Meet Finance: Understanding Market-Based Assets
marketing has been viewed as important in the development of business
strategies that lead to superior product-market performance as
measured by indicators such as sales, market share, and operating
income. Most companies stop there.
a few enlightened companies are different. In these companies,
senior management, usually led by the CEO, is demanding that marketing
view its ultimate purpose as contributing to the enhancement
of shareholder value.
far back as 1998, a group of colleagues (Tas Shervani and Liam
Fahey) and myself addressed this trend and established a framework
for analyzing the relationship between market-based assets
and shareholder value.
we said back then matters even more today.
must address the marketing-finance interface more effectively.
did we mean by this?
meant that there had to be a shift in thinking in the board room.
we felt, should rise to the task of developing and managing market-based
market-based assets, in turn, increase shareholder value by accelerating
and enhancing cash flows, by lowering the volatility and vulnerability
of cash flows, and by increasing the residual value of cash flows.
Relationship Between Finance and Marketing
we recognized that the relationship between marketing and finance
must be systematically managed; no longer should we rely on the
traditional assumption that positive product-market results will
automatically translate into optimal financial results.
urged marketers to adopting the perspective that customers and
channels are not simply the object of marketing's actions, but
are, in fact, assets that must be cultivated and leveraged.
these assets requires marketers to go beyond the traditional inputs
to marketing analysis, such as marketplace and organizational
knowledge, to also include an understanding of the financial consequences
of marketing decisions.
it also expands the external stakeholders of marketing to explicitly
include the shareholders and potential shareholders of the firm,
and requires broader input into marketing decision-making by other
value for customers,win in the product marketplace
and manage market-based assets to deliver shareholder value
between marketing and finance
product-market results translate into positive financial results
interface must be systematically managed
on customers and channels
object of marketing's actions
relational asset that must be cultivated and leveraged
to marketing analysis
of the marketplace and organization
consequences of marketing decisions
specific to the organization
from the commingling of the organization and the environment
decision-making participants: Internal
marketing professionals; others if deemed necessary
relevant managers, irrespective of function or position
competitors, channels, regulators
results; Assessments of customers, channels and competitors
results; configuration of market-based assets
volume, market share, customer satisfaction, return on sales/assets/equity
present value of cash flow;shareholder value
CEO Imperative: Rethinking the Relationship
between Finance and Marketing
of Market-Based Assets
assets arise from the commingling of the firm with entities in
its external environment. They are principally of two related
types; relational and intellectual.
assets are primarily external to the firm, generally do not appear
on the balance sheet, and are largely intangible. Yet stocks of
these assets can be developed, augmented, leveraged and valued.
are outcomes of the relationship between a firm and key external
stakeholders, including distributors, retailers, end-customers,
other strategic partners, community groups, and even governmental
agencies. The bonds constituting these relationships and the sources
of them may vary from one stakeholder type to another. For example,
brand and channel equity reflect bonds between the firm and its
channels and customers. Brand equity may be the result of extensive
advertising and superior product functionality. Channel equity
may be in part a result of long-standing and successful business
relationships between the firm and key channel members.
market-based assets are
the types of knowledge a firm possesses about the environment,
such as the emerging and potential state of market conditions,
and the entities in it such as competitors, customers, channels,
suppliers and social and activist groups. The content or elements
of knowledge include facts, perceptions, beliefs, assumptions
and projections. The content of each type and the sources of it
vary greatly from one type to another. Thus, a firm may develop
projections of the way its industry will evolve so that it knows
how it will react when total industry sales decline by a particular
percentage or when a substitute product might emerge. Or, as some
have suggested, a firm may develop over time unique facts, beliefs
and assumptions about its customers' tastes, manufacturing processes,
or proclivities to respond in certain ways to promotion, sales
and pricing moves.
development and evolution of relational and intellectual market-based
assets intertwine in many ways. Both evolve in part out of the
firm's unavoidable interaction with entities in its environment.
of relationships allows knowledge to be developed, tested and
refined. Knowledge of the environment guides the firm in choosing
which entities to align with, how to do so and when. Relationships
with and knowledge of specific entities are often developed by
the same set of individuals. Customer service personnel, because
of the relationships they develop with multiple distinct sets
of customers, often generate unique insight into their background,
behaviors and propensities.
and intellectual market-based assets also share a number of common
characteristics. Both assets are intangible; they can not be inventoried
or physically divided into specific portions. Yet, both can be
assessed in terms of their stock and flow. Stock refers to a specific
amount or extent of brand equity, or knowledge of customer's purchasing
criteria, possessed by a firm. Flow refers to the extent to which
a stock of a particular asset is augmenting or decaying.
a firm may strive to augment its knowledge of a corporate customer's
buying processes, the individuals involved in it, and the organizational
systems supporting them.
Central Task of Management
central task of management, we argue, is to identify, measure,
develop, and leverage the firm's market-based assets to increase
identification and measurement of market-based assets involves
using cross functional teams to list such assets and to begin
a dialogue across organizational boundaries about the impact of
market-based assets on shareholder value.
development of market-based assets requires managers to
make a case, in the language of finance and top management, for
investments in such assets.
managers must grapple with the task of leveraging market-based
assets by using them to accelerate and enhance cash flows,
to reduce the volatility and vulnerability of cash flows, and
to increase the residual value of cash flows.
my next column, we'll explore the contribution of these
market-based assets to the financial performance of the firm.
I'll outline the framework my colleagues and I came up with to
link market-based assets to shareholder value.
Srivastava is the Executive Director of the Zyman
Institute of Brand Science, and Professor of Marketing at
Emory University’s Goizueta Business School. Contact him at firstname.lastname@example.org.
ideas presented here first appeared in "Market-Based Assets
and Shareholder Value: A Framework for Analysis," by Rajendra
K. Srivastava, Tasadduq A. Shervani, and Liam Fahey in Journal
of Marketing, January 1998, Vol. 62, #1, 2-18. The
paper was the recipient of: 1999 Maynard Award (Best Theoretical
Paper) 1999; the MSI/Paul Root Award (Best Practice Paper); and
the 1999 MSI Best Paper Award (for 1997 Working Paper Version
of this Paper).