The author of this paper posits that actions on market-based assets can shape the firm value. However, like a flap of a butterfly in Brazilian jungle which is invisible to the whole system, the marketing actions on market-based asset are also invisible in the trading floor; therefore they are often neglected in the determination of firm value.

Firm value, which is interpreted in market capitalization, is determined by the stock price. Expected stock prices are based on valuation of corporate financial statements and future forecasts given by the financial analysts. However, during the past 25 years, intangible assets have replaced tangible assets as the key value drivers in the economy (Ballow, Thomas, and Roos, 2004).

On the other hand, there is an increase challenge to the marketing profession to assess and communicate the value created by its action to the firm value. One of the ways to measure marketing accountability is to assess the return on marketing investment. Investment in marketing should create an asset. In the marketing domain, all investment in the marketing has the objective toward gaining higher value from the customers. Marketing starts to see the customers and channels not merely as the objects of marketing actions, but also as assets. These assets are conceptualized as market-based assets (Srivastava, Shervani and Fahey, 1998).

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In merging the two perspectives, it is imperative to have an interface between marketing and finance. Market-based assets, which in traditional function of marketing are considered to deliver value only to the customers, are now seen as having additional value to offer: value to the firm (Boulding et al., 2005). The challenge lies in the inclusion of the intangible market-based assets, how to link marketing actions to firm value, what are the metrics, and how to measure the impact of marketing action to the firm value.

This paper is based on analysis and synthesis of 8 journal articles, starting from the Market-Based Asset seminal article in 1998, to the most recent empirical support articles from 2009, taken from Journal of Business Research, Journal of Marketing, Journal of Marketing Research and Journal of the Academy of Marketing Science.

The author uses a conceptual framework in the paper of Srivastava, Shervani and Fahey (1998), Market-Based Assets and Shareholder Value: A Framework for Analysis, to establish the context of market-based assets and as a basic framework to discover the important variables in how market-based assets can shape the firm value. To complement the above paper, the author picked the next conceptual paper of Srivastava, Shervani and Fahey (1999), Marketing, Business Processes, and Shareholder Value: An Organizationally Embedded View of Marketing Activities and the Discipline of Marketing that focus more on the process in the business that involves marketing actions, and how the marketing capabilities will also shape the firm value. As a continuation of the work, Rust, R.T., Ambler, T., Carpenter, G.S., Kumar, V. and Srivastava, R.K. (2009) propose a framework to show how the chain of marketing productivity will shape the firm value in their article Measuring Marketing Productivity: Current Knowledge and Future Directions.

In the stream of financial metrics, one conceptual paper from Srinivasan and Hanssens (2009) , Marketing and Firm Value: Metrics, Methods, Findings and Future Directions, is provided in this paper, to show the journey of firm / marketing actions, through firm result and the respected financial risks, will in the end shape the total stock return.

The author picked four empirical articles to support the conceptual framework provided in this paper. Kumar and Shah (2009) provide an empirical support showing the role of CE in shaping the Market Capitalization in their article Expanding the Role of Marketing: From Customer Equity to Market Capitalization. The second article, Evaluating the Financial Impact of Branding Using Trademarks: A Framework and Empirical Evidence from Krasnikov and Orozco (2007) is explaining about the value of the Brand using trademark. The empirical support for partner relationship part is given by Swaminathan and Moorman (2009) in the third empirical article in this paper: Marketing Alliances, Firm Networks, and Firm Value Creation. The author chooses the empirical study of Ramaswami, Srivastava, and Bhargava (2009), Market-based capabilities and financial performance of firms: insights into marketing's contribution to firm value, to support the market-based capabilities framework of Srivastava et al. (1999).

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This paper is organized in the following order: Chapter 1 provides a brief overview about the paper. Chapter 2 contains the summary of each selected articles. Chapter 3 assesses what has been studied up to present time and how they may possibly fit into the integrated framework of the four conceptual papers. Chapter 4 provides author's suggestion for further studies and the conclusion to this paper.



In this chapter, the author provides a summary of each of the eight articles used in this paper. The summaries are divided into two groups; Group A consists of four conceptual papers, to be used as the framework of the analysis; Group B comprises four empirical papers elaborating the framework and the empirical result to support the concepts in Group A papers.

Group A (Conceptual Framework)

Article A.1 (SRIV1)

Srivastava, R.K., Shervani, T.A., and Fahey L., (1998). Market-Based Assets and Shareholder Value: A Framework for Analysis, Journal of Marketing, 62, 2-18.

SRIV1 article is a seminal piece that link marketing assets to shareholder value. Market-based assets are the assets that arise from the interaction of the firm with key external parties. These assets will then affect shareholder value through market performance. There are two types of market-based assets (MBA): relational and intellectual. Relational assets are gained from the outcome of relationship between the firm with external parties, in the form of intangible assets (brands, customers and channels). Intellectual assets are marketing expertise and process knowledge that are gained through the external interactions.

However, both relational and intellectual market-based assets intertwine in various marketing actions. Relational assets can affect intellectual asset and vice versa. Relational and intellectual also share several common characteristics: both are intangible asset, and 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.

Adopting shareholder value-planning approach by Rappaport (1986), SRIV1 derived four drivers to shareholder value: (1) acceleration of cash flows, (2) increase in the level of cash flow, (3) a reduction in risk associated with cash flow, and (4) enhancement of residual value. The linkage between market-based assets to shareholder value can be seen in Fig.2.1.

Market based assets enhance shareholder value by enabling the firm to accelerate receipt of cash flow. The faster the receipt of cash flows, the higher their net present value. This article argues that by increasing the rate of cash flow, market-based assets can influence positively the shareholder value of the firm.

Enhancing cash flow is achievable by generating higher revenues, lowering cost, and lowering working dan fixed capital requirements. The higher free cash flow the higher their net present value. Hence, the higher shareholder value of the firm.

Reduced risk of cash flow means that the volatility of cash flow is reduced. This will lower down the unsystematic risk, which is the risk associated with the firm itself. The lower the risk of the firm, the more attractive the stock is to the investors.

A strong market based assets (e.g. strong customer base) could influence the residual value of cash flow, to the extent that expectation for sources of incoming cash flow in the future is higher. Therefore, it will reduce the volatility with regards to the case flow in the future, lower the risk of the firm, and in the end will increase the shareholder value in the future.

Article A.2 (SRIV2)

Srivastava, R.K., Shervani, T.A., and Fahey L., (1999). Marketing, Business Processes, and Shareholder Value: An Organizationally Embedded View of Marketing Activities and the Discipline of Marketing. Journal of Marketing, 63, 168-179.

This article develops a conceptual framework that facilitates a broadening of our understanding of the role that marketing can play within business processes that create customer value and, in turn, shareholder value.

As a complementary article to SRIV-1, this paper argues that market-based capabilities of a firm impacts firm's financial performance through three market-facing business processes: (1) new product development, (2) supply chain management and (3) customer management.

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SRIV2 emphasize five components that will broadly characterize the competitive context: (1) A product focus is giving way to the need to address customer functionality, (2) Product differentiation is evolving into solution customization, (3) Transaction-based exchanges are being replaced by relationship-based customer intimacy, (4) Stand-alone competition is frequently giving way to net-worked rivalry, (5). Economies of scope and increasing returns are being added to economies of scale.

This article also links the three market-facing business processes to the four key drivers for shareholder value and argues how three market-based capabilities really positively impact the shareholder value.

Article A.3 (RUST)

Rust, R.T., Ambler, T., Carpenter, G.S., Kumar, V. and Srivastava, R.K., (2009). Measuring Marketing Productivity: Current Knowledge and Future Directions. Journal of Marketing, 68, 76-89.

This article shows that non-financial measures of marketing effectiveness drive the financial performance measures such as sales, profits and shareholder value in both the short and the long term. The framework separates marketing actions from the overall conditions of the firm, as reflected in its assets.

A chain of marketing productivity illustrated in Figure 2.2.

The chain starts at the strategies of the firm, which is implemented in the tactical marketing actions. Further on, these actions will give impact to the customer in shaping the attitude or performing satisfactions.

Strong customer base will become a marketing asset to the firm, as a basis to strengthen its market position. Customer impact will be cascaded in the aggregate level as market impact that further will give a financial impact from the revenue it generates. Strong financial impact will give a higher ROI and this will make a stronger financial position and give impact to firm value, since financial position (cash flow, profitability) is used as a basis to calculate value of the firm.

This article concludes that the evaluation of marketing productivity ultimately involves projecting the differences in cash flows that will occur from implementation of a marketing action. On the other hand, this article also propose that from an accounting standpoint, decomposition of marketing productivity into changes in financial assets and marketing assets of the firm as a result of marketing actions might be considered.

Srinivasan, S., and Hanssens, D.M. (2009). Marketing and Firm Value: Metrics, Methods, Findings and Future Directions. Journal of Marketing Research, 46, 293-312.

This article examines the methods for determining the impact of marketing on investor valuation and summarizes the existing findings in this area. The important research questions on marketing and firm value is provided as well as the review on key investor response metrics and relevant analytical models as they relate to marketing.

This article explains about two fundamental metrics in finance: returns/levels metrics and risks/volatility metrics. Market capitalization, stock return, Tobin's q and market-to-book ratio are in the category of returns/levels metrics. As figure 2.3 shows, the total stock returns have two parts: expected returns and abnormal returns. Risk/volatility metrics is covering cash flow volatility, systematic market volatility and idiosyncratic volatility (firm-specific risk). Firm risk has two components: systematic risk (risks related to the variability in the market) and unsystematic risk (firm-specific risks).

Marketing asset metrics are also explained in this article. Fall into this are brand equity, and customer metrics such as customer satisfaction, customer equity and perceived product quality.

Marketing action metrics include new product, advertising and promotions, channels of distribution and so on.

These three metrics will be used in the evaluation framework on the empirical articles.

Group B (Empirical Support Papers)

Article B1: (KUM)

Kumar, V. and Shah, D., (2009). Expanding the Role of Marketing: From Customer Equity to Market Capitalization. Journal of Marketing, 73, 119-136.

This article explains that in the previous years, the main concerns of marketers were how to acquire and retain the customer so that they would bring more and more revenue to the company, but now the focus is shifted on how to manage customer so that customer can increase value of the firm. In this approach, customer is treated exactly the same as an asset: they have values and these values can be quantified.

As an asset, customer will contribute to the value of the firm. The empirical test in this study on two firms (B2B and B2C firm) indicates that Customer Equity (CE) that represent the total direct (financial) value of the whole customers of the firm, can be used to predict the market capitalization of the firm. CE can affect stock price of the firm and at the end the market capitalization, although it also embeds a risk factor such as cash flow volatility and vulnerability in relation to customers.

The study observed the actual stock price movement before and after the implementation of CLV based strategy. The plotted chart shows that there is a lift on the stock price after the implementation. Actual impact on market capitalization due to implementation of CRM strategies is recorded at 19.4% increase for B2B firm and 23.3% increase in B2C firms.

The result also shows that within the industry, compared with average stock performance of the closest competitors, the firms under study show a significantly larger increase in the stock price (32.8% vs. 12.1% in B2B firm, and 57.6% vs. 15.3% in B2C firm).

Article B2: (KRA)

Krasnikov, A., Mishra, S., and Orozco, D., (2009). Evaluating the Financial Impact of Branding Using Trademarks: A Framework and Empirical Evidence. Journal of Marketing, 73, 154-166.

Firm put so many efforts to build brand awareness and associations among consumers. However, there is a limited understanding of the financial returns of the investments. This article establishes a framework that uses trademarks as measures of firms' branding efforts. The trademarks are put into two categories-brand identification trademarks and brand-association trademarks and the article propose that they are indicators of firm efforts to build brand awareness and associations among consumers, respectively.

The empirical study on the 108 firms and 22,060 trademarks evaluates the chain of effects linking such assets with metrics of firms' financial value. Evaluation on financial performance is done with multiple measures: cash flow and cash flow variability, Tobin's q, ROA, and stock returns.

The result confirms that efforts aimed to build brand awareness and associations among consumers have significant financial implications for firms.

Article B3: (SWA)

Swaminathan, V. and Moorman C., (2009). Marketing Alliances, Firm Networks, and Firm Value Creation. Journal of Marketing, 44, 52-69.

The study examines the effect of the network effect to the creation of firm value. It argues that characteristics of a firm's network of alliances affect the firm value created from the announcement of a new marketing alliance. Event study was conducted to 230 alliance announcements for marketing alliances involving 103 firms in software industry. SWA test the effect of five key independent variables: network centrality, network density, network efficiency, network reputation and marketing alliance capability toward firm value creation.

SWA used event window method to observe the change of stock price. They calculate the cumulative average abnormal return for various windows (+10 days to -10 days). The result shows that announcement of marketing alliance increases stock return 1.4%.

Therefore SWA concluded that in general, marketing alliance announcements generate value (i.e. positive abnormal stock return).

Based on the measurement on key independent variables, network efficiency and network density have the strongest positive impact, showing the power of relational network is more than the size or status based network.

Article B4: (RAM)

Ramaswami, S.N., Srivastava, R.K., and Bhargava, M., (2009). Market-based Capabilities and Financial Performance of Firms: Insights into Marketing's Contribution to Firm value. Journal of the Academy of Marketing Science, 37, 97-116.

Empirical study in this article examines the effect of market-based capabilities to the firm's financial performance. The study also investigates the interrelationship among the three business processes New Product Development (NPD), Customer management (CM) and Supply Chain Management (SCM) and their impact on the market value of the firms.

A total of 88 firms were involved in the survey. The results suggest that the three market-based capabilities have a significant influence on the three business processes: NPD, CM and SCM. A stronger impact comes from CM processes. CM performance has a positive impact on growth in sales.

In the area of SCM, the results were mixed. There is a moderating variable, which is the age of the firm that affects the synergy between SCM and CM and NPD. In younger firms, the study acknowledges a negative synergy effect between SCM and CM and NPD.

The results of NPD performance were mixed. In one of the indicator - developing differentiated product - there is a positive synergy impact on firm financial performance when combined with CM performance. However, age of the firm becomes a mediating variable that can show a conflicting effect for SCM and CM performance in younger firm.



Chapter 2 already provides the summary of the conceptual papers and empirical studies. Based on the four conceptual papers (A1 - A4), the author synthesizes the concept into one integrated framework showing market-based asset, market-based capabilities and marketing actions, as well as the way marketing actions go along the chain to shape Firm Value, as can be seen in Fig.3.1.

The integrated framework can be elaborated as follow: in order to make an action, firms need assets (resources) and capabilities. In making marketing actions, market-based assets and market-based capabilities are the inputs. Market-based asset has two components: relationship and intellectual. Both types of assets are often closely linked and together they form market-based assets. The constructs of customers and partners become central in this concept; either relationship or intellectual. Therefore, the author of this paper thinks it is not necessary to separate the two, since they are intertwined in many ways in marketing actions.

On the other hand, market-based capabilities also affect the result of marketing actions through its support along the process, starting from the development of the project, delivering it to the customers, until managing the customers.

Marketing actions will affect market performance. Market share and revenue are the common metrics for measuring market performance. Market performance will shape the Financial Performance of the firm (profit, cash flow, etc). This financial performance, combined with the financial risks (systematic and unsystematic risks), will be taken as the inputs for firm valuation, resulting Firm Value. Firm value determines the stock price and finally market capitalization (stock price x number of stock outstanding).

The following empirical articles will be evaluated in conjunction with its support to the integrated framework and the respective metrics.

Article B1: (KUM) : Expanding the Role of Marketing: From CE to MC.

KUM provides empirical support to the concept in SRIV-1 article. This article showed 32.8% increase in the stock price for B2B firm and 57.6% increase in B2C after the implementation of CRM strategies. This lift is even outperform the S&P 500 during the observation window by 2 times in B2B firm, and by 3.6 times in B2C firms. It confirms an increase in abnormal return, as a result of implementing market-based asset strategy.

CE metric shows the ability to predict the market capitalization (MC) of the firm. Calculation shows that the lift in MC (in percentage terms) is three times as much when acquisition and cross-selling efforts are targeted only to high-CLV customers rather than to all customers of the firm. This proves that leveraging customer management strategies is effective to increase stock price and in the end increase MC.

Article B2: (KRA) : Evaluating the Financial Impact of Branding Using Trademarks.

The empirical study on the 108 firms and 22,060 trademarks evaluates the financial value of branding by linking trademark registrations of firms with their financial performance. An interesting finding is that brand-association trademarks positively affect firm cash flows, Tobin's q, ROA, and stock returns. Most importantly, each additional brand association trademark is associated with $7.8 million of future cash flows, a 0.05% increase in future ROA and a 0.3% increase in the future stock return of a firm. This complies with the conceptual framework in SRIV-1, that market-based asset (in this case the brand) will affect the shareholder value. And support the key driver values of Rappaport (1983) in the aspect of accelerating cash flow (by earlier brand trials and referrals), enhancing cash flow (strong brand equity helps firms generate higher revenue premiums), reducing volatility in cash flow (reduce vulnerability to competitive actions), enhancing the residual value of cash flow (by increasing long-term effectiveness of promotions).

Article B3: (SWA) : Marketing Alliances, Firm Networks, and Firm Value Creation.

SWA article shows the result that announcement of marketing alliance increases stock return 1.4%. The event study that captures the immediate short term reaction of the stock market to the alliance shows that there is an abnormal return as the result of this announcement. This increase is coming as the result of transferring the multiply of value created in the announced alliance because the firms now can overcome the geographical barriers, market barriers, and also industry barriers.

Findings from SWA article elaborate further that marketing alliance can increase the level and speed of firm cash flows due to the new access to the new market and due to the ability of the alliance to create stronger offerings to the customers. In relation with the market-based capabilities, marketing alliance affect the firm's internal capabilities, since firms now don't have to develop those new capabilities internally, instead gaining it from the alliance. If we take it further to key driver of shareholder value, this action increase cash flow level and cash flow speed because the firm is accessing the existing resources.

Article B4: (RAM) : Market-based Capabilities and Financial Performance of Firms

The results suggest that the three market-based capabilities have a significant influence on the three business processes: NPD, CM and SCM. A stronger impact comes from CM processes. CM performance has a positive impact on growth in sales.

RAM also suggests that cross-process drivers, to some extent, add value to the firm. When customers are considered as assets, firms have more information on them which can contribute to greater demand certainty and better SCM performance. This will reduce risk due to the volatility of the cash flow and vulnerability of customer's cash flow. NPD when combined with CM shows a positive impact on financial performance that can be explained by the synergy of excellent product offering and customer loyalty. The combination of these two factors will boost up firm's financial performance. However there is moderating factor that determine the successful of the synergy. Therefore, the author concludes that RAM support the concept of market-based capabilities, although RAM result only support partly, the SRIV-2 concept about synergy between processes.

Summary of assessment, following the proposed Integrated Framework.

Table 3.1 summarizes the assessment on the four assessed articles, using the integrated framework that accommodates the main concepts from A1-A4 articles.

Research on market based capabilities and its respective metrics and the research that explores the impact of partnership / synergy on the firm value is still limited. Research about how marketing actions can affect the SHV is already getting the attention of marketing scholars. The four journal articles the author picked here show clearly the link between market-based assets to SHV, through various marketing actions. However, in the residual value aspect, we still need to understand about the sustainability, since most of the research was done within a window that is not wide enough to conclude the sustainability factor.



From the development of the marketing - finance interface research, the author of this paper concludes the following things:

Marketing now is developing under its expanded role, and in its new role marketing will focus on dual creation of value: toward the customers and toward the firms. Marketing accountability is one of the ways to bridge the marketing domain and finance domain.

Market-Based Asset and Market-Based Capabilities can be used as a proxy to determine Shareholder Value. The methods and metrics measurement in the marketing-finance interface are still extensively explored. However, it is not right to say that we should leave the traditional marketing metrics at all and just be focus on the interface metrics. In a micro scope, traditional metrics are still needed, but in understanding marketing accountability, interface metrics are required.

Marketing strategy should be in an integral part of the company strategy, since it is known that marketing actions may affect shareholder value. However, although theoretically it can be proven that marketing actions may impact shareholder value, and although it is already supported by many empirical studies, on the trading floor the result may be much different. Assumption on efficient market hypotheses may contribute to the bias. Another factor is the sentiment in the market that may create irrational investors' behaviors.

Opportunities for further research in the domain of Marketing-Finance Interface are still widely opened. Researchers are encouraged to explore areas that cover the impact of marketing partnership to the firm value. Study about market-based capabilities and its link with marketing actions are still scarce. Scholars also need to research the sustainability effect of marketing actions to understand the residual value they bring to the firm. Common metrics that can be accepted by marketing and finance are still need to be developed, so that the interface can stand on a solid foundation supported well by both disciplines.

Going forward, an understanding of financial part of a marketing strategy is imperative. This will bring an implication to the marketing study itself: how to incorporate finance knowledge into the curriculum.