2006 Inaugural Mays Marketing Research Camp Report
Innovation and New Product Management
Friday, April 27 2006
Mays Business School
Texas A&M University
|
Mike Hanssens, Executive Director, Marketing Science Institute & Budd Knapp Professor of Marketing, UCLA, Marketing Actions and Investor Response |
Dominique Hanssens, Marketing Science Institute
& University of California, Los Angeles
This presentation summarizes a series of studies that focus on the link between marketing action and financial performance. There are primarily two research approaches to investigate this causal link. The first approach deals with stock response modeling which operates under the efficient capital market paradigm and uses cross-sectional time series data to disentangle the effects of marketing actions. The second approach is persistence or vector auto-regressive (VAR) modeling which models revenue, profit, marketing activity and market value as a system. In addition, this approach also accounts for feedback loops in which the stock market could influence marketing decisions. The empirical findings from these studies can be summarized as below:
1) Marketing actions often have an impact on firm valuation above and beyond its impact via sales and profits.
2) New product introductions are rewarded in the short-term and the long-term
3) Promotional rebates hurt in the long-run.
4) Advertising effects can spillover from consumers to investors and create performance expectations.
The summary of the Q&A is as follows:
Q. Are you implying causality between marketing actions and investor response?
R. Yes, the link between marketing actions and investor response can be modeled through time-series data.
Q. Why are the direction of the effects of promotional rebates on short-term impact and long-term firm value opposite?
R. Promotions do help in lifting the sales if it is done infrequently. However, in the long-run if it is repeated frequently, consumers expect discounts and firm value gets eroded. The prime example is the auto-industry that promoted frequently resulting in lower value realization.
Q. The financial performance of Home Depot is impacted by environment, industry and firm factors. How can this framework explain this?
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