Traditionally, marketing has focused its attention on customer or product-market results, such as customer counts, sales, and market share. The link to financial outcomes and stock price is rarely considered. Increasingly, however, the marketing profession is being challenged to assess and communicate the value created by its actions on shareholder value. These demands create a need to translate marketing resource allocations and their performance consequences into financial and firm value effects.
In recent years, researchers in marketing have begun to examine the demand creation aspect of firm valuation. Although demand creation is but one aspect of management strategy, it is arguably the most important and the most challenging. If marketing’s contributions were readily visible in quarterly changes in sales and earnings, the task would be simple because investors are known to react quickly and fully to earnings surprises. However, much of good marketing is building intangible assets of the firm—in particular, brand equity, customer loyalty, and market-sensing capability. Progress in these areas is not readily visible from quarterly earnings, not only because different nonfinancial “intermediate” performance metrics are used (e.g., customer satisfaction measures) but also because the financial outcomes can be substantially delayed. As with research and development (R&D), marketing is requesting the investor community to adopt an investment perspective on its spending.
This article integrates the existing knowledge on the impact of marketing on firm value. Specifically, the authors examine the methods for determining the impact of marketing on investor valuation and summarize the existing findings in this area. The authors first frame the important research questions on marketing and firm value and review the key investor response metrics and relevant analytical models as they are related to marketing. Then, they summarize the empirical findings to date on how marketing creates shareholder value, including the impact of brand equity, customer equity, customer satisfaction, R&D and product quality, and specific marketing-mix actions on firm value. Finally, they conclude with several directions for further research.
Overall, the studies reviewed in this article point to the link between marketing actions and investor response. In particular, the evidence supports the notion that investors are long-term oriented. In general, they favor marketing developments that improve the firm’s long-term outlook and discourage myopic marketing actions, though exceptions exist. Thus, corporate executives are advised to generate better information about their intangibles (e.g., investments in brand building, product and service innovations, R&D) and the long-term benefits that flow from them and then to disclose that information to the capital markets to give investors a sharper picture of the company’s performance outlook. As a step in that direction, the collective findings in this article could generate much-needed discussion among senior management, finance and marketing executives, and academics on the important role of marketing actions in determining firm valuation.
Shuba Srinivasan is Associate Professor of Marketing in the School of Management at Boston University. Previously, she was Associate Professor of Marketing in the A. Gary Anderson Graduate School of Management at the University of California, Riverside. She obtained her PhD in Marketing from the University of Texas at Dallas and has been a visiting research scholar at University of California, Los Angeles. Recently, the University of California, Riverside, named her a “university scholar” for a three-year period. Her research estimates return on marketing investment and long-term marketing productivity using time-series techniques and econometric methods. Her current research focuses on marketing’s impact on financial performance and firm valuation, marketing metrics, decomposing demand effects of radical innovations, and the effects of direct-to-consumer advertising from a shareholder’s perspective in the pharmaceutical industry. Her research won the 2001 EMAC best-paper award, and her work has been published or is forthcoming in Journal of Marketing Research, Marketing Science, Management Science, Journal of Marketing, International Journal of Research in Marketing, and Harvard Business Review, among others.
Dominique M. Hanssens is Bud Knapp Professor of Marketing at the University of California, Los Angeles. From 2005 to 2007, he served as executive director of the Marketing Science Institute. A PhD graduate of Purdue University, his research focuses on strategic marketing problems, in particular marketing productivity, to which he applies his expertise in econometrics and time-series analysis. Professor Hanssens serves or has served as an area editor for Marketing Science and an associate editor for Management Science and Journal of Marketing Research. His research has appeared in the leading academic and professional journals in marketing, economics, and statistics. Four of these articles have won best-paper awards in Marketing Science (1995, 2001, 2002) and Journal of Marketing Research (1999, 2007), and five others were award finalists. The second edition of his book with Leonard Parsons and Randall Schultz, titled Market Response Models, was published in 2001 and was translated in Chinese in 2003. He is the 2007 recipient of the American Marketing Association Churchill Lifetime Achievement Award.
J Marketing Research, Volume 46, Number 3, June 2009
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