Accounting is the art and science of recording, asserting, and summarizing transactions or events of financial nature with the intention of interpreting the outcomes of such a process. The main function of accounting is to provide the management with a record of all the major financial transactions of the company and a tool for the management to judge the efficiency of the operation of business, as the results of accounting lead to various products like profit and loss account, balance sheet, etc which are very valuable sources of information. Accounting operation has evolved from bookkeeping to a more complex process capable of providing management with a lot of valuable insights and tools for planning, control, etc. Accounting & Marketing Relation Assignment Help gives you a knowledge about both Accounting and marketing, how they are related to each other.
Marketing strategy in the very simple term that includes all the activities undertaken to create new customers and to satisfy all such customers. A major portion of activities of any business is made up of marketing activities. The main focus of marketing is on the marketing mix (traditional) which includes product, promotion, price and place. The other activities are driven by these factors. The strategic significance of marketing as a business function has grown as it has become an essential business function which plays a very vital role in the acquisition of a sustainable competitive advantage.
Accounting and Marketing are separate functions of an organisation and these functions are generally performed by separate departments in any organisation. But with time the interdependence and interaction between these two functions have only grown. It has been debated for a long time whether “Accounting and Marketing are Step Sisters or Noisy Neighbours”. Step sisters because though they are a part of different functions in an organisation they are heavily interdependent and good integration between these two departments is an essential for the company to perform well. But on the other hand, some feel that these twos are noisy neighbours as they tend to come at loggerheads with each other often with a clear lack of coordination causing more problems to the organisation performance than providing any help. There are various points which support both the points of view.
Some feel that accounting and marketing are interdependent and stand to gain a lot from each other if they can be well coordinated to ensure that the unique information possessed by each is shared with the other. Accounting cannot become a source of strategic importance till it can use the information from marketing well to help the company perform better. Accounting has also relied on marketing for information and such information is necessary to help accounting evolve from its traditional role to a more strategic role in the organisation. Also, marketing depends on the accounting information in order to help create a competitive advantage for the company.
Financial analysis based on the accounting data is useful in marketing in all the four functional areas. Situational analysis or the analysis of the financial situation tries to evaluate how effective the marketing strategies have been. It includes the study of trends, conducting a comparative analysis, appraisal of the current financial accounting strengths, health and limitations for any component or entire business or brand, etc. Financial/Situational analysis is carried out with a variety of tools but the most commonly used tools among them include profit analysis, ratio analysis, cost and sales analysis, contribution analysis, etc. Ratio analysis is used to judge the performance of the organisation on various parameters like leverage, efficiency, productivity, profitability, business communication, etc. These parameters are very helpful for the markers, for example, the liquidity analysis is very useful at the time of planning for a new product, preparing marketing budgets and taking marketing decisions. As at the time of launching a new product, liquidity is required in the organisation to meet the various planned and unplanned needs.
Evaluation of alternatives on financial parameters based on the accounting data involves the analysis of a number of factors like competitors, marketplace, etc. Such analysis is very helpful in taking decisions related to the introduction of new products, removal of mature/unprofitable products, increasing the number salesmen, increased expenditure on an advertisement, entering into new markets, discontinuing a market operation, building new warehouses, shops, showrooms, etc. The various tools used at the time of conducting a financial evaluation of various alternatives include breakeven point/analysis, costs and sales analysis, profit contribution and projections, return on equity, capital employed and investments, the rate of sustainable growth, analysis of the cash flows, etc. Using these tools the Logistics management can make an informed decision, choosing a preferable alternative from the various options available. For example, the management can evaluate the various alternatives on the parameters of return on equity, capital employed and investments, the rate of sustainable growth, breakeven point, etc. Then on the basis of these parameters the various alternatives can be ranked and the best alternative can be selected from the various alternatives.
Accounting data is also extensively used in financial planning in marketing. Accounting data is used to make projections for the activities be undertaken by the marketing management. Planning for the financials is helpful for a wide variety of activities like the decision of introduction of a new product range or category of product, impact of increased advertisements, making forecasts for costs and sales, etc. The various tools which can be used in financial planning are costs and sales forecasts, budgets, income statements, etc. Budgets can be made for the individual product, separate departments, individual business unit, branches etc.
Accounting data is the most helpful in marketing for performing financial control. The main idea is to ensure that the activities of business are carried on as per plan. Initially, the accounting data was used by marketers mainly for performing control functions. The data about costs, sales, etc available from accounts is very vital in ensuring that the plans are carried out without any deviations and in case there are any deviations the data helps find out the reasons for such deviation so that corrective actions can be taken to rectify such deviations and ensure that the planned targets are met. The various tools which can be used in the application of financial control include comparing the results achieved to the budgeted figures, analyzing the profit performance, etc.
The accounting department needs to adapt/adjust the information it uses while preparing the financial statements of the company so that they can be better used by the marketing department (Kotler and Armstrong, 2001). Also, the marketing department is one of the primary sources of information to the accounting department and the quality of financial statements provided by the accounting department also depends on the information from the marketing department. If the accounting has to evolve and provide innovative products to the company which can be beneficial to the company then it will have to depend on the marketing department types for better information and understanding of certain aspects of business. Accounting can help provide innovative information like calculating the marketing profit (Chen et al,. 1999) which helps take into account the effect of a having a particular product on the profitability of other products, accounting for brand value (Oldroyd, 1994), using accounting data to calculate the customer intimacy level (Cuganesan, 2007), etc.
Based on the above mentioned points it is quite safe to say that accounting and marketing are interdependent and can benefit greatly from each other creating a synergy which can greatly benefit the company and hence it can be said that accounting and marketing are step sisters heavily dependent on each other though they are a part of different functions in an organisation.
Although accounting and marketing seem to complement each other and with time have evolved to help the organisations take better decisions. But still there are various areas and instances where these two functions give contradictory results or preferred alternatives. The two functions each end up becoming the problem of the other function.
In a research (Barker, 2007) conducted it was found that the marketing department regards the accounting department as a very important provider of information much more than what the accounting departments regards the marketing department as a provider of information.
The marketers and accountants have different perception about the quality, acceptability and source of information. This highlights a very important issue regarding the integration and cooperation between these functions. Research (Gupta et al., 1986) has found that integration of various functions is hindered severely by the quality of information and lack of communication. It has been observed traditionally the functional departments try to isolate themselves and try to achieve their goals by trying to work within their own worlds of thought (Doughtery, 1992).
The degree of integration between any two functions is not only governed by their own worlds of thought but also, it is influenced by the degree of interdependence they perceive exists among their functions for a variety of reasons. It is very evident that there is scope for improvement in the flow of information from the marketing to the accounting department and the extent to which the accountants consider the information from the marketing departments as important and relevant. In fact, if the information flow from the marketing department to accountants improved the friction between these functions would considerably reduce (Ratnatunga et al., 1989). At the present moment, both the parties do not perceive similar value in the exchange of information which is leading to asymmetry of information. There is scope for continuous exchange of information if both the parties view equal value in the arrangement for themselves (Morgan and Hunt, 1994).
The biggest problem between accounting and marketing is that they very often end up giving contradictory results. One of the best examples of contradictory results given by the accounting and marketing information is the classic case of marketing profit versus accounting profit. Sometimes accounting performance information gives us data relevant to take a decision which may be totally against the information given by the marketers. This can be explained with the help of an example of the retail industry. It is very well known to retailers that a few categories play a more important role in the customer’s decision of which store to shop from, than others. For the overall profitability of the store, it is very important to have such categories to attract the most desirable customers into the store who will help earn the maximum revenue and profits. But under the traditional accounting, the individual profitability of the categories would be measured to decide the categories to be kept in the store based on the maximum profitability. But this method provides an imperfect decision as it does not consider the impact of merchandising certain categories on the profits of other categories in the store. Hence, here it is vital to take into consideration the impact of merchandising particular categories on the profitability of other categories. Although we know it is important to take the total effect of merchandising a particular product category on the store’s profitability, we are not able to do this as in practice it is very difficult for the managers to directly observe such cross effects. This is because if one has to directly observe the cross effects of merchandising a particular product category, they have to know how the customer shopping behaviour will change and hence what will be the store’s profit if the particular category was to disappear from the list of choice available to the customers. Also, it will be very difficult to create a demand structure which is rich enough that is can capture the bundled purchases made by the customers, but is still simple enough that the estimation can be made based on commonly observed variables.
Based on the points mentioned above one can clearly say that accounting and marketing are nothing more than noisy neighbours causing problems to each other, having difficulty in surviving with each other in an organisation.
But we all know that for an organisation to survive in this highly competitive environment characterized by continuously evolving technology and increased competitors it is essential for the company to create a competitive advantage for itself which it can achieve with the help of very high-quality information meeting the needs of the company to achieve it desired results. For this to be possible it is very important for accounting and marketing to stop being noisy neighbours and start acting like step sisters, helping the organisation utilize the potential synergy of their working together. To ensure these certain changes are required which will help integrate them better.
The management should, however, try to ensure that the accountants also regard the marketers as an important provider or source of information, as this helps ensure complementary resource, which is very important in ensuring success through collaboration (Sarkar et al., 2001). It is very important to ensure that there is a healthy balance in the sharing of their strengths by ensuring that they perceive each other as partners possessing unique information creating asymmetry in the resources possessed by each which creates interdependence. This will help ensure more regular sharing of quality information (Harrigan, 1985).
Accountants need to realise that their work is just not to measure or evaluate the marketing effort of the organisation but also they have a very important role in regulating/managing the information. If the accountants want to expand their role (traditional) to include strategic perspectives, they need to revise the information sharing and improve their perception about marketers as a source of information. At the same time, managers need to ensure that the information made available to the marketers is of better technical quality with reduced contradictions.
If the functions can generate and share good quality information management which is acceptable to them mutually, they can improve the ability of the organisation in understanding its competition and strategizing to beat the competition.
Two accountants (Jones and Leauby, 2002) have emphasized that there is a lot of scope for synergy between the marketing and accounting department. They firmly believe that by successfully combining the marketing personnel with the accountants an organisation can use its data to improve its returns. Marketers and accountants have extensive tacit and explicit information, most of which may be unique to them in the firm. Sharing such information with each other is a very important aspect of intelligence generation within the firm, which can lead to enhanced strategic planning, organising implementation, performance and control.
Hence, it is clear that at present accounting and marketing act as both step sisters and noisy neighbours but with time organisations have clearly realized the potential benefits from the integration of these two. As a result, all the organisation have been taking the steps necessary to integrate these two to realise the potential benefits of synergy from accounting and marketing working together to help the organisation create a sustainable/tangible competitive advantage for itself. Integration of these two will help produce innovative information like marketing profit, etc
- Barker, T. (2007): Exploring the differences between accountants and marketers in terms of information sharing.
- Chen, Y., Hess, J.D., Wilcox, R.T., Zhang, Z.J., (1999): Accounting Profits Versus Marketing Profits: A Relevant Metric for Category Management. Marketing Science 18, No. 3, Summer 1999, pp. 208-229
- Cuganesan, S. (2007): Calculating customer intimacy: Accounting Numbers in a Sales and Marketing Department
- Dougherty, D. (1992): “Interpretive barriers to successful product innovation in large firms”, Organization Science, Vol. 3, pp. 179-203.
- Gupta, A.K., Raj, S.P. and Willemon, D. (1986): “A model for studying R&D-marketing interface in the product innovation process”, Journal of Marketing, Vol. 50, pp. 7-17.