Marketing Initiatives, Expected Cash Flows, and Shareholders'Wealth

Abstract It is widely accepted that marketing initiatives help firms acquire and retain customers. However, the link between the cash flows generated by customers' purchases and shareholders' wealth is not fully understood, and the literature is increasingly advocating the need for greater “marketing accountability.” In this interdisciplinary research, the authors adapt the theory of firm valuation from finance and show that a marketing action can affect the shareholders' wealth by (1) determining the firm's net present value (the “stock price effect”) and (2) potentially reducing the firm's cash needs (the “released working capital effect”). In demonstrating these results, the authors advance marketing theory by answering calls made in the literature to link marketing actions to the investors' cash flows, the firm's working capital needs, and the owners' wealth.The approach also shows that by reducing the firm's cash needs, marketing can increase the firm's productivity (operating efficiency). This imput...

[1]  Lien Lamey,et al.  How Business Cycles Contribute to Private-Label Success: Evidence from the United States and Europe , 2007 .

[2]  Sunil Gupta,et al.  Customer Metrics and Their Impact on Financial Performance , 2006 .

[3]  Forrest V. Morgeson,et al.  Customer Satisfaction and Stock Prices: High Returns, Low Risk: , 2006 .

[4]  D. Collings,et al.  Valuing customers , 2005 .

[5]  Lopo L. Rego,et al.  Customer Satisfaction, Cash Flow, and Shareholder Value , 2005 .

[6]  Sunil Gupta,et al.  Managing Customers as Investments: The Strategic Value of Customers in the Long Run , 2005 .

[7]  Gregory S. Carpenter,et al.  Measuring Marketing Productivity: Current Knowledge and Future Directions , 2004 .

[8]  Donald R. Lehmann,et al.  Metrics for Making Marketing Matter , 2004 .

[9]  C. Fornell,et al.  Customer Satisfaction and Shareholder Value , 2004 .

[10]  M. Reder.  The New Financial Order , 2004, The Journal of Economic History.

[11]  Katherine N. Lemon,et al.  Return on Marketing: Using Customer Equity to Focus Marketing Strategy , 2004 .

[12]  Dominique M. Hanssens,et al.  Sustained Spending and Persistent Response: A New Look at Long-Term Marketing Profitability , 1999 .

[13]  R. Rust,et al.  The Role of Marketing , 1999 .

[14]  Tasadduq A. Shervani,et al.  Market-Based Assets and Shareholder Value: A Framework for Analysis , 1998 .

[15]  Rajendra K. Srivastava,et al.  Driving Shareholder Value: The Role of Marketing in Reducing Vulnerability and Volatility of Cash Flows , 1997 .

[16]  R. Rust,et al.  Customer Satisfaction, Productivity, and Profitability: Differences Between Goods and Services , 1997 .

[17]  M. Quinzii,et al.  Theory of incomplete markets , 1996 .

[18]  Sanford J. Grossman.  Dynamic Asset Allocation and the Informational Efficiency of Markets , 1995 .

[19]  R. Rust,et al.  Return on Quality (ROQ): Making Service Quality Financially Accountable , 1995 .

[20]  Dominique M. Hanssens,et al.  The Persistence of Marketing Effects on Sales , 1995 .

[21]  R. Coase,et al.  The Institutional Structure of Production , 1991 .

[22]  Liam Fahey,et al.  Valuing Market Strategies , 1988 .

[23]  P. F. Anderson.  Marketing, Strategic Planning and the Theory of the Firm , 1982 .

[24]  Gary L. Frazier,et al.  A Model of Strategy Mix Choice for Planned Social Change , 1982 .

[25]  T. Copeland,et al.  Financial Theory and Corporate Policy. , 1980 .

[26]  E. Fama,et al.  The Theory of Finance , 1974 .

[27]  S. Levy,et al.  A New Form of Marketing Myopia: Rejoinder to Professor Luck , 1969 .

[28]  Vijay Mahajan,et al.  Chief Marketing Officers: A Study of Their Presence in Firms' Top Management Teams. , 2008 .

[29]  L. McAlister,et al.  Advertising, Research and Development, and Systematic Risk of the Firm: , 2007 .

[30]  Shankar Ganesan,et al.  The decline and dispersion of marketing competence , 2005 .

[31]  D. Reibstein,et al.  Metrics for Linking Marketing to Financial Performance , 2005 .

[32]  A. Rappaport,et al.  Creating shareholder value : the new standard for business performance , 1986 .

[33]  A. Heins,et al.  A Comment on the Modigliani-Miller Cost of Capital Thesis , 1969 .

[34]  F. Modigliani,et al.  A Comment on the Modigliani-Miller Cost of Capital Thesis: Reply , 1969 .

[35]  Merton H. Miller.  The Cost of Capital, Corporation Finance and the Theory of Investment , 1958 .