This is a short presentation I made to the IIM-Ahmedabad PGPX program participants at ESSEC Singapore campus. It outlines some very basic ideas about marketing-finance interface and introduces them to my own research. It is meant for practitioners and therefore less rigorous. All the material is copurighted. Don't share without the author's permission.

1. Marketing-Finance Interface Prof. Ashwin Malshe September 6, 2011 To IIM-A PGPX

2. About Ashwin Malshe PhD (Marketing), MMS (Marketing), BE (Electronics) Seven years industry experience Institutional sales Analytics With ESSEC since July 2011 Multiple research interests Marketing strategy Marketing-finance interface Consumer behavior Social media marketing Blogging activities Micro-Positioning Flirting with Finance 2 05/09/2011 Marketing-Finance Interface

4. Number of customers

5. CLV

6. Profitability, etc.Rich research exists in marketing to measure marketing’s impact on traditional metrics 3 05/09/2011 Marketing-Finance Interface

9. Financial Market Metrics Capital market metrics are, on average, difficult to manipulate in a well functioning financial market Securities laws Corporate governance Shareholder activism Arbitrageurs In efficient markets, prices are unbiased estimates of the market participants’ expectations about future cash flows Financial market metrics are superior to firm’s internal metrics The price changes can be extremely fast 5 05/09/2011 Marketing-Finance Interface

10. Marketing and Shareholder Value 𝐹𝑖𝑟𝑚 𝑉𝑎𝑙𝑢𝑒= 𝐸(𝐶𝑎𝑠h 𝐹𝑙𝑜𝑤𝑠)𝐸𝑅𝑎𝑡𝑒 𝑜𝑓 𝑅𝑒𝑡𝑢𝑟𝑛−𝐸(𝐺𝑟𝑜𝑤𝑡h 𝑅𝑎𝑡𝑒) 𝐸(∙) operator denotes the expectations How marketing affects The magnitude of expected cash flows The risk of the expected cash flows The growth rate of the expected cash flows 6 06/09/2011 Marketing-Finance Interface

12. Stock Returns

13. Systematic Risk

14. Idiosyncratic Risk

15. Liquidity Risk

17. Brand Equity

18. Corporate Social Responsibility

19. Supply Chain Relations

20. Strategic Alliances

22. Focus of My Talk Today Advertising and firm value Endogeneity of marketing strategy 9 06/09/2011 Marketing-Finance Interface

23. Advertising and Liquidity Risk Advertising creates value through multiple channels Increased cash flow Reduced market risk Increased liquidity Advertising can also reduce liquidity risk – the risk that a stock can’t be traded when market returns are low Advertising increases individual investor awareness Individual investors tend to be liquidity providers The spillover effect due to advertising can be as high as 1.3% of shareholder value 10 06/09/2011 Marketing-Finance Interface

25. Stock Returns

26. Systematic Risk

27. Idiosyncratic Risk

28. Liquidity Risk

30. Brand Equity

31. Corporate Social Responsibility

32. Supply Chain Relations

35. Key Findings Indebted firms have lower customer satisfaction on average The negative relationship exists only for the firms that have fewer growth opportunities Managers of low growth firms might be overinvesting in customer satisfaction Debt acts as a disciplining mechanism Higher customer satisfaction reduces firm value when the debt levels are higher This indicates that using debt to reduce free cash flows is actually a value increasing strategy 13 06/09/2011 Marketing-Finance Interface

36. Thank You!