Marketing Financeinterface 110905215231 Phpapp01

8/11/2019 Marketing Financeinterface 110905215231 Phpapp01

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Marketing-Finance Interface

Prof. Ashwin Malshe

September 6, 2011

To

IIM-A PGPX


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About Ashwin Malshe

PhD (Marketing), MMS (Marketing), BE (Electronics)

Seven years industry experience

Institutional sales

Analytics

With ESSEC since July 2011

Multiple research interests

Marketing strategy

Marketing-finance interface

Consumer behavior

Social media marketing

Blogging activities

Micro-Positioning

Flirting with Finance

205/09/2014 Marketing-Finance Interface
http://ashwinmalshe.wordpress.com/http://www.flirting-with-finance.com/http://www.flirting-with-finance.com/http://ashwinmalshe.wordpress.com/http://ashwinmalshe.wordpress.com/http://ashwinmalshe.wordpress.com/


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Marketing Metrics

Measuring the impact of marketing strategies has been tough

Strategies by definition are long-term

Over a longer term many confounding effects can add noise

The outcome variables are not universally defined

Net sales/ gross sales

Number of customers

CLV

Profitability, etc.

Rich research exists in marketing to measure marketings impact ontraditional metrics



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Traditional Metrics are not Sufficient

The top management is more concerned about stock prices

The link between existing metrics and stock prices is not obvious

Many existing metrics are subject to manipulation by the managersInvestors may not trust them

GrouponsAdjusted Consolidated Segment Operating Income

Sales figures can be manipulated, e.g., channel stuffing

Managers themselves may not trust them

Various social media marketing metrics

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Financial Market Metrics

Capital market metrics are, on average, difficult to manipulate in a well

functioning financial market

Securities laws

Corporate governance

Shareholder activism

Arbitrageurs

In efficient markets, prices are unbiased estimates of the market participants

expectations about future cash flows

Financial market metrics are superior to firms internal metrics

The price changes can be extremely fast



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Marketing and Shareholder Value

=( )

( )

()operator denotes the expectations

How marketing affects

The magnitude of expected cash flows

The risk of the expected cash flows

The growth rate of the expected cash flows



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Marketing-Finance Interface


Marketing

Innovation Brand Equity

Corporate Social

Responsibility

Supply Chain Relations

Strategic Alliances

Customer Satisfaction

Finance

Firm Value Stock Returns

Systematic Risk

Idiosyncratic Risk

Liquidity Risk

Cost of Debt

Focus of

the Extant

Marketing

Literature


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Examples

Rao, Agarwal, and Dahlhoff (2004) study how manifest branding strategy

affects firm value

Corporate branded firms have higher firm value on average

Firms with house-of-brands strategy faired less well

Luo and Bhattacharya (2006) argue that CSR leads to higher customer

satisfaction, which in turn increases firm value

McAlister, Srinivasan, and Kim (2007) show that advertising and R&D

intensities reduce firms CAPM betaR&D may actually increase a firms risk (Berk, Green, and Naik 1999; 2004)



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Focus of My Talk Today

Advertising and firm value

Endogeneity of marketing strategy



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Advertising and Liquidity Risk

Advertising creates value through multiple channels

Increased cash flow

Reduced market risk

Increased liquidity

Advertising can also reduce liquidity riskthe risk that a stock cant be

traded when market returns are low

Advertising increases individual investor awareness

Individual investors tend to be liquidity providers

The spillover effect due to advertising can be as high as 1.3% of shareholder

value



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My Research Focus


Marketing

Innovation

Brand Equity

Corporate Social

Responsibility

Supply Chain Relations

Strategic Alliances

Finance

Firm Value

Stock Returns

Systematic Risk

Idiosyncratic Risk

Liquidity Risk

Cost of Debt

Focus of

the Extant

Marketing

Literature

Focus of My

Research

Capital Structure Customer Satisfaction


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Capital Structure and Satisfaction

Firms with more debt experience higher pressure to meet the interest

payments

Limited flexibility (Fresard 2010)

Cost-cutting in long-term investments (Peyer and Shivdasani 2001)

Investments in intangible assets such as customer satisfaction are difficult to

justify and therefore easy to cut under pressure

Cutting advertising for brand building

Reducing product and service quality (Maksimovic and Titman 1991; Matsa 2011)

Changing the pricing policy (Chevalier 1995)

Indebted firms are likely to invest less in customer satisfaction as it

generates cash flows in the long term



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Key Findings

Indebted firms have lower customer satisfaction on average

The negative relationship exists only for the firms that have fewer growth

opportunitiesManagers of low growth firms might be overinvesting in customer satisfaction

Debt acts as a disciplining mechanism

Higher customer satisfaction reduces firm value when the debt levels are

higher

This indicates that using debt to reduce free cash flows is actually a value increasingstrategy



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Thank You!

Marketing Financeinterface 110905215231 Phpapp01

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