Linking Marketing Metrics to Financial Performance - Emory ...

cash flow from an opportunityadjusted for the cost of resourcesused to generate the cash flow.Third, all accounting-basedmeasures (including the DuPontmodel) are retrospective. This maynot pose a problem in mature, stablemarkets where the future isexpected to be similar to the past.However, in dynamic marketssubject to product and marketplacechanges, looking at what ishappening may not be the best forplanning forward. By its nature, thetendency to look at what hashappened, not what will happen,places too much weight on shorttermresults, and does not recognizethe assets that have been createdwhich might lead to future sales, orrecurring customers.Fourth, accounting metrics such asmargins and turnover favor matureproducts over new-to-marketinnovations that tend to have lowerturnover, lower net margins—andhigher marketing investmentrequirements (e.g., for customeracquisition). Invariably, use ofmetrics such as ROA or ROI swingsthe pendulum in favor of incumbentproducts thus starving innovations ofbadly need growth funds.Finally, performance metrics such asROA and EVA ignore risks andsacrifice future opportunities forshort-term earnings. Because risk isa principal determinant of a firm’sequity, this omission is critical(Martin and Petty 2000). Thus, newproducts or emerging markets,which typically have lower netmargins and turns and highermarketing investments, tend to losethe battle of resources to matureand established products andmarkets. In effect, companies aremore likely to invest in incumbentproducts and markets, starvingfuture opportunities if they focus onshort-term tools like the DuPontmodel or EVA. Prospects with longertermpayoffs must be evaluated bymeasures that give credit to suchpayoffs – such as net present value.Despite the reservations associatedwith short-term performancemeasures, they represent the mostfrequently used metrics. Thus,marketers must learn to use them tojustify request for resources, or atleast show other metrics thatdemonstrate the long-term value ofthe created marketing assets. Wemust note that, increasingly, financeand accounting professionals aremoving towards cash flows ratherthan earnings-based metrics (e.g.,CFROI rather than ROI), asearnings-based measures aresubject to manipulations related todepreciation (Martin and Petty2000). Additionally, as marketinghas long-term effects, we need tolearn how to better capture andexpress forward-looking benefits,such as through NPV measures andprojected cash flows.2.2 Linking Market-Based Assets toShareholder ValueCompanies must allocate resourcesto invest in market-based assets andcapabilities (Day 1994). Theseinvestments must be justified inmuch the same terms as otherbusiness assets. For example,investments in informationtechnology can be leveraged toenhance efficiency of supply-chainprocesses (reduce costs as aconsequence of lower inventories),drive sales (e.g., via betterprospecting based on data-mining),and lead to more satisfied customersZyman Institute of Brand Science 9