Linking Marketing Metrics to Financial Performance - Emory ...

focus on the short-term outcomes(Anderson 1982; Dekimpe andHanssens 1995). While companiessuch as Kraft and General Mills areselling at two to three times bookvalue, P&G’s valuation is a lofty 8.7times book value, almost equallydivided in current value and futureexpected performance. In otherwords, while senior managerscomplain that investors put far toomuch on short-term quarterlyearnings, the market actually putsthe majority of value on the ability tomanage growth and risk in thefuture.A fundamental question still remainsunanswered – as to what is the longtermimpact of many marketingactivities? Research on this questionis sparse (only recent exceptions areDekimpe and Hanssens 1999, andMela, Gupta and Lehmann 1997).The long-term impact could manifestin a variety of ways – it could reducerisks associated with cash flowstreams generated by marketing,and create a more sustainablesource of revenues for the firm. Thismight play a more vital role from theperspective of developing a healthyorganization that excels both overthe short term and the long term.But this accounting standards debateis not likely to be resolved withoutcollaborative research betweenaccountants and marketers.Nonetheless, it is important that topmanagement be willing to pay forcertain marketing activities overmultiple periods, and not expectevery marketing undertaking to havepositive short-term results. Inparticular, it is important torecognize that some marketingactivities are focused on buildingmarket-based assets where theoutcomes have strategic value (e.g.,building a new channel, investing inbrand development, or customeracquisition). Other activities arefocused on “maintenance marketing”or where one might leveragemarket-based assets to enhanceshort-term performance (e.g., pricepromotionsthat leverage brandequity to extract value for thecompany). To accomplish this, it isessential we have measures not justof short–term consequences asderived from marketing mix modelsbut also the long-term effects.Analogous to when a companyinvests in a plant, there is a tangibleasset which appears on the books forwhich there is a known depreciationschedule.While current accounting practicesneither permit us to show the longtermeffects nor depreciatemarketing expenditures, there is noreason why we should not have suchlong-term measures and recognizethese metrics as fundamental assetsof the firm. Thus, in order tohighlight marketing’s invaluablecontribution towards the long termhealth of a company, it is imperativethat we clearly understand howmarketing activities at an individualcampaign level link to (i) thefinancial consequences that are theconcern of accounting and financedepartments, and (ii) the intangibleassets that are the concern of theCEO and board of directorsmanaging the ultimate strategicdirection for the organization.2. Existing frameworks that linkmarketing to firm performance2.1 A traditional industry perspective– the DuPont ModelSince its humble beginnings in 1919,the DuPont model has come a longZyman Institute of Brand Science 6