Accounting for Managers: Interpreting Accounting Information for Decision Making, 4th Edition

Chapter 10

Marketing Decisions

This chapter considers the use of accounting information in making marketing decisions. It begins with an overview of some of the key elements of marketing theory and introduces cost behaviour: the distinction between fixed and variable costs, average and marginal costs. Decisions involving the relationship between price and volume are covered through the technique of cost–volume–profit (CVP) analysis. Different approaches to pricing are covered: cost-plus pricing; target rate of return; the optimum selling price; special pricing decisions; and transfer pricing. The chapter concludes with an introduction to segmental profitability and customer profitability analysis.

Marketing strategy

Porter (1980) identified five forces that affect an industry: the threat of new entrants; the bargaining power of customers; the bargaining power of suppliers; the threat of substitute product/services; and the threat from competitors, each of which develops strategies for success. In a later book, Porter (1985) identified three generic strategies that businesses can adopt in order to achieve a sustainable competitive advantage. The alternative strategies were to be a low-cost producer, a higher-cost producer that can differentiate its product/services, or to focus on a market niche. The notion of cost is important in marketing decisions, but it will be more important for a low-cost strategy than for a differentiation or focus strategy, where the focus will be more ...