Marketing as an Investment in Shareholder Value

Abstract

We present resource-based and capability-based arguments of marketing investment intensity to offer a strategic view of marketing as an investment in shareholder value. We find that marketing investment intensity has a U-shaped quadratic effect on shareholder value creation (Tobin's q) that calls for marketing investment to be protected and increased, not surrendered. We show how marketing investments interact with investments in R&D, human capital and operations to reveal how strategic co-investments can alter the shareholder value of marketing. Finally, we show how competitive intensity and failings in the firm's investment productivity (its ability to convert investment expenditure into sales) point to malaise in the firm's own strategic architecture as a fault for perceived poor returns from marketing investments. Our findings suggest that marketing investment should not be scapegoated when its contributions to shareholder value are not as expected. When invested in strategically and in combination with other investments, marketing can unlock exciting improvements in shareholder value.

Marketing firm performance: When does marketing lead to financial gains?

“…This was the indicator with the most generalized effects found in the research. Marketing behavior was also responsible for increasing company value, thus corroborating previous studies (Hanssens & Pauwels, ; Hughes et al, ), but only when the company was in recession. As the Tobin's Q is measured in expectations of return, marketing influences contingently shareholders and investors (Kim & Mahoney, ).…”

“…Some marketing researchers conceive theoretical propositions, attributing interconnected logics between marketing activities and financial metrics in a single framework (Katsikeas et al, ; Rust et al, ). However, when tested, the evidence is partial (only advertising), based on perception (questionnaires), nonlinear, and generally shows interactions with other organizational behaviors, especially with the market value (Hughes, Hughes, Yan, & Sousa, ).…”

“…If carried out, more intense marketing provides a more visible brand, which is valued by society, and this can influence investors into considering buying shares that have better prior performance and belong to notable companies (Rust et al, ). Marketing is one of the predictors of profit and market value (Hanssens & Pauwels, ; Hughes et al, ; Katsikeas et al, ). Even if the company faces suppression of financial gains in the recent scenario, the prior period of gain attenuates the degree of crisis (Currim et al, ) if, nevertheless, it adopts profit‐driving behaviors.…”

The Marketing Firm as a Metacontingency:Revealing the Mutual Relationships between Marketing and Finance

“…Two complementary asset-based indicators can help reveal these financial outcomes (Germann, Lilien, & Rangaswamy 2013;Hughes, Hughes, Yan, & Sousa, 2018). Return on assets (ROA) is the company's operating income divided by the average value of the assets of the previous year and the current year.…”

Advertising, Earnings Prediction and Market Value: An Analysis of Persistent UK Advertisers

“…A similar picture emerges in the UK context as well, where literature on the role of advertising in influencing firms' future earnings is limited due to a scarcity of advertising expenditure data. While Reekie and Bhoyrub (1981) find no significant relationship between advertising and profits, Paton and Williams (1999) report that advertisa comprehensive review of studies that relate advertising to profits or sales of firms or industry, and market values of firms; and Hughes et al (2018) for a useful summary of empirical studies of marketing activities on financial outcomes.…”