Xin Wang and I published a piece in the International Journal of Research in Marketing. We called the article Marketing Accounts. This discusses marketing accounts for managers. The full text of this research article is available free of charge. See the link below. (We would like to thank SSHRC/the Canadian government for this. They provided the funding for open access).
Marketing’s Value: Often Missed
In the marketing accounts paper we address a widespread problem.
Marketing actions frequently create long-term value yet this is often not recorded in financial accounts.Bendle and Wang, 2017, page 1
Research in marketing that tackles this issue often proposes a simple solution. We have an idea. Financial accountants should change the way they do their jobs. I have no problem with this recommendation. Still, it may be some time before the change occurs. Marketers and customers suffer most from the problems that not recoding marketing assets creates. It is not financial accountants who tend to suffer. Perhaps, given this, it is less than surprising that accountants are generally not rushing to embracing change. Marketers demand change. Financial accountants say no. As a result, marketer’s calls can seem a little futile. We need to change tack. We need to provide practical advice. How can reports be better?
Markets Can Do Better Without Financial Accounting Change
Our suggestion is better internal reporting. We argue that marketers should take control of a set of management accounts. The marketers can then make the accounts useful for their needs. Sadly, currently, management accounts often aren’t that useful to managers. Is this a surprise to anyone?
The change can happen. Internal reports typically follow external reporting rules. To be clear they do not need to. To help marketers drive the change we outline principles of internal marketing accounts for managers. We show how these principles differ from current practice.
In a critical bit of the paper we note that:
Marketing accounts capture the value of market-based assets, applying accounting’s matching concept as consistently as possible to treat marketing as an investment where appropriate. These accounts are based upon expected value, and are feasible within accounting rules given they aim only to aid management, not investor, decision making. Marketing accounts vary between, but not within, firms, and are comprehensive and regular. Finally, they are controlled by marketers with assumptions and models recorded and approved by the chief marketing officer.Bendle and Wang, 2017, page 1
Differences Between Financial And Marketing Accounts
A key difference between our proposal and current practice is worth highlighting. We apply the matching principle from accounting. Critically, we look at the principle a little differently. We apply this principle much more consistently. In financial accounting matching happens. Still, this is only until it becomes seen as too risky. When too risky the principle is quietly abanoned. Yet, a marketing investment can create a marketing asset. Marketing creates assets. These asset’s values are important. Our idea contrasts with simply pretending an investment wasn’t what it was. Assets arise from investments. So when we pretend investments were not what they were no asset is created. (This is the current general approach in financial accounting).
Marketing Accounts For Managers
Marketers cannot unilaterally change financial accounting rules. Yet, they can create formal systems to record marketing assets. Thus, marketing accounts. We can, therefore, do this today. There is no need for approval from any standard-setting organization.
In conclusion, marketers can, and should, change the way marketing is accounted for internally.
For more on marketing accounts see here.
Read: Neil Bendle and Xin (Shane) Wang (2017) Marketing Accounts, International Journal of Research in Marketing, http://www.sciencedirect.com/science/article/pii/S0167811617300290