Marketing Finance

Question 1

Four reasons marketing managers need financial knowledge?

Answer 1

1) Secure funding,
2) Make informed decisions,
3) Demonstrate value,
4) Communicate across disciplines.

Question 2

Why is financial modeling critical in marketing decisions?

Answer 2

It enables identifying profitable opportunities, setting budgets, pricing, and spotting potential issues.

Question 3

How can finance support good market decision-making?

Answer 3

By building financial models linking offer revenues to direct costs, generating clear cash contributions.

Question 4

Types of financial models used in marketing?

Answer 4

Single-offer models (for new products) and portfolio models (assessing profitability across product lines).

Question 5

Why are portfolio models valuable for marketers?

Answer 5

They help determine which products contribute to profit or loss, guiding better resource allocation.

Question 6

What is a strategic price point?

Answer 6

Price set to attract consumers by balancing value and production cost.

Question 7

How is strategic price related to value?

Answer 7

It maximizes profit in a range where consumer value and market expectations align.

Question 8

What is tactical pricing?

Answer 8

Short-term adjustments to maximize revenue within a set price point.

Question 9

Examples of tactical pricing techniques?

Answer 9

Includes discounts, bundling, versioning, and loyalty schemes.

Question 10

Why use a ‘loss leader’?

Answer 10

To attract customers who buy profitable add-ons, like printer ink.

Question 11

How does price segmentation work?

Answer 11

Different markets are charged differently based on perceived value.

Question 12

What is price bundling?

Answer 12

Combining products to boost perceived value, like a tree with stakes.

Question 13

Risk of high price promotions?

Answer 13

Can lower profits long-term if competitors match discounts.

Question 14

What is price branding?

Answer 14

Using symbols to make discounted products appealing on sight.

Question 15

What is a financial offer model?

Answer 15

A financial view of a product/service for diagnostics or portfolio management.

Question 16

Types of Financial Offer Models?

Answer 16

1) Individual Models: Single offers.

2) Portfolio Models: Multiple products in a portfolio.

Question 17

Key components of a Single Offer Model?

Answer 17

Input sheet, revenue, variable/fixed costs, cash flow, notes.

Question 18

Why use a financial offer model?

Answer 18

To fully leverage existing data on financial performance.

Question 19

Key spreadsheet rules for a financial model?

Answer 19

Separate inputs, label assumptions, avoid constants in the main model, add notes.

Question 20

How is the revenue component created?

Answer 20

Estimate market size/share, often with the chain ratio method.

Question 21

Why is financial profitability crucial for businesses?

Answer 21

Without profit, a business risks failure.

Question 22

What are the two main types of costs in a financial offer model?

Answer 22

variable costs (change with production) and fixed costs (constant regardless of production).

Question 23

How is cash flow calculated in an individual financial offer model?

Answer 23

Cash flow = Revenue - Costs.

Question 24

What is the ‘contribution’ in a financial offer model?

Answer 24

Contribution = Revenue per unit - Variable costs.

Question 25

Why do Web services often have low variable costs?

Answer 25

Minimal expenses per additional user.

Question 26

How do fixed costs behave in production?

Answer 26

Fixed costs remain constant regardless of the number of units produced.

Question 27

How do we create a financial model of multiple offers within a portfolio?

Answer 27

Include shared cost calculations, allocation tables for fixed costs, and indirect cost worksheets.

Question 28

What is indirect fixed cost allocation?

Answer 28

Dividing shared costs among products based on a specified allocation method.

Question 29

How is indirect fixed cost allocation done?

Answer 29

Using an allocation table that specifies how costs are divided by a consistent basis.

Question 29

Why is indirect fixed cost allocation important?

Answer 29

It clarifies product profitability and prevents misallocation of overhead costs.

Question 30

How do we determine a product's contribution to the business?

Answer 30

By subtracting variable costs from revenue, excluding overheads.

Question 31

Why is it important to identify overheads correctly?

Answer 31

Misallocating overheads can distort profitability assessments.

Question 32

What are overhead costs?

Answer 32

Indirect costs not linked to product revenue, excluded from financial models.

Question 33

How can management influence overhead allocation?

Answer 33

By incorrectly allocating overheads to hide true costs and distort profits.

Question 34

How can a marketer use financial models of multiple offers?

Answer 34

To understand each product's contribution to overheads and make informed decisions.

Question 35

What happens without proper financial analysis?

Answer 35

Non-contributing overheads grow, investments may go to unprofitable areas, and profitable areas might face cuts.

Question 36

What are the consequences of poor overhead allocation?

Answer 36

It can lead to financial underperformance and "overhead bloat," risking the organization's viability.

Question 37

What types of products can be identified in a profitability analysis?

Answer 37

Active profitable products, active unprofitable products, and moribund products

Question 38

What is the link between a product's fashionability and cash generation?

Answer 38

There’s often an inverse relationship; trendy products may not generate cash effectively.

Question 39

What defines a good multiple product financial model?

Answer 39

Clear allocation of costs, separation of allocatable resources, and disassociation of non-allocatable costs.