Financial Dimensions of Marketing Decisions

Frontmatter

Chapter 1. Introduction

Abstract

Marketing and finance are two sides of the same issue, both answering the same, fundamental questions that every business must answer: who will buy our product at the best price, how do we get as many profitable customers as possible, and how do we keep customers loyal and returning to purchase again and again? This chapter introduces the links between marketing actions and financial performance.

David W. Stewart

Chapter 2. The Financial Imperative of Marketing

Abstract

This chapter describes the reasons for measuring the performance of a firm in financial terms. First, finance is the language of the firm; publicly incorporated firms must report results in financial terms and are evaluated based on financial performance. Second, financial measures are the only way to compare alternative actions across products, markets, and customers. Such decisions can only be made if the costs and benefits are translated into comparable terms, and this usually means financial terms. The only way to answer questions about the optimal marketing mix is to translate marketing activities and outcomes into financial terms. Measuring marketing outcomes in financial terms provides accountability. Finally, measures of financial performance promote organizational learning and cross-functional team work by focusing members of the team on a common set of inputs and outcomes.

David W. Stewart

Chapter 3. Business Models: How Firms Make Money

Abstract

A business model is the story about how a business works and how all of its activities come together to produce a profit, that is, the business model is the way a firm makes money. Marketing is fundamental to a successful business model because the served market ultimately defines a business. This chapter describes the elements of business models, provides examples of business models, and explores the role of marketing in the identification and implementation of successful business models.

David W. Stewart

Chapter 4. Estimating Cash Flows

Abstract

Linking marketing activities and expenditures to financial performance requires translating the outcomes of marketing into cash flow. Cash flow estimates are essential for the evaluation of marketing plans, activities, and budgets. Estimating cash flows that are attributable to marketing activities is the most important input into the evaluation of marketing activities. Yet, it is also the most difficult part of the task of evaluation. This chapter explores approaches for and challenges associated with the estimation of cash flows.

David W. Stewart

Chapter 5. Intermediate Marketing Outcome Measures and Metrics

Abstract

Financial metrics are not the only measures of marketing outcomes. There are many measures of marketing outcomes in use today. This chapter explores some common measures of intermediate marketing outcomes used to assess the performance of marketing and the effects of marketing actions. It also places these measures within a conceptual framework that identifies how various measures may, or may not, be useful and when they may be helpful.

David W. Stewart

Chapter 6. Linking Marketing Outcomes to Financial Performance

Abstract

This chapter focuses on the linkages between intermediate marketing outcomes and financial performance. Linking marketing activities and expenditures to cash flow requires three things: (1) the story of how marketing activities and expenditures influence sales or margins; (2) a baseline that indicates what sales would be without marketing activity and expenditures; and (3) a set of intermediate outcome measures that are reliable predictors or antecedents of financial results. This chapter examines these three elements of the marketing/finance linkage.

David W. Stewart

Chapter 7. Creating and Measuring Brand Value

Abstract

Few concepts are more central to marketing than brand. Despite the importance of brand, estimation of the value of a brand and the return on marketing investments employed to build brands has been elusive. This chapter examines the measurement of brand health and value, identifies drivers of brand value, and develops a formal model for valuing a brand and for determining the value of brand-building activities and expenditures.

David W. Stewart

Chapter 8. Customer Lifetime Value: The Significance of Repeat Business

Abstract

Loyal customers, those customers who return to purchase again and again, are critical to the long-term financial success of the firm. This chapter explores the role of customer loyalty and repeat purchasing on the financial performance of the firm. The chapter develops the concept of lifetime value of a customer as a conceptual framework for linking marketing actions to cash flow and for evaluating the value of individual customers and the return on marketing actions and expenditures designed to create and maintain loyalty among customers.

David W. Stewart

Chapter 9. Anticipating the Future: Managing Risk and Real Options

Abstract

The future is not certain. There are risks and opportunities that may impact the outcomes of the best-laid plans. This chapter describes how the models, tools, and techniques developed for the case of certainty can be adapted to address more realistic situations in which marketing planning occurs under uncertainty. The chapter presents and evaluates techniques that firms use to incorporate risk into their budgeting processes and financial planning with a specific emphasis on how risk is evaluated in a financial context. The chapter also addresses the means by which firms may leverage existing marketing assets or real options.

David W. Stewart

Chapter 10. Managing Portfolios of Products

Abstract

Most businesses offer more than one product or service. The offering of multi-product portfolios creates unique issues for the analysis of the financial performance of marketing because there may be positive or negative synergies across products. As a result marketing activities and expenditures for one product may influence outcomes for other products. This chapter explores the issues associated with evaluating marketing performance in a multi-product context.

David W. Stewart

Chapter 11. Marketing Strategy and Financial Performance

Abstract

Corporate strategy and marketing strategy are about finding positive net present value opportunities that match the needs of at least a portion of a market. Ultimately this matching is the key to the identification of a successful business model. This chapter examines corporate strategy from a marketing perspective with an emphasis on the importance of identifying and satisfying customer needs rather than focus on the creation of structural barriers to competition that is often the emphasis of treatments of corporate strategy.

David W. Stewart

Chapter 12. Measurement Beyond the Firm

Abstract

Financial management is often criticized for its short-term orientation. Marketing’s emphasis on meeting customer needs over the long term makes marketing a natural counter-balance to a short-term orientation. This chapter focuses on the constructive role marketing can and should play in triple bottom-line reporting that focuses on both immediate profitability and the long-term sustainability of businesses and the society of which they are a part.

David W. Stewart

Backmatter