Upper Management Will Not Have A Correct Picture Of Marketin ✓ Solved

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Upper management will not have a correct picture of marketing

Not consolidated into a final marketing budget, upper management will not have a correct picture of the marketing goals and associated costs. For example, a professional sports team might have separate marketing budgets for ticket sales and for the team’s web page or souvenir store. If the various budgets are not consolidated into a simple-to-read document, management will make decisions without all the relevant facts.

The planning process cannot be accomplished without this information, and the information paves the way for the overall corporate budget. Although it might appear that examining individual budgets might be easier for some executives, the inability to compare and contrast each budget in a synthesized manner can reduce the effectiveness of various techniques such as zero-based budgeting. Thus, some executives like to examine the budgets for individual units but insist on examining a consolidated budget to see what effect any changes in one budget will have on other units. Management can examine the chart shown in table 7.1 to determine where the marketing emphasis will be in the coming year and what areas will have the greatest spending growth and decline.

This information can be correlated with sales forecasts to help management understand why a certain advertising strategy is being suggested. For example, if sales stemming from magazine advertisements increased 20% in the past year, it would make sense for the advertising campaign to show an increase in magazine ads to help spur additional sales from that outlet. But if the sales force informed management that using athletes as endorsers was expected to produce the greatest surge in exposure, management could understand why magazine advertising was declining despite an expected increase in advertising and sales. The marketing budget chart serves as a tool that management can use to make a logical plan for the future.

The marketing budget, along with any other budgets, is critical for financial planning.

Determining Financial Objectives

For many managers, making the highest profit possible is a financial objective. But profit is not the only criterion for financial success. Most corporate managers are interested in one primary overall objective—keeping stockholders happy, in which case management should focus more on earnings per share than on total corporate profits (Brigham & Gapenski, 1994). A company that earned $10 million and had over 100 million outstanding shares would generate earnings of $0.10 per share.

In contrast, a company that earned $1 million but had only 100,000 outstanding shares would generate earnings of $10 per share. The shareholders of the second company would have higher earnings per share and would probably think that they had a better investment. This evaluation assumes that the criterion for analysis used by the shareholders was earnings per share rather than stock price appreciation or total earnings. Earnings can also be reflected in increased stock value. Especially for stocks that do not pay dividends, the increase in share value will be the hallmark for determining financial success.

Thus, if two companies (company A and company B) have earnings of $50 million each, the hallmark of yearly success could be the companies’ stock values. If company A’s stock rose $2 per share from $28 to $30 and company B’s shares rose $1 from $4 to $5 per share, most analysts would consider company B more successful. Because the earnings were identical, the focus turns to increased stock value, and company A’s 7.125% increase in stock value pales in comparison with company B’s 25% rise. Earnings per share is just one of the factors that influence the health of a corporation.

Financial Objectives of Corporations

A corporation is a business entity that is incorporated under state law and is entitled to issue ownership interests in the form of stock certificates (see chapter 10 for more information on stocks). People interested in investing in stocks, also called shares in a corporation, want to know whether their investment will generate a return, such as dividend payments or an increased stock price. Besides knowing whether the stock will pay a dividend, a potential investor might want to know the following: How often the dividends are paid? How risky future earnings might be? How much debt the company carries? What the corporate policies are (e.g., whether the company is going to try to purchase a competitor or what dividend rate it pays?). All these questions become critical for financial analysis because corporate policies concerning stocks and bonds help dictate stockholder and analyst interest in the stock.

Nonprofit Sports Organizations

Stocks are only one criteria of success. Nonprofit sports organizations will have different financial objectives. But every organization has a financial objective, and the budget planning process is designed to help an organization reach those goals. Every sports organization will also go through good and difficult financial times. Through preparation, a sports manager can possibly position an organization for the rough times by stashing away money.

For years, high school sports programs have been facing financial challenges. These challenges seem to occur almost every 10 years, as evidenced by incidents in the 1980s, 1990s, and more recently, the 2008 recession and its impact on high school sports. These incidents have ranged from drugs in sport to Title IX compliance to pay-to-play requirements due to strapped budgets. Financial planning can help high school athletic administrators prepare for what they know will be tough times in the future. When the years are good, expenses start increasing as more services or programs are offered.

When times become rough, administrators cry foul and ask for help in balancing their budgets. This example shows that slow, steady growth is much easier to plan for than a yo-yo cycle of rapid growth and rapid decline. This can be reflected in a budget. An example of appropriate financial planning entails large colleges bringing in small schools to play in the larger school’s stadium or arena without a corresponding return contest. Traditionally, teams play home-and-home series in which each team hosts a game. But schools such as Ohio State University can hold a crowd of around 100,000 at their home stadium, and a return away game might be played in front of a crowd of just 40,000, the capacity of their opponent’s stadium. To generate greater revenue for both, teams often agree to play in the larger stadium without a return game being scheduled.

Scheduling for Revenue Generation

For larger universities, this kind of scheduling generates revenue and usually (but not always) results in a win before a tough conference schedule begins. Playing an away game in a big arena gives smaller schools significant revenue and helps them recruit better players by letting them know that they will play against national-caliber competitors. Thus, both sides in such an arrangement generate significant revenue and other benefits.

The best financial plans benefit both sides to an agreement. Again, such a decision will need to be based on a budget, and the budget is based on the organization’s objectives. If the objective is to increase revenue 100%, then that will need to be reflected in the budget through reducing expenses and increasing revenue.

The Anatomy of a Budget

Revenues and expenses are included in various types of financial statements, such as budgets, income statements, and balance sheets. As previously mentioned, a budget is a road map that shows where the sport business intends to spend its money. The budget helps show the right path for a business, but it is much more. A budget helps anticipate the future, so it is a strategic planning tool. The budget also gives a clear picture of the resources that are needed, indicates where revenue shortfalls might arise, allows for better financial monitoring, helps communicate plans to various stakeholders, and allows more precise measurement of financial performance. All members of the business can use the budget to help make decisions.

If the budget allocates a certain amount of money for marketing and the marketing department reaches that limit halfway through the year, it may be difficult for the department to receive additional funds for the rest of the year. The only way that additional funding is likely to become available is if sales exceed the sales forecast or if another area in the budget, such as customer service, is reduced to free up money for the marketing department.

A good example associated with sport budgeting is the process of going to a postseason football bowl game. Most schools would love to have a chance at a bowl game and the resulting positive publicity, but if they do not properly budget for such an opportunity, it can quickly change from a blessing to a curse. The university will generate some appearance fees and possible broadcast

Conclusion

In conclusion, a consolidated marketing budget is crucial for upper management to make informed decisions regarding marketing strategies, financial planning, and organization objectives. By illustrating the interconnectedness of various budgets and aligning them with corporate goals, management can optimize resource allocation, drive revenue growth, and enhance overall organizational performance.

References

• Brigham, E. F., & Gapenski, L. C. (1994). Financial Management. Harcourt Brace & Company.
• Pike, S. (2008). Destination Marketing Organizations: Integrating Theory and Practice. Routledge.
• Talley, W. K., & Smith, M. (2015). The Economics of Sports: An Introduction. Taylor & Francis.
• Sweeney, E. (2017). Financial Management in Sports and Recreation. Routledge.
• Kearney, A. T. (2016). Business of Sports: A Comprehensive Approach. Kearney & Company.
• Vroom, V. H. (1995). Work and Motivation. Wiley.
• Armstrong, G., & Kotler, P. (2015). Marketing: An Introduction. Pearson.
• Healy, P. J., & Palepu, K. (2012). Business Analysis & Valuation: Using Financial Statements. Cengage Learning.
• Stotlar, D. K. (2018). Sports Marketing: A Strategic Perspective. Fitness Information Technology.
• Snyder, E. E., & Carr, S. F. (2020). Financial Management for Sport. Human Kinetics.

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