Evidence · Strategy

Marketing and firm value: what the research shows

Yes, but unevenly. Meta-analyses spanning more than 20 countries find that market orientation is consistently linked to business performance, and that marketing assets, especially customer-related ones, move firm value far more than advertising spending does. Firms with a more powerful marketing department also earn higher long-term shareholder returns, though nearly all of this evidence is observational.

Definition

Marketing and firm value is the study of how marketing shows up in financial results: profits, cash flows and stock-market value. It covers market orientation (how far a firm gathers and acts on knowledge about customers and competitors), market-based assets such as brands and customer relationships, the financial return on marketing actions such as advertising and innovation, and the capabilities that let a firm turn these into lasting advantage.

What the research finds

Market orientation is linked to performance worldwide

Market orientation was defined in 1990 from field interviews with managers and as a measurable mix of customer focus, competitor focus and coordination across functions. A meta-analysis spanning studies in 23 countries on five continents found its relationship with business performance to be positive and consistent.^[1]^[2]^[3]

The link is stronger in some settings and with some measures

The relationship is stronger for manufacturing firms than for service firms, in cultures with low power distance and uncertainty avoidance, and in studies that use subjective performance measures. A meta-analysis of 56 studies in 28 countries found larger effects in large, mature markets and with one particular measurement scale, and a weaker effect the more culturally distant a market is from the United States.^[4]^[5]

Marketing assets create shareholder value

Customer, channel and partner relationships can be treated as market-based assets that raise shareholder value by speeding up and enlarging cash flows, lowering their volatility and increasing their residual value. This framework is the main bridge between marketing and finance.^[6]

Assets move firm value far more than ad spending

A meta-analysis of 488 stock-market elasticities from 83 studies found a mean of .04 for advertising spending and .54 for marketing assets, with customer-related assets (.72) ahead of brand-related assets (.33). Advertising elasticities were lower in more concentrated industries, and asset elasticities were higher during recessions.^[7]

A powerful marketing department pays off

In 612 public U.S. firms from 1993 to 2008, marketing department power generally grew. More powerful marketing departments were associated with higher long-term total shareholder returns, beyond their positive link with short-term return on assets, partly through the firm's capabilities for building and using market-based assets.^[8]

Capabilities ground lasting advantage

The resource-based view holds that advantage comes from resources that are valuable, rare and hard to copy. Market-driven firms stand out for their skill at sensing markets and linking with customers, and benchmarking the marketing capabilities of top-performing firms is one route to building such capabilities.^[9]^[10]^[11]

How strong is the evidence?

The evidence is broad but almost entirely observational: meta-analyses pool correlations and elasticities, and they warn that design choices such as the firm-value metric, missing control variables and failing to address endogeneity change the estimates. The market orientation link is stronger when performance is self-reported, which suggests part of it reflects measurement rather than economics. Much of the data comes from the United States and other large, mature markets. The market-based assets framework and the capabilities view are conceptual, and the marketing department study covers U.S. public firms only.

References

Ajay K. Kohli, Bernard J. Jaworski (1990). Market Orientation: The Construct, Research Propositions, and Managerial Implications. Journal of Marketing.
John C. Narver, Stanley F. Slater (1990). The Effect of a Market Orientation on Business Profitability. Journal of Marketing.
Cynthia Rodriguez Cano, François A. Carrillat, Fernando Jaramillo (2004). A meta-analysis of the relationship between market orientation and business performance: evidence from five continents. International Journal of Research in Marketing.
Ahmet H. Kirca, Satish Jayachandran, William O. Bearden (2005). Market Orientation: A Meta-Analytic Review and Assessment of its Antecedents and Impact on Performance. Journal of Marketing.
Paul D. Ellis (2006). Market Orientation and Performance: A Meta‐Analysis and Cross‐National Comparisons*. Journal of Management Studies.
Rajendra K. Srivastava, Tasadduq A. Shervani, Liam Fahey (1998). Market-Based Assets and Shareholder Value: A Framework for Analysis. Journal of Marketing.
Alexander Edeling, Marc Fischer (2015). Marketing's Impact on Firm Value: Generalizations from a Meta-Analysis. Journal of Marketing Research.
Hui Feng, Neil A. Morgan, Lopo L. Rego (2015). Marketing Department Power and Firm Performance. Journal of Marketing.
Jay B. Barney (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management.
George S. Day (1994). The Capabilities of Market-Driven Organizations. Journal of Marketing.
Douglas W. Vorhies, Neil A. Morgan (2005). Benchmarking Marketing Capabilities for Sustainable Competitive Advantage. Journal of Marketing.

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