Marketing Finance Flashcards
Four reasons marketing managers need financial knowledge?
1) Secure funding,
2) Make informed decisions,
3) Demonstrate value,
4) Communicate across disciplines.
Why is financial modeling critical in marketing decisions?
It enables identifying profitable opportunities, setting budgets, pricing, and spotting potential issues.
How can finance support good market decision-making?
By building financial models linking offer revenues to direct costs, generating clear cash contributions.
Types of financial models used in marketing?
Single-offer models (for new products) and portfolio models (assessing profitability across product lines).
Why are portfolio models valuable for marketers?
They help determine which products contribute to profit or loss, guiding better resource allocation.
What is a strategic price point?
Price set to attract consumers by balancing value and production cost.
How is strategic price related to value?
It maximizes profit in a range where consumer value and market expectations align.
What is tactical pricing?
Short-term adjustments to maximize revenue within a set price point.
Examples of tactical pricing techniques?
Includes discounts, bundling, versioning, and loyalty schemes.
Why use a ‘loss leader’?
To attract customers who buy profitable add-ons, like printer ink.
How does price segmentation work?
Different markets are charged differently based on perceived value.
What is price bundling?
Combining products to boost perceived value, like a tree with stakes.
Risk of high price promotions?
Can lower profits long-term if competitors match discounts.
What is price branding?
Using symbols to make discounted products appealing on sight.
What is a financial offer model?
A financial view of a product/service for diagnostics or portfolio management.
Types of Financial Offer Models?
1) Individual Models: Single offers.
2) Portfolio Models: Multiple products in a portfolio.
Key components of a Single Offer Model?
Input sheet, revenue, variable/fixed costs, cash flow, notes.
Why use a financial offer model?
To fully leverage existing data on financial performance.
Key spreadsheet rules for a financial model?
Separate inputs, label assumptions, avoid constants in the main model, add notes.
How is the revenue component created?
Estimate market size/share, often with the chain ratio method.
Why is financial profitability crucial for businesses?
Without profit, a business risks failure.
What are the two main types of costs in a financial offer model?
variable costs (change with production) and fixed costs (constant regardless of production).
How is cash flow calculated in an individual financial offer model?
Cash flow = Revenue - Costs.
What is the ‘contribution’ in a financial offer model?
Contribution = Revenue per unit - Variable costs.
Why do Web services often have low variable costs?
Minimal expenses per additional user.
How do fixed costs behave in production?
Fixed costs remain constant regardless of the number of units produced.
How do we create a financial model of multiple offers within a portfolio?
Include shared cost calculations, allocation tables for fixed costs, and indirect cost worksheets.
What is indirect fixed cost allocation?
Dividing shared costs among products based on a specified allocation method.
How is indirect fixed cost allocation done?
Using an allocation table that specifies how costs are divided by a consistent basis.
Why is indirect fixed cost allocation important?
It clarifies product profitability and prevents misallocation of overhead costs.
How do we determine a product’s contribution to the business?
By subtracting variable costs from revenue, excluding overheads.
Why is it important to identify overheads correctly?
Misallocating overheads can distort profitability assessments.
What are overhead costs?
Indirect costs not linked to product revenue, excluded from financial models.
How can management influence overhead allocation?
By incorrectly allocating overheads to hide true costs and distort profits.
How can a marketer use financial models of multiple offers?
To understand each product’s contribution to overheads and make informed decisions.
What happens without proper financial analysis?
Non-contributing overheads grow, investments may go to unprofitable areas, and profitable areas might face cuts.
What are the consequences of poor overhead allocation?
It can lead to financial underperformance and “overhead bloat,” risking the organization’s viability.
What types of products can be identified in a profitability analysis?
Active profitable products, active unprofitable products, and moribund products
What is the link between a product’s fashionability and cash generation?
There’s often an inverse relationship; trendy products may not generate cash effectively.
What defines a good multiple product financial model?
Clear allocation of costs, separation of allocatable resources, and disassociation of non-allocatable costs.
