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Can Marketing Lift Stock Prices?

June 22, 2011 | V. Kumar, Denish Shah | Marketing
Traditional marketing practices are increasingly viewed with skepticism. In many organizations, marketers struggle to document the return on investment for marketing expenditures; as a result, the marketing function is poorly aligned with the strategic goals of the company, marketing has less influence in the boardroom — and the marketing budget allocation is viewed as a questionable cost rather than a worthy investment. To negate such criticisms, marketers need to realign their role and redefine the scope of marketing so that it can directly relate to strategic outcomes for the company. One way to achieve this goal is through extensive application of predictive analytics, in both the formulation of marketing strategies and customer management. Along these lines, a study suggests that certain types of marketing efforts — those developed using analytics to identify customers' lifetime value to a company — can create shareholder value and influence stock prices in a predictable fashion. The study analyzed more than five years of customer information from two Fortune 1000 companies. The customer databases of both companies contained rich information related to customer transactions, marketing communications and customer-level characteristics that could potentially influence the customer lifetime value (CLV) of each customer to the company. However, neither of the two companies had employed the CLV metric, which is defined as the discounted net present value of expected future cash flows from a customer. As a result, one of the first steps with each of the two companies entailed developing a model to compute the lifetime value of that company's customers, using as much customer-level information as possible from the company's customer database. The end result? The study found that certain marketing techniques can influence a company's stock market valuation — if the techniques increase customer lifetime value.
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