Linking Marketing Metrics to Financial Performance - Emory ...

proposed above? We illustrate belowa particular example. Continuingwith the example outlined earlier inFigure 6, let us consider theevaluation of a particularpromotional campaign on firm value,and the strategic decisions involvedin running this campaign. Let usconsider a simple setup:CE = customer equityp = current promotionalspendp o = past promotional spendf c (p , p o ) = current value ofcustomer equity, as a functionof this promotional campaignf f (p , p o , v p ) = future expectedvalue of customer equity, as afunction of promotions as wellas variability created bypromotions, wherev p = variability in customerequity = f v (p , p o )Now, letCE = … + w f c (p , p o ) + (1-w)f f (p , p o , v p )where … represents other factorsimpacting CE that are not a functionof p, and w is the importance weightattached to the current value ofcustomer equity. Now, consider ascenario where promotions lead toan increase in short term customerequity and the variability in customerequity, and that an increase invariability reduces the expectedfuture value of customer equity.These assumptions imply:∂fc∂p∂vp∂ff> 0 , > 0, < 0∂p∂vWhile the above assumptions appearreasonable for a promotionalcampaign, were it to be anadvertising campaign, one can easilypspeculate that the partial derivativeof current customer equity withrespect to advertising might bepositive, it might be of lowermagnitude, whereas the partial ofthe future equity would be positive,and not negative.Given these assumptions1,optimizing CE with respect to pyields the following implicit equationfor the optimal promotional spend,p* :∂CE∂p∂f∂f∂f∂vcf f p= 0 ⇒ w + (1 − w)[+ ] = 0∂p∂p∂v∂pNow, suppose the manager in chargeof promotional spending realizes thatthe market conditions are such thatshe should focus more on futurecustomer equity. What should thisimply for her decision regarding theoptimal promotional spending? Usingthe implicit function theorem, it isclear that:∂p* ∂f∂fc fsign() = sign(−∂w∂p∂p∂f−∂vOn the right hand side of the aboveequation, the first and third termsare positive in sign. The second termcould be either positive or negative.If the manager estimates that theincreasing current promotional spendis negatively impacting expectedfuture value, it is clear that the righthand side is positive in sign. Givenher objective of focusing more onfuture customer equity, she shoulddecrease w, and her optimalpromotional strategy would be toproportionally decrease the current1 And the additional one that the second orderconditions hold.fpp∂vp)∂pZyman Institute of Brand Science 19