BrandIndex Meets Wall Street...Top 25% Reputation DAX Corporate reputation data: Source: IMM...
Transcript of BrandIndex Meets Wall Street...Top 25% Reputation DAX Corporate reputation data: Source: IMM...
Institute for Market-based Management
BrandIndex Meets Wall StreetWenn Bullen und Bären zu Markenfans werden
Fachsymposium 201030. September 2010YouGovPsychonomics AG, Köln
Sascha Raithele-mail: [email protected]
Institute for Market-based Management
Institute for Market-based ManagementKaulbachstraße 4580539 MünchenTel.: +49 89 2180-5639Fax: +49 89 2180-5651E-mail: [email protected]: www.imm.bwl.lmu.de
BrandIndex Meets Wall StreetWenn Bullen und Bären zu Markenfans werdenFachsymposium 201030. September 2010YouGovPsychonomics AG, Köln
Sascha Raithel
BrandIndex Meets Wall Street 30 September 2010
Institute for Market-based Management
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Agenda
1. Why marketing and finance?
2. How does marketing influence investors?
3. Is there empirical evidence?
4. So what?
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Agenda
1. Why marketing and finance?
2. How does marketing influence investors?
3. Is there empirical evidence?
4. So what?
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A company‘s market value can hardly be derived from tangible assets
HDAX (1980-2008)**
48%71% 70%
37%
52%29% 30%
63%
0%
25%
50%
75%
100%
1980s 1990s 2000s* 2008 Financial
Crisis
S&P 500 (1980-2002)
20%45%
85% 75%
80%55%
15% 25%
0%
25%
50%
75%
100%
1980 1990 2000 Dotcom Bubble's
Peak
2002 Post Crash
Sources: Ballow/Burgman/Roos/Molnar: “A New Paradigm for Managing Shareholder Value, July 2004, p. 7Lev: Intangibles: Management, Measurement, and Reporting,” Brookings Institution Press, 2001Lev: Remarks on the Measurement, Valuation, and Reporting of Intangible Assets. Economic Policy Review, Sept. 2003
* 2000-2007 ** HDAX contains stocks of 110 largest, publicly listed corporations in Germany (DAX, MDAX, TecDAX)
Book valueIntangible assets
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• Many intangible assets promising sustainable competitive advantage are driven by marketing: brand equity, customer satisfaction, and customer loyalty,
• Note: About 50% of variance in stock prices cannot be explained by traditional finance/accounting models.
Why should marketing care about intangible assets?
“Analysts know intangible assets exist Analysts are just skeptical that marketing has anything to do with creating those intangible assets.”(Leigh McAlister , Professor for Effective Business Leadership, 2008)
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CEOs & CFOs pressurize marketing to prove its accountability
“The lack of accountability has undermined marketers’ credibility, threatened the standing of the marketing function within the firm, and even threatened marketing’s existence as a distinct capability within the firm.”(Rust, Ambler, Carpenter, Kumar, & Srivastava, 2004)
because marketing is seen “to be slippery and expensive.”(Malcolm McDonald, Professor of Marketing, chairman of six companies, and member of operating boards of some multinational corporations, 2009)
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One firm – two languages
Marketing silo Finance silo
Brand awareness
CustomerloyaltyCustomer
satisfaction Financial performance Shareholder
value
Return on investment
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How can marketing earn a seat at the CxO-level table?
An outcomethat matters:
Benefits
Benefits
Provide evidence
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Mission statement
This research does not aim at “share branding” and creating a second IR division but rather aims for understanding how marketing
• does influence investors and analysts.
• can link its outcomes to the creation of shareholder value.
• can communicate its performance to more finance oriented stakeholder groups.
• can bring forward further arguments that may strengthen its position within the firm.
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Agenda
1. Why marketing and finance? Because it is relevant.
2. How does marketing influence investors?
3. Is there empirical evidence?
4. So what?
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The chain of marketing productivity: The role of investors
Investorcommunity
Investors form expectations about future cash-flows
Firm actions(Product strategy, advertising, )
Customer impact(Mindset metrics)
Market impact(Sales,...)
Financial impact(ROI, Cash flows, )
Firm value(Market capitalization)
Information
flow
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How does marketing influence investors and stock prices?
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Signaling effects
Strong brands reduce the perceivedrisk and signal „quality stocks“.
• Marketing related events are signals for the firm’s financial well-being, management expertise, and management’s plans.
• Events are• product prelaunch advertising campaigns • a new advertising slogan • a new celebrity endorsement contract • awards•
• Additionally, fund managers may believe to reduce their taken risk of alienating their clients if they hold “familiar”, “visible”, and “quality” stocks.
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Spillover effects
Marketers do influence investors similarly to consumers and do not only promote the company’s products but also do (unintentionally) promote its
stocks.
• Trading behavior of investors is systematically biased by many well-documented psychological phenomena.
• Investors behave similarly to consumers (e.g., advertising may simply increase awareness for a firm).
• A considerable number of investors are private households: At least some investor groups make investment decisions based on their experiences as consumers.
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Agenda
1. Why marketing and finance? Because it is relevant.
2. How does marketing influence investors? Signaling and spillover.
3. Is there empirical evidence?
4. So what?
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Providing empirical evidence is not trivial
• Many traditional marketing measurements do not allow any inferring as to whether the achievements fulfill the equity holders expectations and hence create shareholder value.
• Beyond that, it is important to understand how marketing outcomes can be transformed into metrics containing information relevant to financial markets and showing incremental value relevance.
• Marketing outcomes are predominantly of non-financial nature and have very often long-term effects while investors are not so experienced in evaluating the long-term financial value implications of marketing.
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Research differentiates two effects
• The immediate effect:Since marketing actions drive sales and profits, information about changes in important marketing metrics (satisfaction, loyalty, ) should correlate directly with stock returns (efficient market hypothesis).
• The mispricing effect:Investors underestimate the long-term financial performance effects of current marketing actions but will correct their initial misjudgment.
t-1 t = 0 t+1
t-1 t = 0 t+1
ʊ�Marketing metricʊ�Stock price
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Mispricing effect: Reputation champions as outperformers
50
75
100
125
150
175
200
Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10
Top 25% Reputation DAX
Corporate reputation data:Source: IMM Corporate Reputation Monitor©9 waves analyzed: 2005-12, 2006-06, 2006-12, 2007-06, 2007-12, 2008-06, 2008-12, 2009-06, 2009-12Sample size ranges between 26 to 28 DAX firmsDuring each wave a representative sample of the German general public was surveyed
Stock market data: Source: Datastream
Period: 30/12/2005 – 31/3/2010Dividends included
Weighting schemes: DAX stocks are weighted by market value; reputation portfolio stocks are weighted equally(Note: similar results for market value weighting)
156
114
Risk: EDAX = 1.01 (daily basis)
Price index (basis = 100)
0
30
60Difference in index points
Source: IMM research
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Advertising budget reallocation: Immediate market value effects?
Investorresponse
Advertising expenditures
TV
Radio
Newspaper
Cinema
Outdoor
Magazines
Internet (display)
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.110**
.134**
n.s.
n.s.
-.121**
n.s.
.139***
-.20 -.15 -.10 -.05 .00 .05 .10 .15 .20
Newspaper
Magazine
TV
Radio
Internet (display)
Cinema
Outdoor
Elasticity of abnormal stock return [multiplied by 10²]
The differential impact of advertising media on investors (analysis on a monthly level)
n.s. not significant * p < .10 ** p < .05 *** p < .01 (one-tailed test)Note:The simulation considers only estimated coefficients with |t-value| > 1 in the underlying econometric model. This figure reports abnormal stock returns in percentage of a permanent increase by 1% in one of the focal variables. A permanent increase by 1% of, for instance, newspaper advertising has a total impact of .110 • 10-2 percent on the abnormal stock return.Source: IMM research Database
Application scenario
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Further questions
• How sensitive are investors to marketing information compared to “traditional” information like financial reports?
• How immediate are immediate effects (yearly, monthly, weekly, )?
• Which marketing metrics (satisfaction, loyalty, ) have more value relevance?
• How can marketing managers measure their actions’ impact on market value?
•
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Do investors listen closely to the voices of consumers?
“Like investing itself, it seems that expert opinion has also become democratized [T]he growing importance of real HFRQRP\�GDWDʊconsumer opinions on which products and services they will spend their hard-HDUQHG�GROODU�RQʊLV�VWDUWLQJ�to be recognized by investment professionals. Used as a new, complimentary research tool, it is at least as powerful, if not more so than traditional data.”
(Marc Lepere, CEO of Vox Pop Investing, 2009)
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Conceptual framework
Stock Return
Buzz(voice of the consumer)
Media coverage
Advertising
Investors‘ expectations about future cash flows
Communication
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.47%**
n.s.
.81%**
n.s.
-1.68%**
-1.02%***
.33%*
-3% -2% -1% 1% 2%
Advertising
Positive Buzz
Positive functional media coverage
Positive social media coverage
Negative Buzz
Negative functional media coverage
Negative social media coverage
Effects of Media coverage, buzz, and advertising on weekly abnormal stock returns in the finance sector
n.s. not significant * p < .10 ** p < .05 *** p < .01 (one-tailed test)Note:The simulation considers only estimated coefficients with |t-value| > 1 in the underlying econometric model. This figure reports total effects of a permanent increase by one standard deviation in one of the focal variables. A permanent increase by one standard deviation of, for instance, negative WOM has a total impact of -1.68% on the buy-and-hold abnormal (i.e., by risk factors adjusted) stock return. Source: IMM research Database
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Do the different BrandIndex indicators possess differential value relevance?
Buzz
BrandIndex
Stock Return
Quality
Satisfaction
General ImpressionWorkplacereputation
Value
Recommend
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Estimated effects on monthly abnormal stock returns in the automotive sector (I)
1.03%**
8.48%**
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
Buzz
BrandIndex
n.s. not significant * p < .10 ** p < .05 *** p < .01 (one-tailed test)Note:The simulation considers only estimated coefficients with |t-value| > 1 in the underlying econometric model. This figure reports total effects of a permanent increase by one standard deviation in one of the focal variables. A permanent increase by one standard deviation of, for instance, Buzz has a total impact of 1.03% on the buy-and-hold abnormal (i.e., by risk factors adjusted) stock return. Source: IMM research Database
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.89%*
n.s.
n.s.
4.94%**
1.99%**
1.36%
1.91%*
0% 1% 2% 3% 4% 5% 6%
Buzz
General Impression
Value
Quality
Satisfaction
Recommendation
Workplace reputation
Estimated effects on monthly abnormal stock returns in the automotive sector (II)
n.s. not significant * p < .10 ** p < .05 *** p < .01 (one-tailed test)Note:The simulation considers only estimated coefficients with |t-value| > 1 in the underlying econometric model. This figure reports total effects of a permanent increase by one standard deviation in one of the focal variables. A permanent increase by one standard deviation of, for instance, Buzz has a total impact of .89% on the buy-and-hold abnormal (i.e., by risk factors adjusted) stock return. Source: IMM research Database
Validation: The market value of quality
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Agenda
1. Why marketing and finance? Because it is relevant.
2. How does marketing influence investors? Signaling and spillover.
3. Is there empirical evidence? Yes, there is!
4. So what?
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Reporting of market-based assets: Lack of appreciation!
0 2 4 6 8
Customer satisfaction
Product/service quality
Brand equity
Number of reports referring to metric
Publication of marketing metrics in annual reports(DAX-30 companies: 2007)
Quantitative statements (actual performance metric)
Qualitative statements (e.g., awards)
Source: IMM research
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Scenario analysis: Effects of advertising budget reallocation
(Database: German private bank) Newspaper MagazinesØ monthly advertising spending (Jan 2008 - May 2009) 1.4 million Euros 2.9 million Euros
Scenario: Permanent increase of advertising expenditures by 14 k Euros/month
(1.00%) (.48%)
Total costs of permanent advertising expenditure increase (assumption: 5% discount rate)
3.5 million Euros
Market value (MV) (August 2010) 5.2 billion EurosElasticity of MV (assumption: linear response function) .110 · 10² .134 · 10²
Expected MV increase ~5.7 million Euros ~3.4 million Euros
Note: Long-term effects on customers are NOT included. Underlying model
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Implications
• Evidence that marketing is value relevant.
• Principles of value based management are generally accepted but value based reporting reflecting the important role of marketing has to be improved.
• Recommendations:1. Go beyond traditional performance measurement.2. Adopt finance language to get the boardroom’s attention.3. Expand (marketing) dashboards/reports by metrics that (should) matter
to the boardroom and external stakeholders.4. and
“Marketing is more important than marketers say it is, but not for the reasons they give us.”(Ramesh Rao, Professor of Finance, University of Texas at Austin, 2009)
Institute for Market-based Management
BrandIndex Meets Wall StreetWenn Bullen und Bären zu Markenfans werden
Fachsymposium 201030. September 2010YouGovPsychonomics AG, Köln
Sascha Raithele-mail: [email protected]
Be bullish!
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Contact_______________________________________________________
Dipl.-Kfm. Sascha Raithel, MBRInstitut für Marktorientierte Unternehmensführung / Institute for Market-based Management (IMM)Fakultät für Betriebswirtschaft / Munich School of ManagementLudwig-Maximilians-Universität MünchenKaulbachstr. 45, 80539 München
Tel.: +49 (0)89 / 2180-5639Fax.: +49 (0)89 / 2180-5651E-Mail: [email protected]: www.imm.bwl.lmu.de_______________________________________________________
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Backup
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Source: IMM research
22%
2%
13% 14%
8%
-14%
-2%
-19%
-13%-16%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2003/2004 2004/2005 2005/2006 2006/2007 2007/2008
Mean abnormalstock returns
improved perceived product quality
worsened perceived product quality
Car manufacturers with...
Period:Note: J.D. Power survey data is available about June/July during calender year; this analysis covers the U.S., UK, and German market
The market value of quality
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Data: Effects of Media coverage, buzz, and advertising on weekly abnormal stock returns in the finance sector• Two banks and three insurance firms• Sample period: calendar week 2 to 48 in 2008• Buzz:
YouGovPsychonomics AG• Media coverage:
Center for Research on the Public Sphere and Society at the University of Zurich (fög)
• Advertising expenditures (newspaper, TV, radio): Nielsen
• Raw stock returns of firms have been adjusted by general market risk factors
• Analysis on a weekly basis
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• 18 car manufacturers
• 32 brands
• Time period: Mar 2008 – Sep 2009
• 19 months
• 608 brand-month-observations
• Raw stock returns of firms have been adjusted by general market risk factors
Analysed car brands
BMW
Daimler
Ford
Fuji
Hyundai
Fiat Honda
Renault
Suzuki
Tata
Toyota
Volkswagen
General Motors
Porsche
Nissan
Mitsubishi
PSA
Mazda
Data: Differential impact of BrandIndex indicators on monthly abnormal stock returns in the automotive sector
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Data: The differential impact of advertising media on investors
• Advertising expenditures in Germany for 46 Corporate brands• Sample period: Jan 2008 – May 2009• Raw stock returns of firms have been adjusted by general market risk factors• Analysis on a monthly basis
Media TypeSpending
[k EUR]
% of total sum
Mean per brand/month
[k EUR]
Std.dev. [k EUR]
Maximum [k EUR]
Newspaper 1,310,979.2 20.7 1,560.7 29,343.2 247,426.4
Magazine 897,707.3 14.2 1,068.7 19,274.6 172,585.6
Television 3,074,848.6 48.5 3,660.5 72,141.0 613,551.4
Radio 275,413.5 4.3 327.9 7,284.3 54,547.3
Internet (display) 668,292.8 10.5 795.6 24,533.3 318,162.0
Cinema 10,779.0 .2 12.8 839.7 15,226.2
Outdoor 103,502.8 1.6 123.2 4,938.9 55,053.1
Total 6,341,523.2 100.0 7,549.4 126,441.0 969,456.9
Institute for Market-based Management
Overview: IMM
Munich School of Management – Ludwig-Maximilians-Universität München
Prof. Dr. Manfred SchwaigerInstitute for Market-based ManagementKaulbachstraße 45D-80539 MünchenTel.: +49 89 2180-5640Fax: +49 89 2180-5651E-mail: [email protected]: www.imm.bwl.lmu.de
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• ”Doing the right things“ and „doing things right“ are the secrets of successful management
• ”Doing the right things“ requires the comprehension of management tools
• ”Doing things right“ requires information on KPIs
Management
Marketing
Strategic Planning
Corporate Development
GoalsRecognition Identify problems, risks &
opportunities
Evaluation Analyze problems, risks & opportunities
Decision Solve problems, avoid risks & take opportunities
IMM – Teaching Concept
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Appl
icat
ion
Proj
ect S
emin
ars
and
Cou
rses
Action & Controlling Convincing Stakeholders
Measurement & AnalysisMarket Analysis, SPSS Syntax
p
Society
Employees
Suppliers
Government
InvestorsIntangible
AssetsExplanation Consumer InsightsB
asic
sC
orpo
rate
Gov
erna
nce
& M
arke
ting
Customers
Cultural BackgroundInternational Management
IMM – Key Lectures in our Teaching Concept
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IMM students combine both analytical skills
and practical experience
Computer Lab Sessions:• Not: as many methods as possible
But: important methods ”ready to use“ in practice
• Good command of established software products (e.g. SPSS, Sawtooth, EXCEL add ons, SmartPLS, AMOS)
Cooperation with Industry Partners:• Project Seminars & Courses• Diploma, Bachelor & Master Thesis• Joint research projects
Guest Lectures and Case Studies:• Insights into practical applications
IMM – Teaching and Practical Experience
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IMM – Research Concept
Formal Research (Fundamental Research)
Con
sum
erIn
sigh
ts
Com
petit
ive
Adva
ntag
e
Com
mun
icat
ions
M
anag
emen
t
Empirical Research
Business Theory + Practical Relevance
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Our Industry Partners
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IMM Team
Prof. Dr. Manfred Schwaiger
Gabriela LatinjakSecretary
Sophie HiekeResearch &
Teaching Assistant
Prof. Dr. Marko Sarstedt
Junior Professor
Sascha RaithelResearch &
Teaching Assistant
Martina LittichResearch &
Teaching Assistant
Richard RinkenburgerResearch &
Teaching Assistant
Elena MichelResearch &
Teaching Assistant
Matthias SchlodererResearch &
Teaching Assistant
Petra WilczynskiResearch &
Teaching Assistant
Lorenz ZimmermannResearch &
Teaching Assistant
Felix KesselResearch &
Teaching Assistant