced scorecard BSCintroduced by Kaplan and Norton [ 7 ]. Through its customer perspective the BSC, as a management accounting tool, attaches some importance to marketing aspects.
Here we see an informing interface between marketing and management accounting. In a later publication Kaplan and Norton [ 8 ] seem to opt for an even more ambitious interface.
They observe two levels of causal links, namely between the different performance perspectives, and within these perspectives between the various performance indicators.
A firm has to consider, for example, how the development of new products innovative perspective influences customer loyalty customer perspectivewhich in turn, may improve its profitability financial perspective.
This search for causal links in the performance measurement system requires a dialogue between marketing and management accounting professionals which may result in an integrating interface. Customer profitability analysis, which has recently become increasingly important, examines how individual customers or groups of customers differ in their profitability [ 5 ]. First, customers may buy a bundle of partly complementary products provided by a certain supplier, for example a deposit, a mortgage or insurance services from a bank, or purchase a new car from a car dealer, including its maintenance.
Second, marketing costs, such as costs concerning sales contacts, order taking, invoicing and transport differ from production costs in terms of their cost drivers [ 5 ]. Third, cost calculations mostly concern the yearly costs of particular objects, such as products or organizational units, whereas the costs throughout the lifecycle of a product are more important from a customer perspective.
Product complementarity, specific marketing costs and the product lifecycle all point to elements of marketing reasoning that have been adopted within a management accounting technique. The field of management accounting could benefit from the recent findings about customer profitability in the marketing discipline.
As shown by Gleaves et al. Ultimately, customer profitability has to contribute to the accomplishment of the company goals, such as profit and shareholder value. Hoekstra and Leeflang [ 11 ] point to a research pattern that associates marketing efforts, via the influence of intermediate variables such as customer lifetime and brand equity, with the above indicated company goals [ 12 ]. Cost Management While the traditional management accounting provides a toolkit for calculating the full product costs for pricing purposes, Japanese engineers are considered as the inventors of an opposite line of costing reasoning, called target costing [ 5613 ].
Target costing is concerned with the cost management of new products. The target costs are established if a proper balance is reached between the product attributes and the price at a favourable profit margin.
Since the target cost is often higher than the costs of already existing products containing partly comparable attributes, cost management techniques-such as value engineering - are required to identify the appropriate combinations of the future product prices, attributes and costs.
The Relationship Between Marketing and Accounting: Kotler’s Marketing Mix
Target costing is thus marketdriven and future-oriented. However, Roslender and Hart, Foster and Gupta [ 414 ] have observed that in practice target costing is more relevant in the accounting-engineering interface with cost tables and value engineering than in the accounting-marketing interface. Therefore, the latter merely has an informing character. Lifecycle costing resembles target costing in terms of its long-term focus.
It concerns the total costs incurred by the customer during the entire cycle of the product [ 515 ]. Lifecycle costing includes the whole value chain of a product from its design, production and distribution to post-purchase elements, such as maintenance activities associated with durable consumer goods. Also here marketing elements form an input throughout most stages of the value chain, suggesting the need for an integrating interface and between the marketing and accounting domains.
Activity-Based Costing ABC was developed in the s as a response to the increasing complexity of the production and distribution processes, which was insufficiently reflected in the cost systems that allocate costs on the basis of production volume-related measures [ 5616 ].
The Relationship Between Marketing and Accounting: Kotler's Marketing Mix | Babington
This also holds for marketing costs. Various components of marketing costs can be distinguished, relating to, for instance, the number of sales contacts, the number of transports, or the number of advertising outlets.
In order to gain a better insight into cost behaviour ABC can be used in combination with the two cost management methods described above, i.
Foster and Gupta [ 14 ] have made a plea for increasing the understanding of the variability of marketing costs as related to, for example, individual customers, customer groups and the company as a whole. Shank and Govindarajan [ 15 ] elaborate on the strategic cost drivers related to the value chain.
Whenever it is necessary to develop marketing-specific cost drivers or use value-chain cost drivers, such as competitiveness in distribution or price-product attributes, the application of ABC requires an integrating interface between accounting and marketing professionals.
Capital Investment Measuring the effects of marketing investments has remained an important topic in the marketing field for many years. Marketing journals pay a lot of attention to understanding the effects of marketing mix instruments. Specific research questions include: In their paper about the marketing-accounting interface Klaus et al. Clearly there is a call for action that stimulates marketing to learn from accounting. Recently, a single dress generated a great deal of controversy and interest on Twitter.
Relationship Between Accounting & Marketing
In only one week, thedress received more thanmentions on Twitter, and had appeared on hugely popular TV programmes like the Ellen Degeneres Show. Social shares got people talking, and raised awareness about the product, which in turn had a massive impact on sales. Accounting is closely linked with promotion, as any promotional activities have to be financially justified. Before promotional strategies can be put into place, marketing departments need to know that the cost of making a sale will be less than the sales value of the product.
Place This is where the product can be sold, or where customers look to buy your product. For some companies this is a physical place, such as a shop. However, companies like Amazon have revolutionised the location of selling, popularising internet shopping.
Due to this, global is quickly overtaking local selling for many businesses. Finance and marketing teams often work together to track, measure, and identify the location of the most lucrative markets.
They can monitor sales trends and expense trends in the business that can provide management with the information it needs to make plans for expansion or cost reductions.
Some of the most important expenditures a business can make are in the areas of marketing and advertising. A business must be able to market its goods and services, however they must also be able to manage the cost of the marketing and advertising efforts.
Marketing Reports The marketing department of a company sets up programs to increase sales via advertising and sales promotions. These can include direct advertising programs such as radio and television campaigns to indirect programs that include involvement in community and public organizations. The marketing department prepares a variety of reports designed to assist management in processes of determining sales strategies that work.
Reports might include gross sales per campaign or even customer hits on a website advertisement. Marketing is always looking for the best way to promote a business within the confines of the company budget.