Teaching the Management of Marketing Profit First

The need for a metric, which measures the profit being generated by the firm?s expenditures on marketing activities, has been recognized for many years. Investors and executives are no longer satisfied with traditional marketing metrics, such as customer satisfaction, retention and sales revenues, as measures of marketing performance. More marketers and marketing departments are being held accountable for the profitability of marketing activities. Teaching students about the nature of marketing profit is particularly difficult because the mathematics used to define marketing profit and its rate of return on marketing expense, ROMI, are complicated. The mathematics are more complicated than necessary because conventional definitions make explicit reference to the sales response function that drives the revenues. In this paper the authors advocate using a new and simpler definition of marketing profit that does not make explicit reference to revenue. The proposed definition presents the concave relationship between marketing profit and marketing expenditures as a simple quadratic equation. A simple definition of marketing profit and ROMI as functions of expense that makes no explicit reference to revenue means that courses in marketing management can start, rather than end, with marketing profit as the central topic of marketing management.