Marketing Cost Analysis

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Marketing cost analysis

Business firms use several tools and techniques for marketing control. The important ones among them are listed above. 1. Marketing audit 2. Market share analysis 3. Marketing cost analysis 4. Credit control 5. Budgetary control 6. Ratio analysis 7. Contribution margin analysis 8. Marketing Information inputs and warning signals 9. MBO management by objectives

Marketing cost analysis is another important tool of marketing control. In recent years, business firms all over the world have experienced steep escalations in their marketing and distribution costs. They have found, to their dismay, that increased sales do not necessarily bring them increased profits. Containing marketing and distribution costs has become an imperative for optimizing profits. It has also become an imperative for survival against the growing competition.

Definition –
Assigning or allocating costs to a specified marketing activity or entity in a manner that accurately captures the financial contribution of activities or entities to the organization.Marketing cost analysis, or distribution cost analysis, is the analysis of costs that affect sales volume, with the purpose of determining the profitability of different segment operations. Profitability is determined by sales volume and its associated costs and expenses.

The questions Marketing Cost Analysis answers –
* Which customers/accounts are unprofitable because of order size or geographic location? * What is the minimum order size that can be filled profitably? * Which distribution channel will be the most profitable for the firm to use? * Which territories are potentially most profitable?

* What profit contribution does each salesperson make? * Can cost improvements be made in physical distribution facilities? * Which product lines are unprofitable or could be improved in their profitability?

Importance of Marketing Cost Analysis:
The first requirement in controlling the marketing costs is to comprehend the components of the marketing costs and the methods available for their control.

Benefits & Uses of Marketing Cost Analysis:
Careful and systematic marketing cost analysis confers a variety of benefits on the firm. * It becomes an integral part of the decision-making process. * Serves as the basis for management decisions.

* Generates a sense of Accountability.
* Determining which marketing strategies are the best.
* Isolating problem areas.
Objectives of Marketing Cost Analysis –
The major objectives of marketing cost analysis are to determine the isolated contributions made to profitability and to evaluate the efficiency of all phases of the company’s marketing structure in terms of corporate goals and objectives.

Types of marketing Costs:
Marketing costs in modern, large-sized firms belong to a kaleidoscopic variety. There are ever so many components of the marketing cost and they vary in their significance, size, measurability and controllability. Generally, marketing costs are more difficult to measure and control, compared with other costs, such as material costs and manufacturing costs. Within the various components of marketing costs, some are relatively more amenable for measurement and control than others

Analyzing the costs by function:
The first step in marketing cost analysis is to gather the cost details of the various marketing function and analyze the function wise cost. For doing this, in the first instance various marketing activities have to be grouped into a few major and clearly identified functions. The marketing expenditure must be broken up over these functions.

Components of marketing costs:

* Physical distribution
* Inventory costs or costs of holding stocks
* Channel costs or costs of remunerating and administering the marketing channels. * Selling/sales administration costs
* Promotion costs
* Cost of credit extended
* Cost of...
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