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. The objective of this paper is to integrate the existing knowledge on the impact of marketing on firm value. The authors first frame the important research questions on marketing and firm value and review the important investor response metrics and relevant analytical models, as they relate to marketing. The authors next summarize the empirical findings to date on how marketing creates shareholder value, including the impact of brand equity, customer equity, customer satisfaction, R&D, product quality and specific marketing-mix actions. In addition the authors review emerging findings on biases in investor response to marketing actions. The paper concludes by formulating an agenda for future research challenges in this emerging area.
As modern economies become predominantly service-based, companies increasingly derive revenue from the creation and sustenance of long-term relationships with their customers. In such an environment, marketing serves the purpose of maximizing customer lifetime value (CLV) and customer equity, which is the sum of the lifetime values of the company’s customers. This article reviews a number of implementable CLV models that are useful for market segmentation and the allocation of marketing resources for acquisition, retention, and cross-selling. The authors review several empirical insights that were obtained from these models and conclude with an agenda of areas that are in need of further research.
he shareholder value principle advocates that a business should be run to maximize the return on shareholders' investment, and shareholder value analysis (SVA) is fast becoming a new standard for judging managerial action. In this changing scenario, in which short-term accounting profits are giving way to SVA, it is advisable that all investments made by managers be viewed in the context of shareholder returns. Thus, every investment, be it in the area of operations, human resources, or marketing, may now need to be justified from the SVA perspective. The common yardstick that most investors use in this context is the share price, or more generally, the wealth created by a firm is measured by its market capitalization. This evolution presents a great opportunity for marketing. Indeed, by focusing on short-term profits at the expense of intangible assets, traditional accounting may marginalize marketing. In contrast, SVA takes a long-term perspective and encourages managers to make profitable investments. To capitalize on this opportunity, marketing will need to justify its budgets in shareholder value terms. This is a difficult task because the goals of marketing are traditionally formulated in customer attitude or sales performance terms. Furthermore, marketing may affect business performance in both tangible and intangible ways. Consequently, marketing budgets are vulnerable, especially advertising spending 20
Do price promotions generate additional revenue and for whom? Which brand, category, and market conditions influence promotional benefits and their allocation across manufacturers and retailers? To answer these questions, we conduct a large-scale econometric investigation of the effects of price promotions on manufacturer revenues, retailer revenues, and total profits (margins). A first major finding is that a price promotion typically does not have permanent monetary effects for either party. Second, price promotions have a predominantly positive impact on manufacturer revenues, but their effects on retailer revenues are mixed. Moreover, retailer category margins are typically reduced by price promotions. Even when accounting for cross-category and store-traffic effects, we still find evidence that price promotions are typically not beneficial to the retailer. Third, our results indicate that manufacturer revenue elasticities are higher for promotions of small-share brands, for frequently promoted brands and for national brands in impulse product categories with a low degree of brand proliferation and low private-label shares. Retailer revenue elasticities are higher for brands with frequent and shallow promotions, for impulse products, and in categories with a low degree of brand proliferation. Finally, retailer margin elasticities are higher for promotions of small-share brands and for brands with infrequent and shallow promotions. We discuss the managerial implications of our results for both manufacturers and retailers.long-term profitability, sales promotions, category management, manufacturers versus retailers, empirical generalizations, vector autoregressive models
Although price promotions have increased in both commercial use and quantity of academic research over the last decade, most of the attention has been focused on their effects on brand choice and brand sales. By contrast, little is known about the conditions under which price promotions expand short-run and long-run category demand, even though the benefits of category expansion can be substantial to manufacturers and retailers alike. This paper studies the category-demand effects of consumer price promotions across 560 consumer product categories over a 4-year period. The data describe national sales in Dutch supermarkets and cover virtually the entire marketing mix, i.e., prices, promotions, advertising, distribution, and new-product activity. We focus on the estimation of main effects (i.e., the dynamic category expansive impact of price promotions) as well as the moderating effects of marketing intensity and competition (both conduct and structure) on short- and long-run promotional effectiveness. The research design uses modern multivariate time-series analysis to disentangle short-run and long-run effects. First, we conduct a series of unit-root tests to determine whether or not category demand is stationary or evolving over time. The results are incorporated in the specification of vector-autoregressive models with exogenous variables (VARX models). The impulse-response functions derived from these VARX models provide estimates of the short- and long-term effects of price promotions on category demand. These estimates, in turn, are used as dependent variables in a series of second-stage regressions that assess the explanatory power of marketing intensity and competition. Several model validation tests support the robustness of the empirical findings. We present our results in the form of empirical generalizations on the main effects of price promotions on category demand in the short and the long run and through statistical tests on how these effects change with marketing intensity and competition. The findings generate an overall picture of the power and limitations of consumer price promotions in expanding category demand, as follows. Category demand is found to be predominantly stationary, either around a fixed mean or a deterministic trend. Although the total net short-term effects of price promotions are generally strong, with an average elasticity of 2.21 and a more conservative median elasticity of 1.75, they rarely exhibit persistent effects. Instead, the effects dissipate over a time period lasting approximately 10 weeks on average, and their long-term impact is essentially zero. By contrast, the successful introduction of new products into a category is more frequently associated with a permanent category-demand increase. Several moderating effects on price-promotion effectiveness exist. More frequent promotions increase their effectiveness, but only in the short run. The use of nonprice advertising reduces the category-demand effects of price promotions, both in the short run and in the long run...
Library of CongressCataloging-in-Publication Data Hanssens. Dominique M. Market response models: econometric and time series analysis( Dominique M. Hanssens. Leonard J. Parsons. Randall L. Schultz. p. cm.-(International series in quantitative marketing) Bibliography: p. Incl udes index.
Year after year, managers strive to improve financial performance and firm value through marketing actions such as new product introductions and promotional incentives. This study investigates the short-and long-term impact of such marketing actions on financial metrics, including top-line, bottom-line, and stock market performance. The authors apply multivariate time-series models to the automobile industry, in which both new product introductions and promotional incentives are considered important performance drivers. Notably, whereas both marketing actions increase top-line firm performance, their long-term effects strongly differ for the bottom line. First, new product introductions increase long-term financial performance and firm value, but promotions do not. Second, investor reaction to new product introduction grows over time, indicating that useful information unfolds in the first two months after product launch. Third, product entry in a new market yields the highest top-line, bottom-line, and stock market benefits. Managers may use these results to justify new product efforts and to weigh short-and longterm consequences of promotional incentives.
Under increased scrutiny from top management and shareholders, marketing managers feel the need to measure and communicate the impact of their actions on shareholder returns. In particular, how do customer value creation (through product innovation) and customer value communication (through marketing investments) affect stock returns? This paper examines conceptually and empirically how product innovations and marketing investments for such product innovations lift stock returns by improving the outlook on future cash flows. We address these questions with a large-scale econometric analysis of product innovation and associated marketing mix in the automobile industry. First, we find that adding such marketing actions to the established finance benchmark model greatly improves the explained variance in stock returns. In particular, investors react favorably to companies that launch pioneering innovations, with higher perceived quality, backed by substantial advertising support, in large and growing categories. Finally, we quantify and compare the stock return benefits of several managerial control variables. Our results highlight the stock market benefits of pioneering innovations. Compared to minor updates, pioneering innovations obtain a seven times higher impact on stock returns, and their advertising support is nine times more effective as well. Perceived quality of the new-car introduction improves the firm's stock returns while customer liking does not have a statistically significant effect. Promotional incentives have a negative effect on stock returns, suggesting that price promotions may be interpreted as a signal of demand weakness. Managers may combine these return estimates with internal data on project costs to help decide the appropriate mix of product innovation and marketing investment.
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