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Executive Summary
We live in a world of customer centricity, and firms are increasingly aligning their organizations around customers. These developments put marketing in the limelight—the function that best knows and understands the firm’s customers. However, in reality, the chief marketing officer (CMO) is currently the most frequently fired C-level executive, and a majority of recently surveyed companies claim that the marketing agenda and that of the chief executive officer (CEO) were not aligned in their organization. There seems to be a serious disconnect here. The solution may lie in the marketers’ ability to shake off the image of being tacticians rather than strategists capable of helping the CEO drive growth and profitability. This entails relating marketing performance to a higher-level financial performance metric that is of concern to the CEO. Toward this end, the authors develop a framework to link the outcome of marketing initiatives (as measured by customer equity) to the firm’s market capitalization (as determined by the stock price of the firm). The intuition is that the stock price of the firm is based on the expected future cash flows of the firm. If cash flow is primarily generated from customers, an increase in customer equity (or cash flow from customers) should translate into an increase in market capitalization (or the stock price of the firm). Several managerially relevant questions emerge. Can customer equity really predict the market capitalization of the firm? If so, can marketing strategies that increase the customer equity also increase the stock price of the firm? In such a scenario, can the marketer predict and claim responsibility for the lift in the firm’s stock price through appropriate marketing strategies? The authors seek answers to these questions through an empirical application of a framework involving real-world data from a Fortune 1000 business-to-business and a business-to-consumer firm. The results indicate that the customer equity metric (as determined from the individual customer lifetime value) can be used to reliably predict the average market capitalization or the stock price of the firm. The authors show how this linkage can be further improved by accounting for certain risk factors in the form of volatility and vulnerability of cash flows from customers. Consequently, it is possible to predict the market capitalization of the firm (on the basis of customer equity) within a maximum deviation range of 12%–13%. They further demonstrate how marketing managers can leverage appropriate marketing strategies not only to lift the stock price of the firm but also to beat market expectations. The findings broaden the scope and role of marketing and reinforce the importance of the marketer to any organization.

Biography
V. Kumar is the Richard and Susan Lenny Distinguished Chair Professor of Marketing, Executive Director of the Center for Excellence in Brand & Customer Management, and Director of the PhD Program in Marketing in the J. Mack Robinson College of Business at Georgia State University. He has been recognized with more than 20 teaching and research excellence awards, including three Lifetime Achievement Awards for contributions to marketing strategy, business-to-business marketing, and marketing research methodology. He has published more than 100 articles and books, including the recently released Managing Customers for Profit, Customer Lifetime Value: The Path to Profitability and Customer Relationship Management: A Databased Approach. His publications in scholarly journals include Harvard Business Review, Journal of Marketing, Journal of Marketing Research, Marketing Science, and Operations Research. His current research focuses on multichannel shopping behavior, international diffusion models, customer relationship management, customer lifetime value analysis, sales and market share forecasting, and international marketing research. He was recently listed in the top five scholars in marketing worldwide and has consulted for many Fortune 500 firms.

Denish Shah is Assistant Professor of Marketing and is assistant director of the Center for Excellence in Brand and Customer Management in the J. Mack Robinson College of Business at Georgia State University. His research focuses on issues that link marketing to firm performance. His research has been published in publications such as Journal of Marketing, Journal of Retailing, and Journal of Service Research. His dissertation won three prestigious awards, and his (coauthored) paper “The Path to Customer Centricity” won Journal of Service Research’s 2007 Best Paper Award. Besides academic research, he has executed some research-based consulting projects for Fortune 500 firms.

Journal of Marketing, Volume 73, Number 6, November 2009
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