Skip to content

Marketing Thought

Clarifying management/marketing theory

Menu
  • Neil Bendle
  • Popular Marketing Metrics: How Not To Mess Them Up
  • Marketing Metrics 4th Edition Book
  • Marketing PhD Applications
  • Advice For The Marketing Academic Job Market
  • Sustainable Marketing Strategy
  • Public Policy, Behavioral Economics and Marketing
Menu

Classifying Marketing Investments As Expenses

Posted on August 3, 2018September 29, 2021 by neilbendle

For this week and next I will look at an excellent book – Marketing Finance – by Keith Ward. He has taught at Cranfield amongst other places. (There are later editions with new co-authors — but reading different editions of the same book too close to each other is a bit too much even for me). In this post I will discuss classifying marketing investments as expenses.

Problems At The Marketing Finance Interface

Ward’s book — my edition is 2004 — makes many of the key points that later work in this field addresses. He draws on some invaluable personal experience to discuss problems at the Marketing Finance interface. He also gives advice on how to manage these problems. Some of the book is just a more financially literate take on well known marketing concepts. More interesting, from my perspective, is his strong focus on the practical problems of working with financial reporting systems.

Classifying Marketing Investments As Expenses

A key part of the book discusses the issues that come from classifying marketing investments as expenses. The consequences are highlighted.

“..if marketing development expenditure is capitalized as an asset on the organisation’s balance sheet, rather than being expensed as it is incurred, the resulting accounting ROI would be significantly altered”

Ward, 2004, page 190.

It is a theme that I return to on a number of occasions in my work. When you assess the performance of marketing investments how the score is kept is critical to your assessment. As a general rule I would say that results do not mean anything if you don’t understand how the score is kept.

How Marketing Investments Are Seen In The Financial Accounts
How Marketing Investments Are Seen In The Financial Accounts

Other Challenges

Beyond accounting’s challenges classifying marketing investments Ward notes further challenges. These include the division of spending into “‘above the line’ (meaning mainly media advertising) and ‘below the line’ (meaning promotions for both trade and end customers, etc.)”. He says this is “also very unhelpful” (Ward, 2004, page 19). Ward is persuasive. These distinctions are largely meaningless to understanding marketing. Given this why use this classification?

He also notes the challenge of dealing with promotions. Ward points to the problem of using a single financial evaluation to promotions of different types. A key issue is that you can’t just assess all promotions’ profitabilities within a single promotional period. Promotions impact periods other than the promotional period. For example, consumers seeing promotions start to wait for deals. They then stockpile during deals. Basically the promotional period steals sales from other periods. This means the promotion even if it looks profitable in that period it might not be actually profitable over the long term.

Ward isn’t just negative about working in marketing finance. He highlights critical success factors which I’ll turn to next week.

My blog has a lot of work on marketing accountability and challenges with the managerial and financial accounting of Marketing. See here, here and here or just search the site. For more on how I think we could better record marketing see here.

Read: Keith Ward (2004) Marketing Finance: Turning Marketing Strategies Into Shareholder Value, Elsevier

Share on Social Media
x facebook linkedin reddit

  • Escape From Poverty And Disease
  • Comprehensive Guide To Drawdown Solutions
  • Must Firms Maximize Shareholder Value?
  • People Aren’t Getting Worse

MASB’s Universal Marketing Dictionary

Need a marketing definition? Use MASB’s Universal Marketing Dictionary. Click for the MASB Universal Marketing Dictionary

Pages in Marketing Thought

  • A Plea About Language Used In Marketing
  • Advice For The Marketing Academic Job Market
  • Behavioral Econ For Kids: The Cartoon Book
  • Data Visualization Advice
  • Machine Learning (ML) And Marketing: What Should You Know?
  • Marketing In The Movies
  • Marketing Metrics 4th Edition Book
    • Chapter of Marketing Metrics 4th Edition, Free Sample
  • Marketing PhD Applications
  • Marketing Thought Website Data
  • Neil Bendle
  • Popular Marketing Metrics: How Not To Mess Them Up
    • Brand Valuation: Progress But Lots More Needed
    • Customer Equity: Nice Idea, Bit Of A Mess In Execution
    • How To Use, And Misuse, Customer Lifetime Value (CLV)
    • Is ROI The Most Abused Term In Marketing?
    • Market Share: Always An Indicator Never A Target
    • Marketing Accounts: A Better Way To Measure Marketing Performance
    • Measuring Competition With The Bendle Panda Index
    • Net Promoter Score: Sadly Not As Magical As Supporters Suggest
    • Profit Measurement: Choose Your Own Level Is Problematic
    • Tobin’s Q: Why Academics Should Listen To Managers
    • Total Q, A New Improved Tobin’s Q? Not By Much
    • Value Of A Like: Do Not Use For Budgeting
  • Public Policy, Behavioral Economics and Marketing
  • Recommended Books
  • Sustainable Marketing Strategy
    • B Corp Research Papers
    • Marketing Strategy
      • Measuring Culture Is A Challenge, But Don’t Be Silly
      • Rationality And Marketing Strategy
      • Segmentation, Targeting and Positioning
      • Strategy And Evolutionary Thinking
  • Sustainable Marketing Strategy Cases
©2023 Marketing Thought | Built using WordPress and Responsive Blogily theme by Superb
Go to mobile version