Marketing's Effect on Firm Value

Marketing AnalyticsEdeling, A.; Fischer, M. · 2016Journal of Marketing Research

Topicsfirm value elasticity·marketing finance·meta-analysis·marketing assets·advertising expenditure·brand equity·customer equity

You are in front of the board defending marketing as a driver of firm value, and the CFO wants the number that ties spend to valuation. The instinct is to lead with the advertising budget. That is the weaker card. When you pool four decades of studies, a 1% change in annual advertising spend barely moves firm value, while a 1% change in the brand-related assets (brand equity, brand perceptions) and customer-related assets (customer satisfaction, customer equity) you own moves it far more, with customer equity moving it most of all. Lead the board conversation with the assets marketing owns, not the budget it spends, and present them as stages of one value-creation argument rather than rivals for the same money.

What moves the company's stock-market value is the brand and customer base you own; the ad budget you spend in any one year barely moves it.

When you make the case to the board that marketing builds firm value (the company's stock-market valuation), the strongest evidence is for your marketing assets, brand equity and customer equity, rather than the size of this year's advertising budget. Among those assets, customer equity carries the most weight.

Data chart

What moves the company's stock-market value most

A 1% change in the brand and customer base a firm owns moves its stock-market value far more than a 1% change in annual ad spend, and the customer base moves it most.

Action guide

Build the board case on the assets, not the ad budget.Firm value tracks brand equity and customer equity far more than it tracks annual advertising, so lead the valuation argument with those two.
Put customer equity at the center of the value story.It moves firm value more than brand equity does, and by more over time, so make it the headline asset when you argue marketing's contribution to valuation.
Present the three as one sequence, not as rival budget claims.This research ranks them: customer-related assets show the largest association with firm value, brand-related assets next, annual advertising spend far behind. It measures each association separately and does not test spend building assets or assets winning customers, so present the sequencing as your argument rather than as its finding. Make it explicitly, because left implicit a near-zero advertising number reads to a CFO as "advertising does not work," which is not what the evidence says.
Read a near-zero ad-spend-to-value number as spending near the right level.This number measures how firm value responds when ad spend changes. The research reads a near-zero figure as a firm advertising at close to its best level; treat the sign as your guide, below zero suggests spending too much and above zero suggests spending too little.
Protect brand equity and customer equity first when a downturn forces cuts.Those assets contribute more to firm value in downturns, while ad spend gets no such lift, so shield brand and customer investment ahead of the media line.
Expect advertising to do even less for firm value in concentrated categories.In industries where a few large firms compete, the measured link between ad spend and firm value is weaker, which the research reads as competitive reactivity weakening advertising's firm-value effect rather than as advertising failing; the same cancelling-out pattern shows up in sales data (see "When Competitors' Ads Cancel Out Yours"). The paper did not test whether brand or customer equity's link to firm value shifts with concentration, so don't extend the owned-asset case into that territory until it's tested.
Apply this to publicly traded firms, mostly U.S. and North American.The evidence is 488 estimates from 83 public-firm studies measuring stock-market value, not sales or profit; confirm with sales data before extending it to private firms.

Evidence

Firm value barely moves when annual advertising spend changes; it moves far more when the firm's brand equity and customer equity change.
Pooling results from 83 studies yielded 488 estimates (mostly U.S./North American public-firm evidence, 1971-2011 data). Each estimate expresses the percentage change in firm market valuation associated with a 1% change in advertising expenditure or a marketing asset.
Customer equity moves firm value more than twice as much as brand equity does, and that edge has grown over the decades studied.
Once known measurement problems in the underlying studies are corrected for, the average direct link between annual ad spend and firm value is statistically indistinguishable from zero, while the link from brand and customer assets holds. The research reads a near-zero figure as a sign firms are already advertising close to their best level, not a sign advertising is wasted.
In a downturn, a firm's marketing assets count for more toward its value; annual ad spend shows no matching downturn lift.
Where a few large rivals dominate a category, ad spend does even less for firm value, in line with rivals matching each other's advertising.
Roughly one in four of the pooled advertising estimates is negative (ad spend slightly lowering stock-market value), a sign some firms are spending past the point that pays.

Key takeaway

The brand and customer base you own move the company's stock-market value; the ad budget you spend in any one year barely does.

Source

Edeling, A., & Fischer, M. (2016). Marketing's impact on firm value: Generalizations from a meta-analysis. Journal of Marketing Research, 53(4), 515–534. https://doi.org/10.1509/jmr.14.0046

Read the paper ↗

Evidence strength: Strong (488 firm-value estimates pooled from 83 studies, mostly US and North American public firms, 1971 to 2011 data). These findings speak most confidently to how advertising spend and brand and customer assets relate to the stock-market value of public firms (whether the effects differ for young versus mature firms is untested); less so to private firms, non-US markets, or to sales- or profit-based outcomes, which this research did not measure.