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Managing the marketing budget in a cost-constrained environment
John A. Weber
*
Department of Marketing, Mendoza College of Business, University of Notre Dame, Notre Dame, IN 46556, USA
Received 1 November 2000; received in revised form 11 May 2001; accepted 17 June 2001
Abstract
Marketing costs have been rising rapidly while both manufacturing and general management costs have been declining. As a result, those
concerned with realigning corporate assets to maximize shareholder returns are requiring that marketers start proving their worth or be
gradually starved of resources. Reflecting such pressures, marketing managers are being asked to provide more convincing evidence that
planned marketing strategies will indeed yield more value for the company and its shareholders. Likewise, those charged with planning the
marketing budget are being asked to more thoroughly justify requested budget increases. Whole new financial measures are needed for
evaluating the relative productivity of specifically proposed marketing budget expenditures vis-a
`
-vis shareholder value. The paper reviews
several procedures that can help address these challenges and presents a detailed example of the application of one of the approaches.
D 2002 Elsevier Science Inc. All rights reserved.
Keywords: Marketing costs; Marketing budget; Marketing productivity; Marketing efficiency; Projecting sales growth; Marketing measures; Path Marketing
Analysis (PMA); Served market
1. Introduction
The traditional purpose of marketing has been to achieve
success in sales, market share, and gross margin in the
marketplace. Increasingly, however, top management has
begun to require that marketing view its ultimate purpose as
enhancing shareholder returns [1,2]. For corporate cost
cutters and others concerned with realigning corporate
assets to maximize shareholder returns, the marketing
budget invites particularly close scrutiny since marketing
costs have been rising rapidly while both manufacturing and
general management costs have been declining. Reflecting
these increasing costs, marketers face rising pressure to
become more efficient and productive. Those in charge of
the corporate purse strings are demanding that marketers
prove their worth or be gradually starved of resources.
Shareholder value should be a primary conc ern w hen
evaluating alternative p otential marketing strategies and
when setting and allocating the marketin g budget for future
operating periods. This paper reviews several contemporary
approaches to monitoring marketing productivity and sug-
gests how a procedure called Path Marketing Analysis
(PMA) can add additional insights for both evaluating
alternative potential marketing strategies and for setting
future marketing budgets with shareholder value as a
primary objective.
2. Marketing costs—out of control
Having assessed changes in the structure of corporate
costs over the past 50 years, Sheth and Sisodia [3] found
that manufacturing costs have dec lined from 50% to 30% of
total corporate costs due to the implementation of just-in-
time strategies, flexible manufacturing systems, redesigned
manufacture and assembly platforms, and the development
of cooperative supply management partnerships (Fig. 1).
Management costs (defined to include finance, accounting,
human resources and support functions such as legal depart-
ments and R&D) have also declined as a proportion of total
corporate costs (from 30% to 20%), reflecting strategies
such as downsizing, right-sizing, outsourcing, business
process reengineering and the pervasive application of
software solutions throughout the management infrastruc-
ture. In sharp contrast to manufacturing and management
costs, marketing-related costs have increased significantly
from only 20% of total corporate costs 50 years ago to 50%
today. As defined in the study, marketing costs include
expenses such as product development, selling, distribution,
0019-8501/02/$ – see front matter D 2002 Elsevier Science Inc. All rights reserved.
PII: S 0019-8501(01)00191-2
* Tel.: +1-219-631-5286; fax: +1-219-631-5225.
Industrial Marketing Management 31 (2002) 705 – 717